“What is bitcoin?” This is the third most searched question on Google. Let us begin from scratch. You can understand the term bitcoin through this article, even if you don’t have a technical background. It is first crucial to understand what is “money.”
What is money?
Money is something that describes value. If you do some work or a job for someone, you will get money in return. This money will represent the value of the work that you have done for somebody. You can now use that money to get something you need, or something of value from someone else.
Historically speaking, value has been used in many forms over the years. Barter systems in the past used wheat, salt, and other life essentials to represent value. Gold, most importantly, has been used as a medium of exchange over time.
A physical form of anything makes things more valuable and trustworthy. That’s where the idea of paper money was generated.
How does paper money work?
Any central authority, i.e. the bank, takes possession of your valuables, such as gold. In return, you will get receipt certificates. These receipts are the paper money that are considered valuable and are more convenient to use.
If you go to a restaurant and order a cup of tea, instead of cutting down your gold bar into a thousand pieces, you can use the paper money. People started using paper money a hundred years ago as a medium of practicality and convenience. Now, it is important to understand that the present paper money has no backup commodity, but is valuable based on trust between the people and the government. The value of today’s money comes from the legal status that is given to it by the government.
What are the drawbacks of paper money?
Paper money has changed the value of trust from something to someone. In this case, the government or the bank. However, there are two drawbacks to this physical paper money.
The first drawback is that this money is centralized. There is a central authority or a third party, that controls and issues it, be it the government or the bank. The second most important drawback to it is that it is unlimited by quantity, meaning the central authority can make as much paper money as it wants, and when it is required. This causes the inflation of the money supply in the market, and devalues your own money.
The digital money
Paper money led to the formation of digital money like credit cards and debit cards etc. However, this money was also centralized, and was possessed or run over by the central authorities such as the bank or the government.
To avoid any double-spending problems, the centralized authority keeps a ledger on their system to keep track of who owns what.
Formation of bitcoin
To avoid all the issues created by the centralized money, an online paper was published in October of 2008, by an anonymous person who named himself Satoshi Nakamodo. He suggested a way of creating decentralized currency called bitcoins. To get more information about bitcoin you can visit bitqz.
The system that he suggested claimed to create a digital currency that was not centralized, and also solved the double-spending problem.
Bitcoin vs the bank
To understand, bitcoin is a decentralized and transparent ledger. The bank creates a digital currency, and also keeps a ledger in the bank system. But, it is crucial to know that the ledger created by the bank is not transparent. The information is stored in the main computer of the bank that no one except the bank has access to.
However, bitcoin is transparent because it has a public ledger. This means you have the information about the transaction, and can check the ledger anytime you want. However, the identity is unlinked, which means that you will be unable to know who owns what.
The bitcoin is decentralized
You must know that every transaction made through bitcoin has a copy on the computer of every user. It means there is no single computer that holds the ledger. It makes the process of hacking an account nearly impossible. The copies of the ledger present on the thousands of systems of users make it decentralized.
Why is bitcoin such a huge thing?
Bitcoin is a piece of big news due to its decentralized nature. It means that no central power has control over your money or transaction. You have complete control over your funds.
The need to form a decentralized and corruption-free form of currency led to the formation of bitcoin. You can now make free online transactions, and feel safer than with paper money, which is guarded and possessed by the central authorities.