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WHAT IS BITCOIN? Welcome to Cryptocurrency by ERIK VOORHEES
When most people hear about Bitcoin, whether for the first or the tenth time, they ask one simple question: “What is it?” Like an automobile, Bitcoin is technically advanced, and it can appear complicated, depending on how much you want to know about it. But also like an automobile, it doesn’t require you to be a technical expert in order to use it—and for it to change the way you interact with the world. Here’s what you need to know. Generally speaking, Bitcoin is two things: 1) A payment network (“Bitcoin”); 2) The currency unit used on that network (“bitcoins”). Thus, as both a payment network and the specific currency used on that network, you use “Bitcoin” to receive and send “bitcoins” from and to other people. To clarify, take a look at the relationship between PayPal and U.S. dollars. PayPal is a payment network, but not a currency. In contrast, the U.S. dollar is a currency, but not a payment network. You use the PayPal payment network to make transactions in U.S. dollar currency. The PayPal payment network is operated and centrally controlled by one company (PayPal Inc.), and the U.S. dollar is created and centrally controlled by one organization (the U.S. federal government).
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“The real magic of Bitcoin, the reason it’s so newsworthy, comes from the consequences of its existence.” 12 yBitcoin.com
“Bitcoin is two things: (1) A payment network (“Bitcoin”), (2) The currency unit used on that network (“bitcoins”).” Here’s where things get important, revolutionary—and a little weird. The Bitcoin payment network, unlike anything else before it, is decentralized. It is not controlled by any company or organization. That fact alone is its core “value-add.” Bitcoin's decentralization is why it's unique and revolutionary. The Bitcoin network is like file-sharing: it’s a network of computers that talk to each other, but nobody controls the network itself (there is no central server). The bitcoin currency unit itself is similarly not created or controlled by any central party. Bitcoins are created by the network itself over time, in a process that distributes the new coins to those computers that are supporting and operating the network. The number of coins created in this way is limited according to a clear mathematical schedule. As of this writing, there are roughly 14 million bitcoins in existence, and this will continually increase over time to a maximum of 21 million bitcoins many years in the future. Unless you care about how Bitcoin accomplishes this, the above is really all you need to answer the question, “What is Bitcoin?” It’s a payment network, and a currency used on that network, which are controlled by no central party. People control their own bitcoins. The number of bitcoins in existence is limited by the rules of the protocol.
Perhaps the more important question is, “Why should I care?” While computer engineers and mathematicians might find Bitcoin’s technical details fascinating, most people don’t really have the time for those complexities—just as most people don’t spend time worrying about exactly how the Internet works. We trust that it does, we enjoy its benefits, and we know enough about it to use it.
“Bitcoin means that for the first time in human history, every person has financial sovereignty. Private property can now truly be controlled by the owner, and nobody else.” And while it’s true that Bitcoin permits financial transactions that have essentially zero cost, that can occur instantly anywhere in the world, these consumer benefits are not really what’s important, either. The real magic of Bitcoin, the reason it’s so newsworthy, comes from the consequences of its existence. The fact that Bitcoin is decentralized, with no controlling entity, has fundamental implications. Because there is no central