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What Is Bitcoin? How Is It Different From Traditional Currencies

Updated on April 14, 2015

What Does The Term "Bitcoin" Mean?

When people use the term Bitcoin, they mean two very different things. The first is the currency itself while the second is the method of transaction. Unlike traditional currencies, Bitcoin is completely independent of regulations and laws set by financial institutions and governments. Therefore, each user can store and transfer currencies without any or significantly less fees. All transactions are publicly view able through the Block chain but user identity is seldom disclosed.

Characteristics Of Bitcoin

If the user is a bit more careful, he can easily secure himself by remaining anonymous even on the Blockchain. Bitcoin is formed on 5 basic principles which when put together, makes it one of the most effective digital currencies in the world. The principles are:

  1. Decentralization: This means, no single organization or individual can control or regulate the currency, regardless of any complication or user demand. This avoids any financial institution to interfere in the transactions, storage or independent transfer of the currencies. Each user buys, stores and transfers according to the prices calculated by the thousands of machines running every second to produce and authenticate Bitcoin transactions.
  2. Peer to Peer: The currency is transferable directly from one person to another. Each person gets a public address that acts like an account number to their wallet. Any individual based in any corner of the world can directly send a specific amount to another person by sending the amount to his public address. This public address is viewable to everyone but does not provide any personal details of the user or the amount in his wallet, thus maintaining security in transactions.
  3. Pseudonymous: The pseudonymous characteristics of the currency allow all transactions to be publicly viewable through the Blockchain while maintaining necessary privacy about the user. With proper measures, the user can easily maintain necessary privacy about the amount or volume of transactions.
  4. Digital: Unlike other currencies, the Bitcoin is completely digital. You can store your currency in any device or even take a print to keep it offline but all transactions are carried out digitally and the valuations of the currency is also maintained by algorithms that automatically adjust themselves based on rising and losing demand among its consumers.
  5. Cryptographic: The whole Bitcoin system is based on advanced elliptic curve cryptography. According to tests and exploitations carried out by thousands of programmers and hackers, the code cannot be cracked and the mechanism is the most effective self-adjusting code in the world. Thousands of programmers devote hundreds of man-hours to create effective bit clients that are exceptionally secure and allow users to securely transact without any privacy and security concerns.

Bitcoin On The Web

Source

Putting It All Together

Therefore it would be precise to say that a Bitcoin is a piece of code that lacks any intrinsic value like gold or any other precious metal. Unlike gold or silver, it cannot be used for any other purposes like making jewelry etc. but it can be used to buy jewelry or even invest for future gains. Bitcoin like normal currencies function based on market demand for a specific set of currencies available to the users. According to estimates, there will be only 21 million Bitcoins generated through the mining process. The process of creating Bitcoin is even more technical and is termed as mining.

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