Bitcoin (BTC), created by Satoshi Nakamoto, is now known as one of the leading Cryptocurrencies.
As Bitcoin’s price and name recognition increase, it is increasingly being talked about even among people who have never been involved in Cryptocurrency before.
In this article, we will explain the structure and features of bitcoin in a way that even beginners can understand.
Bitcoin (BTC) is the world’s first Digital Currency
Bitcoin is the world’s first blockchain-based digital currency. Its key feature is that it has no administrator, such as a central bank as in legal tender.
Since bitcoin is the most well-known cryptocurrency in circulation today, many users believe that “bitcoin = cryptocurrency. However, Bitcoin and Cryptocurrency are not synonymous.
Bitcoin is just one of many Cryptocurrencies, just as the U.S. dollar and the Euro are also Cryptocurrencies.
| Currency Unit | BTC |
| Market capitalization (as of March 30, 2024) | Approx. $1,375B USD (1st place) |
| Maximum number of cards to be issued | 21 million |
| consensus algorithm | Proof of Work |
| white paper | Bitcoin.pdf |
| Official Site | Bitcoin.org |
Bitcoin (BTC) began with a single White Paper
Bitcoin began in October 2008 when a person identifying himself as “Satoshi Nakamoto” posted an article on the Internet. The article was about decentralized Cryptocurrencies that would not involve a state or bank.
Three months later, in January 2009, open source software based on Nakamoto’s paper was created and released to the public. This was the first incarnation of Bitcoin, which continues to this day.
However, the very novel concept of “Cryptocurrency,” which is completely different from conventional currencies, the blockchain technology, and a financial system without a centralized administrator, Bitcoin was not yet widely accepted by the general public.
However, the first bitcoin exchange was opened in February 2010, and trading began immediately.
Bitcoin (BTC) is different from E-money
Bitcoin, a Cryptocurrency, is not the same as E-money. Both are the same in that they are “digital records of currency values.
E-money, however, is a digitized version of government-issued currency, like various prepaid cards.
On the other hand, Cryptocurrencies, including Bitcoin, have nothing to do with currencies issued and guaranteed by the state or central bank.
In addition, the price of Cryptocurrencies such as Bitcoin fluctuates from issue to issue, whereas E-money is a digital currency based on legal tender, so the value of the amount charged does not fluctuate. There are also other differences between the two, such as the ability to transfer money and the regions where it can be used.
How does Bitcoin (BTC) work?
Next, we will explain the following five unique mechanisms and features of Bitcoin, which are easy to understand for beginners.
- Uses the blockchain for transactions
- There is no central bank
- Transaction ledgers are stored in a decentralized manner on the Internet
- There is a limit to the number of coins issued
- Transfers can be made worldwide in real time
Uses the blockchain for transactions
Bitcoin uses a technology called “blockchain” for transactions.
Blockchain is the technology underlying bitcoin transactions, and in a nutshell, it serves as a ledger of records of bitcoin transactions.
Transaction data, called transactions, are managed in blocks, and these blocks are then distributed and managed as a single chain, hence the name blockchain.
Although it has a very simple structure, it is resistant to data tampering and suitable for recording transaction histories, so blockchain is used as a recording method for Bitcoin and other Cryptocurrency transactions.
There is no central bank
Bitcoin is not issued as a currency and its value is not guaranteed by a state or central bank like the U.S. dollar or the euro.
While there is a core group of developers and collaborators, there is no central bank that watches market trends and adjusts the volume of circulation or intervenes in transactions. For example, there is no governing body equivalent to the Federal Reserve Board (FRB) in the United States.
A currency that is far removed from the authority of the state and is not subject to centralized control is what Bitcoin aims to be, and it can be said that this is a major characteristic shared by the Cryptocurrencies that will follow.
Transaction ledgers are stored in a decentralized manner on the Internet
The absence of a central bank also means that transaction information is not centralized somewhere.
In a bank, currency and transaction information is managed in a large vault at the head office or on a main server that is strictly controlled. With bitcoin, however, the terminals that download the program and participate in the transactions are connected to each other in a separate, interconnected P2P network.
In a conventional client-server system, if the server fails or otherwise goes down, the entire system comes to a halt. On the other hand, in a P2P network, where clients communicate with each other in a distributed manner, the entire system will not go down even if some terminals go down.
Bitcoin transaction information is recorded and shared by a vast number of terminals such as PCs, smartphones, and tablets scattered around the world to ensure the integrity and security of the information. The value of Bitcoin is maintained by the trust of users around the world, who follow a predetermined program rather than the authority of a nation state.
