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What is Bitcoin?

If you are reading this article – it is easy to guess that you were brought here by your interest in the most high – profile innovation of the financial world in recent years-cryptocurrencies, and first of all 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 around the world. It is very easy to join the community and start using new digital money.

The term ” cryptocurrency “is 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
The word “Bitcoin “is formed in English from” bit “– the minimum unit of information and” coin ” – a coin. Russian Russian-English transcription rules require that this term 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 widespread version of “Bitcoin” came from the first translation of the wallet interface based on direct transliteration.

The most common abbreviation for Bitcoin-BTC-is usually used in exchange trading and financial articles. The Cyrillic abbreviation, BTK, did not catch on in the community.

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

What is the most significant feature of Bitcoin in terms of Economics? This is a digital product with a limited supply, its algorithm is arranged 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 defined programmatically and is known in advance. After you have generated the last of the coins, their number will not change. The Bitcoin economy is built on a deflationary model, which is a concern for many economists. But they do not find a practical justification.

In fact, such a relatively small number of coins is quite enough for everyday calculations, since 1 bitcoin is divided into 100,000,000 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.

Schedule of emissions
Schedule of emissions of bitcoin

Bitcoin began with a concept document published on October 31, 2008 by a mysterious person who worked under the pseudonym Satoshi Nakamoto. Who is the real developer, one person or a group – is still unknown, despite numerous journalistic investigations. Since January 3, 2009, the practical implementation of this concept in software code has started. At 18: 45 GMT (22:45 GMT) on 03.01.2009, the first block in the network, the so-called Genesis block, was generated. 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), which is stored on each computer where the full client is installed. The blockchain represents a completely open to view a register of all operations in the system. You can connect to this registry using your own wallet or the 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 tracked to the very moment of coin generation and it will never be deleted from the database. Knowing only the Bitcoin address, you can find out at any time all transactions received by This address or sent from it.

Free choice of the degree of participation. You can install an official Bitcoin Core client that stores your entire transaction history. If you don’t need offline work and blockchain analysis, you can install one of the light or mobile wallets that require significantly less resources. If you are only going to pay for small purchases on the way or just try out the technology-a mobile or online wallet will be enough. For maximum security, there are hardware wallets with additional degrees of protection.
Lack of control over the network. Since the blockchain is a distributed database created on the basis of peer-to-peer nodes, the Bitcoin network does not have a control 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 transfer amount. Transactions in the system are irrevocable in the same way as transactions with cash.
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 of about 34 characters long consisting of numbers and letters of the Latin alphabet in different cases. The address looks like this: 1BQ9qza7fn9snSCyJQB3ZcN46biBtkt4ee. It can be translated into the form of a QR code or other two-dimensional code for convenience of calculations, as well as passed as is.

Reward for network support. New bitcoins come into circulation as a reward for those who perform computing operations that ensure the transfer of transactions. Calculations are called “mining”, from the English word “mining” – mining of minerals. Those who are engaged in these calculations are called “miners”. Their task is to record in one block all transactions that have occurred in the network since the previous one was released (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 irrevocability of transactions, and also prevents “fake” banknotes from entering the system. This is how blocks are linked together, forming a chain-the blockchain.
The ultimate in protection. With each new block, the computing power required by miners to calculate the entire chain from scratch increases, 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 higher (in terms of the speed of calculating SHA-256 hashes) than the total computing power of all supercomputers in the world. In order to seize even limited control over it, it requires huge resources and expenditures of hundreds of millions of dollars.
Difficulty graph
Graph of Bitcoin mining difficulty

Cryptocurrencies in life
Initially, bitcoins were in demand only among mathematicians, cryptographers, as well as people very much interested in computer and network technologies. Then bitcoin was a simple proof that it is possible to e-money that does not have guaranteed security. Rather, they can be called an electronic analog of gold — like gold, bitcoin is difficult to mine, its quantity is limited, and the labor intensity of mining only increases over time. In the fall of 2009, 1 BTC could already be purchased for 0.8 cents. Since then, the history of stock 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 10,000 BTC, which took place in may 2010 (at that time, the equivalent of $ 25). Since then, the exchange rate has risen above $ 1000 and fallen back to $ 150, but that’s another story…

Bitcoin exchange rate chart
Bitcoin exchange rate chart

At an early stage of Bitcoin’s development, its popularity was created by the Japanese exchange MtGox and the illegal online market Silk Road. Now Bitcoin does not depend on a single 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 perfectly suitable for payments on the Internet. More and more stores accept Bitcoin As one of the payment options. The ease and convenience of opening a bitcoin account attracts more and more people from developing countries to this digital currency. In many countries in Asia and Africa, the Bitcoin network replaces hard-to-access and expensive banking services for people. In developed countries, POS terminals for bitcoin payments in stores, ATMs for cryptocurrencies, and hardware wallets for Bitcoin have become widespread. There is a real boom of startups that use Bitcoin. It turned out that the blockchain technology is suitable not only for financial calculations, but also for distributed storage of data about various assets. There are already several thousand other cryptocurrencies created based on Bitcoin or from scratch.

A little about politics
The attitude of States to cryptocurrencies is very different. There are both clear incentives – in Japan, Australia, Germany, the Netherlands, New Zealand, Singapore, some US States, various offshore companies, and serious restrictions that can grow into prohibitive measures – such as Indonesia, China, Russia, and Ukraine. Only hot Latin Americans in Bolivia and Ecuador have decided on direct bans.

Many governments have chosen the line of observation with cautious optimism – most of the EU countries, the UK and Switzerland, the us Federal government, Canada, And Southeast Asian countries. In most developed countries, financial legislation is being adapted to regulate cryptocurrencies, and this issue will soon be resolved.