What Is Bitcoin?
Bitcoin (BTC) is “cryptocurrency”. The term “cryptocurrency” in English means the type of electronic money based on cryptography. That is, the production of currency (its emission) is due to the performance of cryptographic functions. Decentralization is one of the main principles of cryptocurrency. So, unlike the money that we are used to, cryptocurrencies are not printed on machines by the orders of the state or a separate financial institution but appear due to the activity of the users themselves in the computer network.
Bitcoin is the most popular of all existing cryptocurrency. Bitcoins appeared in 2009 and the author of the system is Satoshi Nakamoto, whose real identity is unknown. The basis of the bitcoin system is an open source client that allows anyone who wants to become a member of the peer-to-peer network (file sharing directly between users’ computers, like transferring a movie through torrents).
The absence of the issuer distinguishes cryptocurrencies from the usual securities, for example, the price of which is set during the issue and then depends not only on the market but also on the issuer that issued the securities. Since no one is issuing coin in a centralized way, its price is based on the demand of the market and it is not so easy to be influenced. Coins cannot be recalled and funds cannot be frozen or seized, and the flow of funds cannot be controlled, because they are transferred from user to user.
The simplest analog of cryptocurrency is torrents, in which, instead of films, money is transferred from one user to another directly and without third parties. No one controls the process and can not interrupt it.
Emission of Bitcoin
Normally, cryptocurrencies are created initially with the restriction of a possible emission, that means, at the time of the appearance of money, it is already known in advance how many of them there will be and the notorious “printing press” releasing new and new batch of dollars lowering the rate of money already present in the market, cannot affect electronic money. The emission limit makes the cryptocurrency deflationary. That means, they will not be systematically depreciated due to the appearance of new currencies. It may become more expensive due to the increased complexity of its generation. The most common cryptocurrency “Bitcoin” is limited to an issue of 21 million. An exception is PPCoin, which has no limitations.
The Pros of Bitcoin
- Impossible inflation – no one can “print” new money and lower the rate of existing ones, the release is planned and limited in advance.
- There is no intermediary – the money is transferred directly and is not controlled by anyone.
- Decentralization – it is impossible to influence the currency since there is no single issuer of its issuer, no police can break into the homes of millions of its users to prevent them from using it.
- The system is fairly anonymous – there is no need to use your personal data, wallets are anonymous and it’s hard to trace the end user of the wallet.
- Freedom – account cannot be blocked, and funds can be withdrawn. No one can catch an electronic cryptocurrency user at the ATM in the evening and demand to transfer 1 bitcoin to his wallet.
The Cons of Bitcoin
- Limited use – cryptocurrency is young and its use is limited. Dinner at the restaurant in the nearest future is unlikely to be directly paid by it.
- Instability – because of the small amount of currency on the exchange, significant fluctuations of the exchange rate are possible due to news or actions of individual buyers/sellers.
- Uncertainty – common cryptocurrencies began to appear in 2009. The reaction of interstate institutions is only apparent from the end of 2012. The position that the state will take in relation to digital currencies is still unknown.