Bitcoin is a form of digital currency (cryptocurrency) which was created in 2009 by an individual or individuals named Satoshi Nakamoto. It was originally designed to be used as an alternative to traditional forms of currency, such as dollars and euros, for online payments.
The popularity of Bitcoin as a means of exchange grew exponentially in 2017, when the price of the popular cryptocurrency soared from around $900 per coin to a peak price of nearly $20,000 per coin. Since then, the price of Bitcoin has been on a steady decline, currently trading around $9,600 per coin.
How Does Bitcoin Work?
Bitcoin and other types of cryptocurrencies are based on the blockchain technology, which was first developed in 2014 to allow for the creation of digital currencies. The blockchain is a public ledger which keeps track of Bitcoin transactions. Every time a Bitcoin transaction occurs, the corresponding entry is added to the blockchain.
The blockchain stores a digital copy of each Bitcoin transaction ever made. This makes it tamper-proof, since changing any entry on the blockchain would require an overwhelming amount of computing power. The security of the blockchain relies on the fact that anyone attempting to change any entry on the blockchain would need to devote more resources (electricity) to the process than the change they were trying to make would be worth. This makes it virtually impossible to alter any entry on the blockchain without being discovered. For a more detailed description of how Bitcoin works, check out our primer on the subject.
Differences Between Bitcoin and Other Cryptocurrencies
While all cryptocurrencies are based on the blockchain and share many similarities, there are some notable differences between Bitcoin and other types of cryptocurrencies. First, Bitcoin is the only cryptocurrency that actually utilizes a blockchain; all other cryptocurrencies have alternatives to the blockchain which they can use to track ownership (without resorting to using a public ledger).
Second, one of the most significant differences between Bitcoin and other cryptocurrencies is how they treat transaction fees. With Bitcoin, fees are always zero, since the entire point of using Bitcoin is to avoid using fiat currency (dollars and euros) in transactions. For this reason, if you’re planning on doing any kind of transaction with Bitcoin, you’ll need to have some form of digital currency (cryptocurrency) on hand. This being said, newer cryptocurrencies like Bitcoin Cash offer a slightly modified version of the Zer0-fee model, and have implemented several other fee-free models which rely on the goodwill of the community to operate. Read more about the differences between Bitcoin and cryptocurrencies in general here.
The Advantages of Bitcoin
Many people believe that Bitcoin has surpassed all others as the “go-to” cryptocurrency for several reasons. First, Bitcoin is highly effective at removing middlemen from the transaction process, saving people money in the process. Second, transactions with Bitcoin are much faster and cheaper than transactions with other cryptocurrencies. And last but not least, the number of cryptocurrencies available is much wider than the number of mainstream cryptocurrencies, giving Bitcoin the advantage of being the most versatile cryptocurrency out there. However, some people believe that the rapid increase in the value of Bitcoin in 2017 was due to the massive popularity of the cryptocurrency amongst retail investors, who were looking for high returns on their investment. Now that the prices of cryptocurrencies have declined, these same investors may feel that their interest in the currency has waned, resulting in disappointment in some cases. Weighing the pros and the cons of Bitcoin and other cryptocurrencies can be difficult, but one thing is for sure: no one can deny that cryptocurrencies have indeed changed the game for online payments and saved people a great deal of money in the process. And who knows – maybe one day the game will change back, and we’ll all be using blockchain technology to send each other gifts and Christmas presents.