What is Bitcoin?                                                                                           

Bitcoin is a type of coin that is currently worth thousands of US dollars but is not produced using precious metals like Gold or Silver. It is not the kind of a tangible coin, which you can hold in your hand or save it in a bank, it’s a digital currency, and it only exists electronically. The way Bitcoin works is not like any mainstream money.  It is doesn’t belong to a state or government, so it doesn’t have a central issuing authority or a regulatory body. There is no particular organisation or institution existing right now who decides when to make more Bitcoins and how many to produce. There is no institution, either, keeping track of where these Bitcoins are getting transacted nor investigating fraud, like how Federal Reserve or Central Banks do for their respective currencies.

A Math Problem

In very simple words, Bitcoins are like the rewards for a correct answer to a math problem where the problem and the answer are entirely unique. There will be a limit of about 21 million of these special solution rewards known as the ‘Bitcoin’. Bitcoin is designated as BTC, or 1 BTC is 1 Bitcoin. The best part is that we can deal with the extreme low denomination like 0.1 BTC, 0.01 BTC or even 0.00000001 BTC which is known as ‘Satoshi’. Satoshi is the smallest unit of Bitcoin currency. This is not possible for any of the Fiat currencies like U.S. dollars.

Peer-to-peer Network

Bitcoin wouldn’t exist without a large network of people and a concept called Cryptography. Cryptography is a branch of programming and mathematics. Bitcoin is a virtual currency, and you can exchange Bitcoins between computers and a worldwide peer-to-peer network. The whole point of most peer-to-peer networks is sharing content, such as legal music files and movie copies. If Bitcoin is a virtual currency why can’t people start making a bunch of counter fit copies and become extremely rich? That can’t be done because unlike an mp3, or a video file, Bitcoin isn’t a string of data which can be duplicated.


A Bitcoin is really an entry on a vast global ledger called the Blockchain. Every single Bitcoin transaction that has ever happened till this moment is recorded in the Blockchain. The complete ledger is of about 200 GB of data. So when you send someone some Bitcoins, it’s not like you are sending them a bunch of files. You are just writing the transaction down on that big global ledger. This ledger is not centralised on any Central Bank or financial institution, and it is entirely decentralised. Anybody can volunteer to keep the Blockchain up to date with all the new transactions that are happening, and a lot of people do that around the globe. It all works because there are hundreds of thousands of people keeping track of the same thing, to ensure all transactions are precise and accurate. This process of keeping the global ledger up to date by solving math problems through P2P network is known as Mining. Miners get a small fraction of a Bitcoin as a reward for maintaining the ledger. The amount of rewards will be decreasing with time as the number of miners increase.

Today, there are approximately 17 million Bitcoins in circulation. Meaning a total of 17.6 million Bitcoins have been mined. The supply of Bitcoins is controlled by the way it is designed. The total supply of Bitcoins is capped at 21 million. That means only 21 million Bitcoins can ever be mined and circulated.

Next theme: Supply and semi-anonymity of the Bitcoin



Please enter your comment!
Please enter your name here