When it comes to Bitcoin, there is a lot of confusion surrounding what it is, how it works, and why it’s important. So let’s start with the basics: What is Bitcoin? Bitcoin is a decentralized digital currency, without a central bank or single administrator, that can be sent from user to user on the peer-to-peer bitcoin network without the need for intermediaries.
Transactions are verified by network nodes through cryptography and recorded in a public distributed ledger called a blockchain. Bitcoin was invented by an unknown person or group of people using the name Satoshi Nakamoto in 2009.
How Does Bitcoin Work? Decentralized means that no single entity or person controls the bitcoin network. It is powered by millions of computers all around the world that are constantly verifying and recording transactions in the blockchain. Bitcoin is unique in that there are a finite number of them: 21 million. Miners are rewarded with bitcoin for verifying and committing transactions to the blockchain.
Essentially, they keep the network running and secure. The more miners there are, the more secure the network is.
The Fundamentals of Bitcoin In order for something to be considered a currency, it needs to have three key attributes: Store of value: People need to be able to use it to buy things now and hold it as value for later use Medium of exchange: People need to be able to use it as a way to trade goods and services Durability: It needs to withstand being passed around and used over time
Bitcoin has all three of these qualities. It can be used to buy things (like you would with any other currency), and people can hold onto it as an investment (a store of value).
bitcoins are also durable; they can be passed around hundreds or even thousands of times without degradation. Because bitcoins are not physical objects, they don’t wear out like fiat currency does after being used repeatedly.
What Gives Bitcoin Value? Unlike fiat currencies, which derive their value from government regulation or central banking practices, bitcoins derive their value from mathematics and economic principles. Specifically, bitcoins have value because they are useful as a form of money. In order for something to be considered money, it needs to meet certain criteria: Portability: You should be able to carry it with you without too much hassle Divisibility: You should be able to break it into smaller pieces if you need to Durability: It should withstand wear and tear Utility: It should be useful for buying things Liquidity: You should be able convert it into other forms of currency easily
As you can see, bitcoins check all of these boxes. They’re portable (you can carry them with you on a USB drive or even in your head), divisible (you can buy fractions of a bitcoin), durable (they last forever), useful (you can use them to buy things), and liquid (you can easily convert them into cash).
All of these qualities make bitcoins valuable as both a currency and an investment.
How Does the Bitcoin Fund Work? The Bitcoin Fund is an investment fund that allows people to invest in Bitcoins without having to actually purchase or store any Bitcoins themselves. Instead, investors simply purchase shares of the fund, which tracks the price of Bitcoins and allows investors to profit from changes in the price of Bitcoins without having to go through all the hassle of actually buying or storing any Bitcoins themselves.