Bitcoin - A Basic Explanation

In the beginning there was bitcoin.

This may be how some history books on the evolution of digital currencies begin. This is because bitcoin was the first decentralized digital asset to gain a solid foundation of followers. Some got into bitcoin to be part of the "in-crowd", some got into bitcoin to circumvent normal banking procedures, some got into bitcoin because they saw potential, and others got into bitcoin because other people talked them into it. Whatever the reason for bitcoin's rise its probably true that not everyone understands what bitcoin is or how it works, what its real value is, or what could potentially go wrong. Let's figure this phenomenon, bitcoin, out together.

Bitcoin's foundation is distributed all around the world on a lot of home PC's and servers that are storing and updating the exact same data. This is what is known as a decentralized network or distributed network. Anytime the application is running on these systems, it can be your very own computer running the bitcoin core application, synchronization is taking place. The records in the blockchain are updated. Transactions are placed, updated and confirmed. As long as one computer is broadcasting on the network a transaction is possible. This is a valuable concept because the likelihood of no core applications running on the network are most probably not statistically possible. A worldwide catastrophic event would be the only time I could see a cessation of bitcoin transactions.

Bitcoin is a chain of records. These records are all linked to a genesis block (https://blockexplorer.com/block/000000000019d6689c085ae165831e934ff763ae46a2a6c172b3f1b60a8ce26f) that was generated sometime around January 2009. Each and every block generated since this genesis block can be traced up the chain to the beginning block. Blockchain records cannot be copied but they can be inspected. Essentially bitcoin blockchain data are lists of wallet addresses containing bitcoin balances. Its that simple actually.

Seeds or passwords can unlock the balances in the blockchain addresses so that transactions are possible. If I am in Hong Kong and I need to send someone a payment in New York that person can receive payment within an hour in most cases for a minimal miner's fee. Unlike the archaic centralized banking model where it may take up to 7 days for that person to receive payment. In today's global economy that has value. A value worthy of adopting.

To avoid fraudulent transactions one may interact with an escrow account so that the funds are removed from your wallet and placed in escrow account and held until the service or goods you are purchasing are received, inspected, and accepted. This is very useful for long distance transactions where physical goods are being exchanged for bitcoin.

Bitcoin has a increasing potential for total worth because it is a limited digital asset. Once the last bitcoin is mined that will be it. There will not be anymore bitcoins placed into circulation. It is anti-inflationary unlike the US Dollar because the US Treasury can flood the market with US Dollars while it's backup reserves stay the same. Which means the value of the printed dollar is worth less than its face value. Since bitcoin is limited its value cannot be inflated.

Finally the bad. Yes your bitcoin can be stolen. When you store your bitcoin in your wallet you are encouraged to encrypt the wallet. When you've done this you are given a "non-sensical" phrase of words, a seed, that you need to keep in a safe place. If you ever loose your password you'll need this phrase to regain access to your bitcoin. If you loose the seed phrase and your password the bitcoin is forever locked in the blockchain unless some clever hacker figures out the seed phrase.

Some people are just inherently bad and you can be conned out of your bitcoin by scammers so be wary of people you don't know trying to get you to give them bitcoin for some unrealistic product that you will never see, touch, smell or hear! Use common sense and handle your bitcoin the same way you handle your cash!

Finally do not expect a guaranteed rate of return on your bitcoin investment. If you cannot afford to lose money don't buy bitcoin for investment purposes. I have seen bitcoin lose up to 20% in value in a 24 hour period. I have also seen it gain this much.

I hope this brief description of bitcoin basics was clear concise and useful.

Thanks for taking the time to read my article.