Bitcoin Explained For Real, The 13 Facts You Need To Know
Bitcoin is a complete monetary system that provides ways to “mint” digital coins or tokens, transfer them from one owner to another and record such transfer in an immutable public ledger that anyone can read, but only a few randomly chosen can update every few minutes with the consent of the majority of network users.
You don’t have to be a geek or a finance expert to understand the basics of Bitcoin. Anyone can use it after learning 13 key concepts.
Bitcoin is a communication and data recording system which allows the transfer of value or digital money from one person to another without the need of banks, government permission, and knowledge of the identity of the recipient.
The transfer can be international and it is almost instantaneous. It takes only 10 minutes to be fully confirmed.
Internet is the network of choice, but other communication systems are also possible, including satellites.
The transaction has a low cost and cannot be reversed, but it is publicly acknowledged by recording it in a distributed account ledger (blockchain) that anyone can read using the proper software. The digital tokens never move, they are simply assigned new ownership inside the ledger that keeps track of all exchanges since the very first one. The full confirmation of the group of transactions contained inside a block takes about 10 minutes.
The system is so secure that after more than ten years of operation, it has been violated only once, with no consequences, at the very beginning. No hacker has been able to crack it since. The only true weakness lies in wallets that can be hacked, stealing the keys that give ownership to the Bitcoin tokens. Wallets are particularly vulnerable when stored online or when they are on a computer connected to the Internet. The vast majority of thefts happen inside exchanges: computer systems that use their own internal wallets to facilitate the conversion of Bitcoin in other currencies or cryptocurrencies. Exchanges get hacked and criminals steal any cryptocurrency which is stored inside.
Bitcoin is legal in many countries, included the USA, and can be used to also transfer nationally or internationally other currencies, like dollars or euros, after first converting them into Bitcoins and then back into dollars or euros. The conversion happens through one of many exchanges that were born in the last few years and that operate 24/7.
People can buy merchandise directly from the numerous vendors that already accept Bitcoin payments.
The value of a Bitcoin has grown constantly since its origin, although with wild and rapid fluctuations. Many use Bitcoin just as an investment tool, some trade on it daily to speculate on its rapid value changes. The gains that are made this way are considered “capital gains” in the USA and taxed accordingly by the IRS and other tax authorities around the world.
There is a limited amount of Bitcoins available in the world, which makes them scarce and therefore, increasingly valuable. They are minted following a rigid mathematical formula that cannot be manipulated by any single entity. The Bitcoin monetary policy is set in stone inside the software that runs the system itself and can only be modified by a consensus of a majority of its users and developers.
Changes and evolutions constantly happen in the direction of making it easier to use, capable of managing more transactions per minute, with less cost. Yet its fundamentals remain unchanged since its inception.
There are several “flavors” of Bitcoin, but the dominant one, by far, is Bitcoin Core (BTC), which has changed the least since the original genesis of the protocol.
Bitcoin will maintain and increase its value to the degree that more people believe in it and use it. Government restrictions, tax laws, social and technological phenomena will influence on it, but its survival will only be assured by mass adoption. It is intrinsically unstoppable provided enough individuals will continue to support it.
Bitcoin allows some form of privacy. It is possible, in most cases, to trace back the sender and the recipient of a transaction, but it requires special knowledge and a certain effort. There are techniques capable of greatly enhancing privacy and developers are currently working to improve this aspect of Bitcoin. Other cryptocurrencies exist, such as Monero and Zcoin, that provide tight privacy and which can be used in combination with Bitcoin.