Bitcoin is the first and most well‑known cryptocurrency—a purely digital, peer‑to‑peer form of money that operates without any central authority. Here’s how it works and why it matters.
Decentralized Digital Currency
Bitcoin was introduced in 2008 by an anonymous person (or group) using the pseudonym Satoshi Nakamoto. Unlike government‑issued (“fiat”) currencies, it isn’t printed or controlled by any bank or government. Instead, it lives entirely on a distributed network of computers around the world .
Blockchain Technology
All Bitcoin transactions are grouped into “blocks,” which are cryptographically linked together in a public ledger called the blockchain. This ledger is replicated across thousands of nodes (computers), making it practically impossible for any single party to alter transaction history or counterfeit coins .
Mining and Consensus (Proof‑of‑Work)
New bitcoins enter circulation through a process called mining. Miners run specialized hardware to solve complex mathematical puzzles; the first to find a valid solution adds the next block to the chain and earns a block‑reward in bitcoins. This mechanism both secures the network and mints new coins at a predictable, decreasing rate .
Fixed Supply and Scarcity
The Bitcoin protocol strictly caps the total number of bitcoins at 21 million. As of late 2024, about 19.9 million have been mined; the remaining coins will be unlocked gradually, with the last bitcoin expected around the year 2140. This scarcity is a key driver of its “digital gold” narrative .
Divisibility
Each bitcoin is divisible down to eight decimal places. The smallest unit, a “satoshi,” equals 0.00000001 BTC—making it practical for both large and tiny transactions .
Use Cases
Medium of Exchange: You can buy goods and services from merchants who accept bitcoin worldwide.
Store of Value: Many investors treat it as a hedge against inflation or currency devaluation.
Speculative Asset: Its price has been highly volatile—reaching over $100,000 per BTC in December 2024—attracting traders seeking large returns .
Risks and Challenges
Volatility: Price swings of 10–20% in a single day are not uncommon.
Regulation: Governments are still figuring out how to tax, regulate, or restrict cryptocurrencies.
Security: While the Bitcoin protocol is secure, users must protect private keys; exchange hacks and scams remain a threat .
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