Bitcoin is a digital asset and a payment system invented by Satoshi Nakamoto. Transactions are verified by network nodes through cryptography and recorded in a public dispersed ledger called a blockchain.
Bitcoin is unique in that there are a finite number of them: 21 million.
Bitcoins are created as a reward for a process known as mining. They can be exchanged for other currencies, products, and services.
As of February 2015, over 100,000 merchants and vendors accepted bitcoin as payment.
Bitcoin can be used to pay for things electronically, if both parties are willing. In that sense, it’s like conventional dollars, euros, or yen, which are also traded digitally.
However, bitcoin’s most important characteristic, and the thing that makes it different to conventional money, is that it is decentralized. No single institution controls the bitcoin network.
This puts some people at ease, because it means that a large bank can’t control their money.
What Is Bitcoin Good For?
The decentralization of Bitcoin means that it can be used for more than just paying for things electronically. It opens up the possibility for new types of applications and services that may not have been possible before. For example:
1) Decentralized apps (dapps) – These are apps that run on the decentralized network of computers that power the Bitcoin protocol (known as the blockchain). Dapps can be used for anything from social networking and messaging to online marketplaces and file storage.
Because they’re decentralized, they’re not subject to censorship or interference from any single entity (like a government or corporation).
2) Smart contracts – These are computer protocols that facilitate, verify, or enforce the negotiation or performance of a contract. They’re often used to automate complex financial transactions, but they can be used for anything where two parties need to agree on something (like real estate deals or voting).
Because they’re stored on the blockchain, they’re much more secure than traditional contracts (which are often paper-based).
3) Micropayments – These are small payments (usually less than a dollar) that are difficult to make with traditional payment systems like credit cards or PayPal. However, because Bitcoin transactions can be very small (even down to 1/100th of a cent), they’re well-suited for micropayments.
This could open up new business models based on microtransactions (such as pay-per-article or pay-per-song).
4) Identity verification – The blockchain can be used to create tamper-proof digital identities—something that could be useful for everything from online voting to property ownership records. This could have huge implications for countries with corrupt governments or weak institutions (like many developing countries).
5) Machine-to-machine payments – In the future, we might have devices like self-driving cars and home appliances that need to pay each other small amounts of money automatically (for example, to share energy resources). Bitcoin could enable these kinds of machine-to-machine payments without the need for human intervention.