What is Bitcoin? — It isn’t just money.
This may seem like a simple question with a very obvious answer but the truth is that Bitcoin is actually a network composed of multiple key features (sometimes referred to as a blockchain).
Bitcoin is:
- A system of digital money.
- A distributed ledger (a secured list of transactions).
- A means of reaching consensus (agreement).
- Decentralised and allows anyone to participate.
- Incredibly secure due to the way the operations on the network are carried out.
This combination of features can be used in multiple ways.
One of the most obvious ones being that it allows for a system of exchanging value (money) which puts people in full control without the need for trusting a middleman (like a bank).
As long as you have control of the private keys (these are like passwords that secure your bitcoins) then you have full control of your bitcoins.
Is Bitcoin Hack Proof?
Nothing is completely hack proof. There are areas of the bitcoin protocol that can potentially be exploited — just like any other type of technology.
The way that bitcoins are produced involves solving very complex mathematical problems.
These do a number of things that involve protecting transactions on the network from falsification, double spending and the like.
Millions of computers around the world compete to solve these complex problems and in return they enter a kind of competition where the winner gets a certain number of bitcoins (currently 12.5 bitcoins) for their trouble.
Due to the vast number of computers involved, the most obvious form of attack to the network (something called a 51% attack) would require an immense amount of computing power.
As the network grows and more people mine bitcoins this computing power grows and that makes it harder for bitcoin to be attacked and hacked in this way making it more and more secure.
There could be defects or bugs in the bitcoin code that could allow other types of exploits. Thankfully Bitcoin is open source software and anyone can check the code.
This means that people around the world are constantly checking it for problems and it keeps being improved. The moment someone alerts the community to a problem, it can start being fixed.
So in summary, we can’t say for sure that bitcoin cannot be hacked but as time passes it becomes more and more secure.
Why is Bitcoin Better Than Regular Money?
Unlike regular forms of “fiat” money there is no central authority in control of bitcoin. This means that there is no central government or bank that can block transactions or freeze your money on a whim.
It is also cheaper to make transactions compared to other means of transferring money.
One of the biggest advantages is that the total supply of bitcoins that will ever be mined is fixed at 21 million.
This is baked into the system and there will never be any more than this.
This makes it quite different to fiat money where governments have a tendency to print money as and when they feel like it — something which creates inflation and devalues the money you already hold.
The end result is a currency that is better protected against inflation and government manipulation.
What Gives Bitcoin Value?
This is a question I often hear and there are a number of different ways of answering this.
The most basic answer is that Bitcoin has value because people believe it has value.
This may seem like a strange concept but if you think about it, this is exactly what gives “fiat” money like US dollars or Euros value.
There is no longer anything backing them (like gold), they simply have value because people believe in them and the system backing them.
Similarly people believe in Bitcoin and the Bitcoin network (with it’s ability to securely transmit value) and hence they have value.
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