There are a couple of ways we can build on this definition right away. The first is to point out that while bitcoin is a digital payment system, which relies on digital currency, it is neither the first nor the most common form of such. A digital currency can include anything from the portion of a nation’s money supply held on computers (as opposed to in cash form, as required by fractional reserve systems) to the balances held in an individual’s PayPal account. What makes Bitcoin different is the first element of the above definition – it is a crypto trading exchange they use, which begs the question:
What separates cryptocurrency from digital currency?
Simple – decentralization.
This is at the core of bitcoin and cryptocurrency. It’s what makes bitcoin different from any fiat system or any other form of digital currency outside of the realm of cryptocurrencies and it’s reasonable to say that it is the characteristic that has drawn both the most criticism and the most praise since bitcoin’s inception.
The term decentralization means merely that the token of value, in this instance, bitcoin, transfers directly from one user to another (to use the technical term, peer to peer) without the requirement for an intermediary.
Removing the necessity for an intermediary has its pros and cons.
Transactions become cheaper and quicker because they don’t require a middleman entity.
That’s a pro. On the other side of the equation, however, the purpose of a middleman is generally to ensure that the transaction is completed, or verified. Without the bank processing electronic wire transactions between two individuals, for example, it would be impossible to prove that person A sent the funds or that person B received them. That’s a con.
So how does bitcoin overcome these problems?
The answer is through what is commonly referred to as bitcoin mining, which is something we will get to know in a bit more detail later on in this guide. To briefly explain it, however, bitcoin miners dedicate computing power (often referred to as hash power in this space) towards processing transactions and adding the verified transactions to the Bitcoin blockchain. In return for doing this, the miners receive a prespecified amount of bitcoin as a reward.
In this sense, then, it is the transaction verifiers (the miners) that negate the necessity for a middleman entity and allow for constant updating and verification of bitcoin’s blockchain.
All this doesn’t really answer the question, what is bitcoin?
That’s because, technically, there isn’t really any such thing as bitcoins.
Again, we will go into this in a little more detail shortly, but for now, we will say that all that really exists are bitcoin wallets (and this is true of any cryptocurrency), which have both a publicly available address and what are called private keys, which give the owner of the wallet access to the balance inside it. With the private key, a user can access the balance of a particular wallet (a specific address) and send it (or part of it) to other bitcoin wallets.
Why is There So Much Talk About Bitcoin and Other Crypto Coins?
Have you heard about an ETF (Exchange Traded Bitcoin Fund)?
What it does is to allow investors to obtain a stake in bitcoin through their chosen brokerage firm. Others would just open an account with an exchange, then attempt to learn how they work and potentially be exposed to hacking if they opted for the wrong platform.
If you go with the proper company who handles your transactions, you wouldn’t have to learn how private keys work and know about seed phrases or even worry about your crypto coins being stolen.
The primary goal of various exchange platforms would be to foster strong relationships with enthusiasts of anything to do with crypto coins, crypto communities, and traders within these ecosystems.
Ideally, you want to do business with a platform that has been tested to handle millions of users, of which many would be new to the digital currency sphere.
It is wonderful how many times you hear someone having something to say about either Ethos, Bitcoin, Litecoin or other altcoins. Many regards these as the future of monetary transactions. No doubt, you would have heard the word of crypto-miners who have a part in making crypto coins paid out to other users.
If you want to learn more about exchange programs, you will do well to speak to an expert in such matters.