There is a limit to the number of coins issued
Since its creation, Bitcoin has had a fixed number of 21 million coins issued. This is a specification of Bitcoin and is pre-programmed so that no more will be issued.
Most Cryptocurrencies currently in circulation have a final issuance limit. However, the quantities vary, and the basis for each number is different.
With real legal tender, central banks can increase or decrease the amount of currency in circulation through economic policy, thereby guiding economic trends. On the other hand, if more currency is circulated than necessary, the value of the currency declines, causing inflation.
In the case of bitcoin, there is no central organization to manage it, so if bitcoin is issued without any deliberate action, there will eventually be a surplus of bitcoin on the market, which will reduce its value. This concern is one of the reasons why the maximum number of bitcoins to be issued has been set in advance.
The fact that the issuance limit has been set in advance may lead to predictions of future price increases for bitcoin and the resulting speculative tendencies.
Transfers can be made worldwide in real time
As long as there is an Internet environment, bitcoin can be used to send money 24 hours a day, 365 days a year, no matter where the recipient is located.
Another unique feature of bitcoin is that it takes far less time to receive money than conventional international money transfers through banks. International money transfers that previously took several days can be completed in just a few minutes.
The reason for this speedy international money transfer is that Bitcoin and other Cryptocurrencies use a special technology called blockchain.
3 Advantages of Bitcoin (BTC)
Bitcoin is attracting a great deal of attention from around the world as a new type of financial instrument that ranks alongside stocks and currency exchange.
Bitcoin has various advantages over cash and credit cards. Here we explain the three advantages of bitcoin in an easy-to-understand manner, even for beginners.
- Remittance
- Commission fees
- Use Abroad
Direct money transfer between individuals
The first is that money can be transferred directly between individuals. Cryptocurrencies may not sound like much when you hear that they can be “directly transferred”. However, this is a very big advantage.
When buying and selling on the Internet or sending money to children who live far away from you, it is common to use bank transfers. However, with transfers through banks, there can be a time lag between the transfer and the receipt of the money.
For example, sending a check to another bank requires a credit check, and it is not uncommon for overseas transfers to take several days.
With bitcoin, however, international money transfers can be completed surprisingly quickly. Theoretically, it can be done in 10 minutes, and usually takes as long as 40 minutes, no matter where the recipient is located. 2.
Free or Less Fee
Another advantage of bitcoin is its low fees for international money transfers. Of course, this is not limited to Bitcoin, but is true for Cryptocurrencies as a whole.
With legal tender such as dollars, money cannot be transferred without an intermediary such as a bank. Therefore, a fee is required to transfer money. On the other hand, since there is no intermediary organization for bitcoin, there is basically no need to pay a fee when exchanging money between individuals.
Pay worldwide without currency exchange
Finally, you can use your bitcoins all over the world without having to exchange them.
When traveling abroad, it is inconvenient to have the currency of the destination country in cash. In most cases, you will need to exchange your money into local currency or traveler’s checks at a bank or at the local airport in advance. However, the fees for this exchange are surprisingly high.
However, if you pay with bitcoin, you do not need to pay for the exchange, and you only need to pay the transaction fee.
If the restaurant or store you are traveling to accepts bitcoin payments, it will display a QR code for payment on your tablet or other device. Simply scan the code with your smartphone app and send it, and you can pay just as if you were taking cash out of your wallet.
3 Disadvantages of Bitcoin (BTC)
While the world is excited about the potential of bitcoin, it also has its disadvantages. Therefore, we will explain the disadvantages of bitcoin in an easy-to-understand manner for beginners.
- Price volatility
- Settlement time
- Payment services
Price volatility is intense.
First, the price is volatile. The price of bitcoin fluctuates wildly, sometimes even within a single day.
This is a disadvantage for users who want to invest in a financial asset with a more stable price. On the other hand, there are users who see the volatility of prices as an opportunity to make money. 2.
Instantaneous settlement is difficult
Second, immediate settlement is difficult. With bitcoin, when a transaction such as a money transfer is made, the contents of the transaction are verified to ensure that there are no mistakes or irregularities, and the transaction is finalized once it is confirmed that there are no irregularities or mistakes. For this reason, money is not immediately received by the recipient after remittance, making immediate settlement difficult.
