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Before explaining what Bitcoin is, allow me to explain what it is not. It may sound somewhat elementary or humorous to established Bitcoin users, however there are many people out there that do not realize it is not an actual coin. Some that are just stepping into the cryptocurrency arena still hold the idea there is some sort of a physical monetary token. Of course, that’s not the case.
When someone asks What is Bitcoin, we can only assume they have a limited knowledge in this area altogether and that’s perfectly fine. Let’s walk through a few basics of Bitcoin and how it works.
Breaking down the name for starters where Bit is the equivalent of Data and Coin as it relates to Money. Bitcoin is a global form of currency and is completely digital. No paper notes, no metal coins and no hand-to-hand transfers.
All Bitcoin transactions are peer to peer in nature and have no financial intermediary. This is much different than traditional banking where transactions are processed through third party clearing houses. The result is these transactions are processed much faster and avoid the added expense from the fees charged by third parties. While it is decentralized, it does follow protocols which is a set of rules that govern the flow.
Think of it like this. When you use your bank card to make a purchase, the transaction may go through several institutions before reaching the business or individual you are paying. Card processing centers, your bank, their bank may all get a piece of the transaction and depending on their systems it may slow the transaction altogether. A Bitcoin transaction eliminates the need for a middleman or processor and in turn makes it much cheaper and faster to perform the transaction.
Bitcoin transactions are completely secure and private. The receiver provides a public key, sort of like an account number, to anyone that intends on sending a transaction. The receiver retains their own private key which allows them access to the Bitcoin after it is received. While every transaction is visible on the blockchain, it only shows the transaction along with a timestamp of when it occurred. It does not disclose the two parties involved. Thus, keeping anonymity.
Hopefully this provides some basic information for those just starting out or have an interest in Bitcoin. As you do more research, you will see more unique Bitcoin terminologies such as Blockchain, Miners and Nodes. For starters, there are a number of sites where you can find out the answer to What is Blockchain.
