What sets Bitcoin apart from traditional currencies is that it is not issued by a central authority (like a bank or government). There is no single entity controlling the bitcoin supply and validating transactions. The currency is run by a huge network of nodes, and payments are conducted on a peer-to-peer basis. Coins are sent from one address to another without the need for a middleman. The technology enabling this is called blockchain.
Envisioned as peer-to-peer electronic cash, Bitcoin has evolved into a global phenomenon. It has spawned a whole new industry. Bitcoin is already accepted as a form of payment in many online and offline stores. Enabling the creation of decentralized systems, blockchain technology might be Bitcoin's biggest gift, as it has extensive other applications beyond cryptocurrency alone.
- Bitcoin is the first ever decentralized currency.
- It is powered by a peer-to-peer global payment network.
- Payments are irreversible.
- It has a limited supply.
- Price is determined based by supply and demand.
- Powered by blockchain technology.
Bitcoin vs fiat currencies
The most obvious difference between Bitcoin and traditional (or fiat) currencies is that the former is completely digital, while the latter are not. But this is just scraping the surface of what Bitcoin really is. The distinctions become clear when examining what a transaction in fiat might look like as compared to one involving Bitcoin.
When you make a credit card payment, the card issuer is the one with complete power over the transaction. The credit card company either confirms that you have enough credit available and sends funds to the other person, or it cancels the transaction. Next, the credit card company serves as a validating authority. This means they have to confirm that the transaction has taken place. Otherwise, the person you are paying may claim that you didn’t pay the agreed price or that the transaction never happened. All traditional currency transactions rely on such an authority, but Bitcoin does not. Instead, it uses a decentralized system.
With Bitcoin, the credit card company’s role is distributed to a network of thousands of nodes. The nodes are constantly verifying both the transactions in the network and one another. If a node broadcasts invalid transactions, other nodes soon realise something is wrong and do not propagate the false information. If the node continues broadcasting invalid transactions, it will eventually be ignored by the network entirely.
Bitcoin transactions are irreversible
Unlike credit card transactions, bitcoin transfers are irreversible. Once you send bitcoin to a certain address and the transaction is added to the blockchain, you cannot change your mind any more. For this reason, users must be careful when sending bitcoin.
Is Bitcoin bound by geography or borders?
The Bitcoin network is global. There is no central framework that would bind it to a geographic location. This means that bitcoins can be sent anywhere in the world. The country in which the sender and receiver are located is completely irrelevant. With traditional currencies, geography does play a role. Euro-based SEPA transfers, for example, are only supported in European countries. If you want to send money from the EU to a non-SEPA country, the transfer takes longer and incurs larger fees.
How many total BTC can there be?
The final major difference between Bitcoin and traditional currencies is Bitcoin's limited supply. Though bitcoins are still created through mining, their total possible supply is limited. There will only ever be 21 million bitcoins. This protects Bitcoin against inflation. At the same time, it ensures that there are plenty of units of currency for people to use. Each bitcoin can be divided into 100,000,000 tradable units called satoshis. This means that although there will only ever be 21 million bitcoins, we will be able to use 2.1 quadrillion of these satoshi units.
How to buy BTC
You can buy the Bitcoin coin on Bitstamp. Sign up for a Bitstamp account and start trading BTC today!
Disclosure: Bitstamp is licensed to engage in virtual currency business activity by the New York State Department of Financial Services.