Bitcoin has been around for a while now. Since 2009, in fact. As usage has increased, issues have arisen such as scalability and rising transaction fees. These issues are being addressed by developers, but even with these issues, Bitcoin is exceptionally important technology.
In this article, I’m going to give you a quick rundown of how Bitcoin works, and why it’s so important, but before I get stuck in, why don’t you take a quick second and sign up for our newsletter and Telegram group, so you can keep your finger on the pulse of all the latest news and developments in the exciting crypto community?
How Does It Work?
Essentially, the Bitcoin blockchain allows for peer-to-peer transactions to made between people without having to go through a bank or other third-party. To send or receive bitcoin, you’ll need a wallet, and this wallet will provide you with a bitcoin address – it’s a long series of numbers and letters. To send bitcoin, you’ll need to know the recipient’s address, too.
Same as with fiat currency like dollars, when you send or receive Bitcoin, it’s called a transaction, but with Bitcoin, each transaction is signed for with a private key, which you should always keep secret. This key provides mathematical proof that the transaction was made by the wallet’s owner and prevents the alteration of transactions.
Every time you make a transaction, it needs to be confirmed. Now, the Bitcoin blockchain is a shared public ledger. Without getting too technical, a shared public ledger is a big database that is shared by all nodes on the system, and a node is simply a connected computer. When all the nodes on the system agree that the transaction is valid it gets confirmed in a process called mining.
Why’s it so Important?
P2P transactions cut out the middlemen like banks and, because of this, Bitcoin is a truly disruptive technology.
When you make a bank transfer, it can take days for the money to go from banks account A to bank account B. During this time, your money is being handled and played with by all sorts of middlemen who each take their cut.
Now, as I said earlier, bitcoin has experienced speed issues of late, but with transactions being completed in under an hour and with low fees, who needs banks to transfer value?
Bitcoin also allows people who cannot access traditional banking services to send and receive money without the approval of a third-party. There are an estimated 2 billion un- or underbanked people in the world. There are numerous reasons that people can’t have bank accounts: their income might be too low, they could be migrant workers without a permanent physical address, or the society in which they live might not allow it (think patriarchal societies where women are second-class citizens, completely controlled by their husbands or fathers.)
In the past, bitcoin has had some bad press – it was the favored currency to make illicit and illegal purchases on the Silk Road. Yadda, yadda, yadda. This was due to bitcoin addresses being anonymous and untraceable. However, this is no different than making a shady cash deal down a dark alley. Unfortunately, there’ll always be bad actors.
Love it or hate it, Bitcoin technology is so important because it allows people to transact freely with each other without the intervention of a ‘trusted’ third-party. (I put quotes on trusted because I don’t trust bankers as far as I could kick one.) The system is fast-ish, immutable, and publicly viewable which adds trust.
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Chronic crypto nut and freelance writer/editor for longer than I care to remember. Have finally found a home here at Crypto Disrupt.