You have probably heard of Bitcoin but you may not be completely sure what it is. That’s OK because by the time you have read through this post you will know what it is and how you can invest in it if interested.
Bitcoin is a cryptocurrency which is another term that you need to be familiar with. The other
important thing that we will explain is the technology behind Bitcoin and most other cryptocurrencies which is blockchain.
Before we get into the details of Bitcoin, it is important that you understand what cryptocurrencies are and how they work.
What are Cryptocurrencies?
In basic terms a cryptocurrency is a medium for exchange online. A cryptocurrency has a number of cryptographical functions which are there to support financial transactions. Most cryptocurrencies use the blockchain technology platform (more on this a little later) as it offers immutability, transparency and decentralization.
Cryptocurrencies are not controlled by any central powers – not yet at least. This is deliberate because the whole idea of cryptocurrency and Bitcoin is that they provide immunity from government interference and control.
A cryptocurrency can be transferred from one person to another by using public and private keys. There are minimal processing fees involved with cryptocurrency transactions which are part of their appeal. Usually financial institutions have high charges for any monetary transaction.
Cryptocurrencies were invented by accident. The inventor of Bitcoin, Satoshi Nakamoto, created a peer to peer electronic cash system and Bitcoin was a byproduct of this system. Before this there had been numerous attempts to create a digital cash system but all had failed.
The key to the success of Nakamoto’s system was that it provided a decentralized financial network rather than the established centralized system. If you wanted to set up your own digital cash system you would need to create a payment network that provided three key things:
1. Accounts
2. Balances
3. Transactions
A problem that all payment networks face is “double spending”. This is all about preventing spending the same amount twice. Up until the creation of Nakamoto’s system this had always been achieved using central server balance records (this is still in existence today).
With a decentralized payment network there is no central server. Instead every single network entity or node has to perform its job properly. They all need to have a list of transactions so they can monitor if future transactions are a “double spend” or valid.
All of the peers of a decentralized payment network have to agree on everything – there has to be complete consensus. If this doesn’t happen then the transaction will not take place. The problem was how to achieve this total consensus without a central server. Nakamoto figured this out.
The Transaction Properties of Cryptocurrencies
In order for a cryptocurrency system to work effectively there has to be a number of properties in place. These are:
Immutable
After a cryptocurrency transaction is confirmed then it cannot be changed. Nobody in the world can change a cryptocurrency transaction not even presidents or monarchs. It is an immutable record.
Basically if you send money to someone else that’s it. There is no turning back. So if you make a
mistake or get scammed then you are stuck with the situation. You do not have the opportunity to reverse the transaction.
Pseudonymous
Cryptocurrency accounts and transactions have no connection to real world identities. You will receive a Bitcoin on an address which is a randomly seeming chain of about 30 characters. You can analyze the transaction flow but you can’t usually connect the transaction to a real person through the address.
Global Transactions at Speed
It doesn’t take long to propagate transactions and confirm them. Usually this all takes place in
minutes. The network for cryptocurrency transactions is global so it doesn’t matter where the
transaction originates and terminates.
High Security
The highest levels of transaction security are essential for a cryptocurrency network and to this end all funds are locked in a public key cryptography system. Only someone that has a private key can send cryptocurrency. This makes the system extremely secure.
No Permissions
A cryptocurrency system is a “permissionless” system. You do not require the permission of anyone or any authority to make a cryptocurrency transaction. There is no gatekeeper with a cryptocurrency system.
The Monetary Properties of Cryptocurrency
Now you know the transaction properties of cryptocurrency you need to understand the monetary properties. These are:
There is a Controlled Supply
Most cryptocurrencies have a limit on the number of tokens supplied. Taking Bitcoin as an example there will be a decrease of supply over time and experts estimate that the final number of Bitcoin tokens will happen around 2140. Experts say that only 21 million Bitcoins will be the limit.
To control the supply of cryptocurrency tokens a schedule is written in the underlying code. Using this code you can approximately calculate today the monetary supply of a cryptocurrency for any given future date.
Bearer not Debt
With conventional or “fiat” money underwritten by a government, the bank account you hold is
created by debt. All of the entries in your account are debts. It is really an IOU system. A
cryptocurrency is not a debt.
There has been a lot of controversy over the launch of cryptocurrencies because they are a direct attack on the monetary policy of most nations. Governments or central banks cannot change cryptocurrencies. Therefore they are immune to inflation and deflation caused by the manipulation of the monetary supply.
Takeaway
It’s no secret that the economy is falling apart. Layoffs are happening by the tens of thousands, Businesses are going under, Industries are being destroyed at a record pace. Inflation is ramping up. In this critical situation how do you protect your wealth and create financial stability for your family and retirement?
My friend asked me the other day if he should buy some Bitcoin, I told him that a few years ago it was not a sure thing. Most people still have no clue about it’s potential, smart money is accumulating at rapid rates. In fact, publicly listed companies have recently bought up more than $3 Billion worth of Bitcoin. Paypal has announced it will be offering cryptocurrencies to more than 325M users.
Bitcoin is about to go to levels we’ve never seen before.I believe this crypto world is still young and evolving and would be the next big thing to come; we can all use this opportunity to learn about it and invest in it for long-term.
But before you make any decisions, you should watch this excellent Free presentation from a cryptocurrency expert Dirk de Bruin. This is by far the best explanation of Bitcoin and cryptocurrencies I’ve come across and I HIGHLY recommend you watch it.
=> Click here to Watch it Now!