However, when paying at a store for shopping or dining, immediate payment is possible by using a “wallet” designated by the store. However, it is important to note that using a wallet other than the designated one may result in a longer transfer time, and in some cases, the bitcoin payment may be considered invalid. 3.
Fewer payment services
Third, there are few bitcoin payment services.
If a physical store supports bitcoin payment, you can send money from your wallet and make payment on the spot, but this is not the case for online shopping. As with credit cards, a payment service that acts as an intermediary between the user and the store is required.
A system that immediately converts bitcoin remittances from users into legal tender and transfers them in batches on a monthly basis would be highly beneficial to both the store and the user.
Currently, there are several companies that offer Bitcoin payment services, and the number of e-commerce sites that have adopted these services is increasing. However, it cannot be said that a sufficient number of companies have yet entered the market, and increasing the number of companies participating in the market is one of the challenges for bitcoin in the future.
How Bitcoin (BTC) is used for?
Next, here are some of the uses of bitcoin that have already been put to practical use.
At this time, bitcoin has the following primary uses
- Remittance
- Payment (physical stores, online shopping)
- Payment of utility bills
- Donation
- Buy NFT
- Sometimes used as an alternative currency or legal tender abroad.
- Investment and Asset Management
While bitcoin may generally be thought of as an investment or asset management tool, it actually has numerous uses, including online shopping, use in brick-and-mortar stores, payment of utility bills, and overseas remittances.
What is Bitcoin (BTC) mining?
The first word beginners wonder about in bitcoin news and other media is “mining“.
Mining is a very important operation that is essential to the successful trading of bitcoins.
Bitcoin uses “blockchain” technology to record transaction information. The blockchain is made up of several blocks of transaction information that are connected together like a chain. Of course, since this is on data, it is not visible.
Each block contains information on transactions made with Bitcoin, encrypted with a special calculation method called a “hash function.
Once the encryption is deciphered and the transactions are verified to be correct, information about the previous block is added and the blocks are linked together. This process is called mining.
What is a Bitcoin (BTC) hard fork?
One term that has bitcoin newbies scratching their heads is “hard fork“.
We will explain in detail what a “fork” is in Bitcoin, how it differs from a soft fork, and the altcoins from which it is derived, such as Bitcoin Cash.
What is a hard fork?
A “fork” in a hard fork means a branching of the blockchain. It is called this because the blockchain, which was previously connected as a single chain, will branch off at a certain point.
When a hard fork occurs, the blockchain splits into two chains, A and A’. If the two are incompatible, they will thereafter be used as separate Cryptocurrencies. In other words, from the Cryptocurrency ‘A’, a new split ‘A’ will be created.
Even if the chain splits, if the two chains are compatible, they will continue to exist as a single currency. This is like different versions of software: depending on which version is eventually accepted by users, they will converge on one or the other, and the blockchain will merge back into one.
Such a case is called a “soft fork” as opposed to a hard fork.
Why do hard forks occur?
The main reason why a hard fork is performed is to solve scalability issues that arise when the cryptocurrency needs to be upgraded, i.e., when the block size reaches its upper limit and the block can no longer contain transaction information.
In order for transactions in Cryptocurrencies to proceed quickly, a smooth mining process is required. However, the high transaction volume of bitcoin tends to slow down the verification and approval process.
If the block size is too small to accommodate the transaction information, scalability problems occur, such as long transfer times, failure to approve transfer requests, and high transaction fees. This can cause delays in transactions, and the risk is that users will leave because they do not want to pay the high fees required to process transactions quickly.
To solve this problem, a hard fork is used to create new coins.
FAQ about Bitcoin (BTC)
Q. What is Bitcoin? Please explain in simple terms.
A. Bitcoin is the world’s first cryptocurrency.
A paper on Bitcoin was published on October 31, 2008, and trading began in 2009. It has the highest market capitalization among cryptocurrencies and is the most recognized currency. Currencies other than Bitcoin are called altcoins, such as Ethereum and Ripple.
See the first half of the article for details.
Q. I would like to know the current price of Bitcoin.
A. The current bitcoin price can be found on the real-time chart page.
Q. What is the future of Bitcoin?
A.The future of cryptocurrency, including bitcoin, will be brighter than it is today.
Q. Is Bitcoin dangerous?
A. It is not generally true that bitcoin is risky. Some people see risk (danger) in large price fluctuations, while others see it as an opportunity to make money.
There are three possible dangers with Bitcoin, for example
- Price volatility is high.
- The state or government may impose regulations.
- Possible remittance errors or hacking.