What is Bitcoin?

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If you are reading this article, it is easy to guess that your interest in the loudest innovation in the financial world in recent years has brought you here - cryptocurrencies, and primarily bitcoin. Let's figure out what bitcoin is and why there is so much talk about it. And not only in social networks and forums, but also in central banks, special committees and governments of many countries of the world. It is very easy to join the community and start using the new digital money.

Term "cryptocurrency" - a direct translation of the English "cryptocurrency", that is, a virtual currency protected by cryptography. First of all, cryptocurrency is a fast and reliable payment and money transfer system based on the latest technologies and not controlled by any government.

bitcoin, bitcoin, bitcoin, btc

Word "Bitcoin" formed in English from "bit" is the smallest unit of information and coin - coin. Following the rules of English-Russian transcription, this term should be translated into Russian as "Bitcoin". This spelling is used by the official website bitcoin.org, Bitcoin Wiki, Wikipedia, the Central Bank of the Russian Federation and other resources. Until now, the most widely usedBitcoin” came from the first translation of the wallet interface based on direct transliteration.

The most common abbreviation for Bitcoin is BTC - usually used in stock trading and financial articles. cyrillic abbreviation, BTK, did not take root in the community.

What is Bitcoin? This is the first and most famous of the many cryptocurrencies, the symbol and flagship of the crypto-currency world, as well as the monetary unit of the same name that circulates within the system. Later in this article, we will explain how the cryptocurrency works, using the example of Bitcoin.

What is the most significant feature of Bitcoin in terms of economics? It is a digital commodity with a limited supply, its algorithm is designed in such a way that a maximum of 21 million units can exist in the system, each of which is also called “bitcoin”. The emission schedule is programmatically determined and known in advance. After the last coins are generated, their number will not change. The Bitcoin economy is built on a deflationary model that many economists fear. But they do not find practical justification.

In fact, such a relatively small number of coins is quite enough for everyday calculations, since 1 bitcoin is divided into 100 parts, which are called "satoshi", in honor of the creator of the system. Sometimes the terms "millibitcoin" (mBTC, one thousandth) and "microbitcoin" (uBTC, one millionth) are used.

Bitcoin issuance schedule

Bitcoin started with a concept paper published on October 31, 2008 by a mysterious individual working under the pseudonym Satoshi Nakamoto. Who is the real developer, whether it is one person or a group, is still unknown, despite numerous journalistic investigations. On January 3, 2009, the practical implementation of this concept in the program code begins. AT 18:45 GMT (22:45 Moscow time) 03.01.2009 the first block in the network was generated, the so-called genesis block. This day is considered the birthday of Bitcoin and is celebrated by the community around the world.

What's the difference?

Features of bitcoin that distinguish it from other types of electronic and paper money:

• Decentralization and accessibility. The Bitcoin network is a combination of all client programs (wallets) and a distributed blockchain database (blockchain, block chain) that is stored on every computer where the full client is installed. Blockchain is a completely open to view registry of all operations in the system. Connection to this registry is possible using your own wallet or web interface of special monitoring services from anywhere in the world, without passwords or any other authorization.
• Full transparency of calculations. The history of any payment can (theoretically) be traced back to the very moment the coins are generated and it will never be deleted from the database. Knowing only the Bitcoin address, you can at any time find out all transactions accepted by this address or sent from it.

• Free choice of degree of participation. You can install the official Bitcoin Core client, which stores the entire transaction history. If you do not need offline work and blockchain analysis, you can install one of the light or mobile wallets, which require significantly less resources. If you are only going to pay for small purchases on the road or just try the technology, a mobile or online wallet will be enough. For maximum security, there are hardware wallets with additional degrees of protection.
• Lack of network control. Since the blockchain is a distributed base created on the basis of peer-to-peer nodes, the Bitcoin network does not have a controlling center that can freeze any account, change the number of monetary units in the system, block or cancel a payment. There are small commissions, the amount of which is almost imperceptible in practice and does not depend on the amount of the transfer. Transactions in the system are irrevocable in the same way as cash transactions.
• Possibility of anonymous payments. Bitcoin provides a convenient and, if desired, anonymous means of payment, the address - the account number in the system - is not associated with its owner, and no documents are required to open it. This is a string with a length of about 34 characters from numbers and letters of the Latin alphabet in different case. The address looks like this, for example: 1BQ9qza7fn9snSCyJQB3ZcN46biBtkt4ee. It can be translated into the form of a QR code or other two-dimensional code for ease of calculation, and also transferred as is.

