One of the most valuable and actively traded assets in 2017 happens to be one of the most controversial and misunderstood. In its technological essence, Bitcoin is a token of an electronic ledger known as a blockchain, which is a software encryption protocol distributed on a peer-to-peer platform. The most common application of the Bitcoin blockchain is to support tokens used as digital currency; in other words, the blockchain serves as a treasury of cryptocurrencies.
Advantages of Bitcoin
How does decentralized cryptocurrency change the world?
When Bitcoin went live in 2009, its anonymous developer set out to create a cryptocurrency and electronic payments platform that would be truly decentralized, meaning that no central banks or third parties are needed to complete transactions such as purchases, money transfers or remittances. To understand how Bitcoin transactions are conducted, it is important to learn its principles:
- Limited quantity: the number of bitcoins in circulation cannot exceed 21 million tokens, although fractional amounts can be transacted as if they were cents on the dollar.
- No intervention: no one can restrict a Bitcoin transaction.
- Open source: the programming code of the blockchain can be accessed and copied by anyone.
- Pseudonymous access: identification is not necessary to transact Bitcoin.
- Exchange: each token can be freely transferred and converted per mutual agreement.
- Irreversible transactions: transfers cannot be reversed and are permanently recorded on the blockchain ledger.
Acquiring Bitcoins and Other Cryptocurrencies
Using the Bitcoins and enjoying the benefits
Bitcoin can be acquired by various means. The first step is to join the network by means of an electronic wallet, which is available in hardware, software or cloud form. Most people take advantage of the cloud wallets made available by major cryptocurrency exchanges such as GDAX, Poloniex, Bittrex, and Coinbase; the advantage of these exchanges is that account holders can actually purchase Bitcoin with dollars, euros or even other cryptocurrencies.
In general, Bitcoin wallets contain cryptographic scripts, encryption keys, and applications that connect to the blockchain distributed ledger. Let's say you download and install a free Electrum wallet; one way to put funds in it would be selling something online and asking for payment in Bitcoin. If you open a Coinbase account, you could use a debit card to transfer funds from your bank and request a currency conversion based on the current exchange rate; the bitcoins would be deposited in your electronic wallet.
Whether you choose a desktop wallet such as the Electrum, a hardware wallet such as the Trezor or an online wallet from Coinbase, you will have a unique address that will allow you to accept, transfer or make payments with Bitcoin. All transactions are secure and permanently recorded on the blockchain, but only the addresses are shown; the identities of the individuals who own the wallets are never revealed.