Bitcoin is the pioneer cryptocurrency. In this guide, we will answer the common technical and financial questions regarding bitcoin in 2021.
We are living in interesting times. The technological world is booming and taking over all the aspects of our lives from lifestyle, healthcare to economy and finance. The recent phenomenon in this regard is bitcoin. Bitcoin was introduced in January 2009. However, it remained dormant for a big part of the last decade.
2017, was the first time when the world showed interest in cryptocurrency. The poster child of the crypto world had a massive surge in value. Subsequently, bitcoin could no longer be ignored.
Bitcoin in 2021 is again in the news. The massive rise in value to the all-time high of $65K turned many heads towards the currency. Nonetheless, criticism has also come bitcoin’s way with the popularity. These days bitcoin is down again. Many new investors are flocking to buy it so that they can benefit when the currency rises again.
Before you invest in bitcoin or any other cryptocurrencies here is something that you need to know.
Bitcoin is the first-ever cryptocurrency introduced by an unknown person who goes by the name of Satoshi Nakamoto. Satoshi published a whitepaper delineating the protocol for Bitcoin’s functions. The main utility of bitcoin, in theory, is speedy transactions. Nevertheless, bitcoin is used for much more purposes with time.
Also Read: Best Practices to Cash Out Bitcoin
There is debate in many countries whether bitcoin should be given the status of currency or not. Individual investors and believers of bitcoin are continuing to invest in it for personal gains. There are hundreds of brokers around the globe from whom you can buy bitcoin.
What is Bitcoin?
Bitcoin is a digital form of currency. It is decentralized and open to all. Bitcoin makes it easier for you to send and receive money across the border. It only exists in virtual space and there is no physical existence of bitcoin. To understand the currency feature of bitcoin let’s first understand what a currency is.
What is Currency?
A currency is the means of exchange of value. Paper notes and coins do not have a value in themselves. Their value exists in our collective belief system. If I want to buy some stuff for $10, I will go to a store and buy it right away. The shopkeeper will not question the value of the paper note because he and I both believe in the value. If tomorrow we all decide that the paper note has no value, then it will be worthless.
Currency is the replacement for the barter system. In a barter system, people would exchange value in the form of products that they produced. If a shoemaker wanted to buy Wheat, he would go to the wheat farmer and exchange shoes for Wheat. This system was very complicated. Therefore, a currency system was established to simplify the value exchange operations.
Bitcoin is a virtual currency that has the same functionality as currency notes.
What is Cryptography?
Cryptography is a method of encryption. It protects the communication through a system of codes so that only the sender and receiver can decode the message. You might have seen the following statement on the top of the WhatsApp Screen ‘This chat is end-to-end encrypted”. It means that the message or calls I make are protected and no third party can have access to them.
There are three basic objectives of cryptography.
- Keeping the information confidential. Only sender and receiver can understand the communication
- Making information immutable. No one can alter or make changes to the data.
- Enable authentication. Both sender and receiver can confirm each other’s identity.
Bitcoin is a cryptocurrency in the sense that its transaction system is protected by cryptography. It is nearly impossible to hack bitcoin because of its distributed ledger i.e. blockchain.
What is Blockchain?
The popularity of bitcoin in 2021 is rising. Resultantly, new investors are trying to wrap their heads around blockchain technology which is the basis for bitcoin.
The blockchain is a decentralized, distributed ledger on which bitcoin is added. This chain is append-only which means that you can only add data to it. Once the pieces of information become a part of this ledger, it is extremely difficult to modify or delete them.
Every block of data is added to the existing chain. So, to change info in the previous block, you need to change information on every subsequent block. It is an extremely difficult task to do. That’s why blockchain is considered secure.
You can think of blockchain as a spreadsheet. You gave your friend Paul 10 bitcoin. The information of this transaction on the spreadsheet. Now when Paul has to give 50 bitcoin to Ryan, this information is also added to the spreadsheet. Hence instead of trusting each other, you all add the info to the spreadsheet which is unchangeable and secured.
Blockchain is immutable due to distribution. No one can make changes because the data is spread among thousands of computers across the globe. These computers are also called nodes. Each node contains a copy of the data. Therefore, it is nearly impossible to change information on all of those computers.
How is Bitcoin Decentralized?
Bitcoin is not owned by any government or centralized institution. It is collectively owned by people. Which makes it the money of people. Government can not control the supply of bitcoin. Hence, the currency cannot be inflated or deflated by governmental decisions.
Decentralization also distributes the control of the currency among people in theory. Although, in reality, some big traders are controlling the supply of BTC to a large extent. The price of bitcoin in 2021 faced a lot of volatility due to Whale’s decision.
What are the Use Cases of Bitcoin?
Bitcoin’s inherent properties make it valuable in the world today. It is decentralized, secure, and borderless. You can use bitcoin in 2021 to send remittances across the border. El Salvador has made bitcoin a legal tender to facilitate remittances.
Some buyers of bitcoin tend to hold it for the long term. Bitcoin has a limited supply. It has increased by a huge percentage since its invention. For being an excellent store of value, bitcoin is often called digital gold. Therefore, holding bitcoin for years can help one gain significant wealth.
Bitcoin is an important asset class in 2021. It has stood the test of time. The corporate sector and Wall Street are more than ever interested in bitcoin. A few financial services providers have already started dealing in digital currencies.
Individuals need to educate themselves on bitcoin in 2021. The currency is here to stay and disrupt the way we view money. This guide is intended to educate folks on BTC. For more material on bitcoin, you can visit our blog section.