Most of you have heard about bitcoin and cryptocurrencies. However, there are many of you who often think that both are the same. In order to understand bitcoin you need to break it into two different components. The first will be bitcoin as the token or a snippet of code that basically represents ownership of a digital concept and the second will be bitcoin as the protocol or a distributed network that takes care of a ledger of balances or bitcoin as the token. You need to know that both are referred to as bitcoin.
Who Came Up With The Idea?
It was Satoshi Nakamoto, a pseudonymous software developer, who came up with the idea of bitcoin in the year 2008. He proposed bitcoin as an electronic payment system that is based on mathematical proof. The basic idea behind the introduction of bitcoin was to come up with a means of exchange that will be independent on any specific central authority and that could easily be transferred electronically in a more verifiable, immutable, and secure manner.
How Is Bitcoin Different From Traditional Currencies?
It is true that bitcoin can easily be used to pay for things electronically. However, both the parities should be willing for this to happen. This way it is quite similar to the traditional yen, euros or dollars. However, it does differ from the flat digital currencies in multiple ways discussed below.
- Decentralized: One of the key features of bitcoin is decentralization. There is no single specific institution that has a complete control over the bitcoin network. It is basically run by an open network of dedicated computers that are spread all across the globe and maintained by a group of coders. This feature attracts investors who have a problem with the control of government institutions and banks over their own money.
- Limited Supply: When it comes to traditional currencies such as dollars and euros, the supply is unlimited. Central banks have the authority to issue as many currencies as needed and they also have the authority of manipulating the value of the currencies. However, with bitcoin the supply is controlled by the underlying algorithm. On an hourly basis you will find just a small number of new bitcoins trickling out.
- Pseudonymity: When it comes to traditional electronic payments, senders are normally identified for the purpose of verification and other legal obligations. However, when it comes to bitcoin, the users work in semi-anonymity. Due to the absence of a central validator, users of bitcoin need not identify themselves while sending bitcoin to any other user.
- Immutability: Unlike any other electronic fiat transactions, bitcoin transactions cannot be reversed at all. The reason behind this fact is the absence of a central adjudicator who can authorize the return of money.
- Divisibility: Satoshi is the name given to the smallest unit of a bitcoin. This smallest unit is basically one hundred millionth part of a bitcoin, which makes it approximately one hundredth of a cent. This makes micro transactions possible, which is not the case with traditional electronic money.