• Network Support Award. New bitcoins enter circulation as a reward for those who perform computational operations that ensure the transmission of transactions. The calculations are calledof mining“, from the English word “mining” - mining. Those who do these calculations are called "miners". Their task is to record in one block all the transactions that have occurred on the network since the release of the previous one (on average 10 minutes), and “seal” it with a complex cryptographic signature. The next block is calculated based on the signature of the previous one, which guarantees the irrevocableness of transactions, and also prevents “fake” banknotes from entering the system. So the blocks are linked together, forming a chain - blockchain.
• Unsurpassed protection. With each new block, the computing power required by miners to calculate the entire chain from scratch grows, and the longer the chain, the more difficult it is to “hack” the network. Today, Bitcoin is a decentralized computing network, the performance of which is more than 8 times (in terms of the speed of calculating SHA-256 hashes) the total computing power of all supercomputers in the world. In order to seize even limited control over it, huge resources and expenses of hundreds of millions of dollars are needed.

Bitcoin mining difficulty chart

Cryptocurrencies in life

Initially, bitcoins were in demand only among mathematicians, cryptographers, and people who were very keen on computer and network technologies. Back then, bitcoins were simply proof that electronic money was possible without a guaranteed backing. Rather, they can be called an electronic analogue of gold - like gold, bitcoin is difficult to mine, its quantity is limited, and the laboriousness of mining only increases over time. In autumn 2009, 1 BTC could already be bought for 0.8 cents. Since then, the history of exchange trading began, in which there were many ups and downs, high-profile bankruptcies and successful projects. Transactions for bitcoins were at first rare and episodic. The first and most famous was the purchase of two pizzas for 10 BTC, which took place in May 000 (at that time the equivalent of $2010). Since then, the exchange rate has risen above $25 and dropped back to $1000, but that's another story...

Bitcoin exchange rate chart

At an early stage in the development of Bitcoin, its popularity was created by the Japanese exchange MtGox and the illegal online market Silk Road. Now Bitcoin does not depend on one exchange or pool, and law enforcement officers have learned to deal with illegal activities in cryptocurrencies in the same way as with other economic crimes.

Today, Bitcoin is a modern digital currency that is perfect for payments on the Internet. More and more shops are accepting Bitcoin as one of the payment options. The simplicity and convenience of opening a Bitcoin account is attracting more and more people from developing countries to this digital currency. In many countries in Asia and Africa, the Bitcoin network replaces hard-to-reach and expensive banking services for people. In developed countries, POS-terminals for bitcoin payments in stores, ATMs for cryptocurrencies, hardware wallets for Bitcoin have become widespread. There has been a real boom of startups that use Bitcoin. It turned out that blockchain technology is suitable not only for financial settlements, but also for distributed storage of data on various assets. There are already several thousand other cryptocurrencies created on the basis of Bitcoin or from scratch.

A little about politics

The attitude of states towards cryptocurrencies is very different. There is both clear encouragement - in Japan, Australia, Germany, the Netherlands, New Zealand, Singapore, some US states, various offshore companies, as well as serious restrictions that can outgrow prohibitive measures - these are Indonesia, China, Russia, Ukraine. Only ardent Latinos in Bolivia and Ecuador decided on outright bans.

Many governments have chosen the line of sight with cautious optimism - most of the EU, the UK and Switzerland, the US federal government, Canada and the countries of Southeast Asia. In most developed countries, financial legislation is being adapted to regulate cryptocurrencies, and this issue will be resolved soon.