What is a Bitcoin?

Fun Fact: Bitcoin, Cryptocurrencies and Blockchain are three separate things. A Bitcoin is an asset, a cryptocurrency is a class of assets and a Blockchain is a type of technology.

Definition: Bitcoin is a cryptocurrency and worldwide payment system. It is the first decentralized digital currency, as the system works without a central bank or single administrator. The network is peer-to-peer and transactions take place between users directly, without an intermediary. These transactions are verified by network nodes through the use of cryptography and recorded in a public distributed ledger called a blockchain.

E.g. It’s 2018, Ben wants to buy a jetski off Heather, she’s interested in cryptocurrencies and is willing to trade Bitcoin for her beloved water vessel. She Googles “secure mobile cryptocurrency wallet” and downloads a mobile wallet app. Ben sends her the Bitcoin, and they sit and have a coffee while they wait for the transaction to land in her crypto wallet — on her mobile phone. When she sees the coins land in her wallet, Ben takes off straight to the river to enjoy his new jet ski.

Bitcoin is the first cryptocurrency — it’s not the best, and it may not always be the biggest.

It was a proof of concept that blazed a new trail, but compared to some of the next generation technologies available today, Bitcoin is like a stone axe in a world of power tools.

Bitcoins transactions can take half an hour or more to process, and there are at least a few dollars in fees charged with every transfer of funds. If you just want to buy an ice cream from the shop, this simply won’t do.

Altcoins

There are much faster cryptocurrencies available, with lower transaction fees. There’s many that can do a lot more, and are therefore going up in value much faster.

These are called Altcoins, “alternative coins” — meaning, any coin that’s not Bitcoin.

Chances are, Bitcoin will exist till the end of humanity, if only as a collector’s item.

But there are many coins out there lining up to take its #1 spot.

Unless Bitcoin’s development team can make it faster, and more affordable to use. We may see another coin become a preferred method of payment and rise to prominence, this year or next.

The computational devices linked together to process Bitcoin’s data are called a nodes.

Nodes

A node is a network of connected machines that receive data simultaneously, and encrypt it onto their hard drives. The fact that the data is stored on many machines instead of just one, keeps the data immune from cyber attacks.

This guarantee of secure, accurate data, is the foundation of blockchain technology.

Typically, a node can be a computer, a mobile phone or any number of computational devices.

Bitcoin is unique in the sense that it requires specialised mining machinery to run a node. This machinery is expensive and uses a lot of electricity. In essence, anyone can run a Bitcoin node, but it’s a lot of trouble.

Generally speaking, when a Bitcoin transfer command is received by the system, it requests an amount of Bitcoin to be transferred from one address to another by adding the transaction details to both addresses.

The sending address will have a subtraction entry added to its records, and the recieving address will gain an addition entry. The information remains there permanently.

This allows the system to calculate the current balance of both addresses, based on past events that are proved to have happened historically, by information stored on the public ledger.

The Ledger

The storage space that is used to hold Bitcoins data is called the public ledger.

Identical copies of the public ledger is stored on a network of nodes, and altered simultaneously by those nodes when a command is received.

A public ledger is essentially a database of historical information which will keep growing until the end of time. This pre-existing data cannot be altered, removed or tampered with unless the whole system is shut down, which isn’t possible unless you shut down many thousands of nodes at the same time.

This database is scattered over multiple nodes to ensure it is completely incorruptible.