Published Aug, 09 2021

The Basics of Bitcoin and Blockchain Technology

It seems like everyone's talking about Bitcoin these days, from high-schoolers to your brother-in-law.
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It seems like everyone's talking about Bitcoin these days, from high-schoolers to your brother-in-law. But despite the popularity of Bitcoin, a large majority of the population want to know what it's really all about and how to use it.

By now, you’ve probably had that conversation with one of your grandparents after they asked you, “What’s this Bitcoin all about?” Fortunately, the Bitcoin Depot team is no stranger to family gatherings with discussions centered around cryptocurrency, so we’re going to provide you with some guidance on how to explain Bitcoin in such intuitive terms, it might make your grandma want to join in on the crypto revolution!

What Is Bitcoin?

For decades, we’ve used currencies like the U.S. Dollar to buy everything from safety pins to private jets. One important thing to note, though, is that the worth of currencies like this is measured based on the worth of gold. In addition to this, they are governed by a central financial authority such as the Federal Bank Reserve, which calls the shots in terms of how much money is printed at any given time, among other things. However, in the past couple of decades, there has been a growing movement of people who are looking to invest in a currency that isn’t tied to gold or central financial authorities; and just like that, cryptocurrency was born through the introduction of Bitcoin in 2009.

Cryptocurrency is a type of electronic payment system (similar to your credit card) that enables anyone to transfer and receive digital money from other people around the world. Many of the top companies in the world such as Uber, Apple, and Tesla will allow you to purchase products and services directly using cryptocurrencies.

A New Type of Money?

Yes! Bitcoin is unlike any type of money you have seen. The main difference between Bitcoin and other currencies is that it doesn't require a central authority such as a bank, government, or company in order to acquire or transfer it.

Thanks to the absence of these intermediaries, bitcoin transactions are fast, cheap, and free of the problems that are often associated with the traditional financial system.

For one, Bitcoin comes with fewer restrictions. You can access your funds from virtually anywhere and transfer any amount you desire without having to wait multiple business days or jump through many bureaucratic hoops. There are also no daily withdrawal limits or fancy forms to fill out when you wish to transfer more than $10,000 worth to another person. You can even use Bitcoin ATMs at your local gas station, bank, or grocery store to buy and withdraw bitcoin in exchange for cash!

How Is Bitcoin Created?

Another thing that makes Bitcoin special is that it isn't printed like normal money. Bitcoins are entirely digital. They are created through a process known as mining.

Bitcoin mining is done digitally on a platform called the blockchain. The blockchain records data from cryptocurrency transactions and transmits it to the entire network of computers that are also connected to the blockchain where it goes on to be verified. The innate design of blockchain technology is that no one can hack, erase, or otherwise alter the data from these transactions. Thanks to this technology, you don't have to worry about bogging down the storage on your phone or computer. Instead, your bitcoins are stored in a virtual ledger, and the digital wallet on your device contains the proof of ownership of your bitcoins.

What Does it Mean to Mine for Bitcoin?

The blockchain keeps a record of all bitcoins in circulation. As a result, banks aren't needed for the verification of ownership. This system utilizes the power of the people and the internet.

The miners operate in a  similar manner to accountants by recording and processing transactions. However, the interesting thing about this system is that miners receive a small amount of bitcoin as payment whenever they mine a new block, which is a type of file in which data from a bitcoin transaction is permanently recorded in the network.

Additionally, the creation of Bitcoin depends on miners competing to create the next block. New bitcoins are created roughly every ten minutes and the total number of bitcoins that can be created is capped at 21 million. This makes it a much more compelling investment, like gold, as there is not an indefinite supply that can lead to inflation.

The bitcoin limit is expected to be reached by 2140. After that, its production will come to a halt and people will only be able to buy, sell, trade, or exchange them.

Do Counterfeit Bitcoins Exist?

Bitcoin has had revolutionary achievements over the years and one of them involved putting an end to double-spending. Double-spending became a problem after the advent of digital money in the 90s.

In simple terms, double-spending is a situation whereby a digital currency is spent more than once. However, hackers have been making attempts to do this with bitcoin for years without success.

Through blockchain technology, all transactions and relevant accounts (excluding personal details) are made available to the public. This makes it difficult for anyone to spend the same money more than once.

So, What Are the Benefits of Bitcoin?

There are several ways by which bitcoin can be beneficial to you. First, it is decentralized. This means that it isn't controlled by banks or governments, so you will no longer have to deal with the rude bank teller who rushes you along or the customer service representative on the phone who tries to get you to shell out more monthly payments for a new type of savings account.

It’s also universal. With a smartphone and internet connection, you can send and receive bitcoin from virtually anywhere in the world, even when your bank doesn’t have a branch at your vacation spot. Additionally, the limited supply of bitcoin and other cryptocurrencies means that you won't have to worry about inflation causing that hard-earned nest egg to become worthless in 20 years.

Bitcoin is a more secure and private way to store your money. It's the future of finance. Welcome to the world of crypto!