Are you interested in learning more about Bitcoin? Maybe you find it hard to break through all of the technical language that is often used to describe this virtual form of money. What is Bitcoin? The simple answer is that it’s a decentralized digital currency. But what does this mean? Here’s a simple look at the world’s most popular cryptocurrency.

A Simple View of Bitcoin

Bitcoin is a new form of money. It is a virtual currency, meaning that it has no physical existence like the USD or the EUR. You cannot hold a Bitcoin in your hand. You can only store it in a cryptocurrency wallet and see how much of the virtual money you control. This might make some people nervous about investing in the security, but it’s value is real. It can be used to buy computer parts, a new couch for your living room, or even to order a pizza. In fact, the first recorded purchase made with Bitcoin was for two pizzas from Papa John’s. The cost? About 10,000 Bitcoin at the time. At today’s value that’s about many millions of dollars.

As mysterious as Bitcoin is to some people, it’s origin is even stranger. It was developed by Satoshi Nakamoto. Some people speculate that this is a false name adopted by the group of programmers that created the token. Others believe it is the pseudonym of one single individual. Either way, the original developer of the token has never been conclusively revealed. It is believed that this individual still holds the largest number of Bitcoin.

Transactions with Bitcoin can be made without the need for a third-party like a bank, payment processor, or credit card provider. One individual can send tokens directly to another. This means that the transfer of money between parties can be faster, cheaper, and more secure. An aim of Bitcoin has always been to simplify the process of exchanging money for things of value. Some financial institutions don’t like that. Why would they? It cuts them out of the process. Nevertheless, Bitcoin remains a decentralized digital currency.

What is a Decentralized Digital Currency?

Think for a moment about the manner in which countries create and distribute money. Let’s take the US as an example. The United States has a Department of the Treasury, a Federal Reserve, and many Central Banks. All of these organizations work together at the behest of the federal government to oversee the creation, flow, and transfer of the US dollar. These institutions decide how much money will be placed into circulation, how much it will cost you to borrow money, and essentially the value of a single dollar bill.

Take it even farther. Imagine the network of banks that you see on every corner. The Internal Revenue Service which collects taxes you must pay when you earn that dollar bill. ATM machines, credit card companies, even loan sharks! All of them are tied into the same centralized platform of finance in the US. It’s called the Almighty Dollar for a reason.

When you step outside of that centralized function, spending money becomes more difficult. If you visit another country you will need to exchange the dollar for a Euro or Yen, and guess what? You have now entered the centralized financial structure of the country you are visiting. Every country has its own financial infrastructure that governs how money is earned, spent, and loaned. Centralization is the hallmark of all fiat currencies.

Bitcoin eliminates all of the above. It has no central authority. You do not have to be a resident of a certain country to use it. Bitcoin can be exchanged at crypto exchanges across borders and it is still a Bitcoin. It’s value doesn’t change. Bitcoin doesn’t have to be housed in a bank or kept in a physical wallet. It can’t be because it is a series of complex numbers that are encrypted a stored on something called the blockchain. The blockchain is what maintains a record of Bitcoin transactions.

Some Advantages of Bitcoin

When Bitcoin was first introduced many people promoted its security as a primary feature. Tied to this is the potential to complete financial transactions in an anonymous way. Granted, this has become a little more difficult with the passing days, but it is still possible for an individual to get a cryptocurrency wallet without providing any personal information. The wallet is essentially a set of pair addresses or keys, one public and one private. You can use these keys to send Bitcoin to someone without revealing your identity.

Now, the anonymity of using Bitcoin gets a little tricky when you use the token to make purchases. In theory your purchases could be linked to a wallet, and the wallet could be linked to you. Still, it is very difficult to track Bitcoin transactions to a certain individual when specific measures are taken.

When kept properly Bitcoin is almost impossible to steal. Thefts have happened, of course, but this generally occurs when the token is kept in a web wallet that is managed by a third party like a cryptocurrency exchange. There are ways to keep Bitcoin, like a hardware wallet or a paper wallet, which don’t require a constant connection to the Internet. So, it isn’t like someone can access your wallet the same way that they could hack your bank account or credit card account.

Finally, some would claim that Bitcoin offers potential as a legitimate investment. Just ask the early adopters of Bitcoin who bought the token at pennies on the dollar. Some of them have become millionaires just by holding on to their tokens since 2009.

So, there you have a very simple view of the cryptocurrency that is changing the way the world transfers money. What is Bitcoin? It’s a decentralized digital currency. That’s the smart answer you should give when someone asks you the question.

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