How Is Bitcoin Different From Traditional Currencies?

March 29th, 2018

Created in 2009 by a computer programmer named Satoshi Nakamoto, Bitcoin is a new digital currency that is making headline news all over the world. Bitcoin currency systems make transactions without involving any middle-men, such as banks or financial institutions. This digital currency system can now be used like any other traditional currency to book hotels or flights, shop online, and buy food or pay for other basic requirements. Apart from its conventional use like currencies, Bitcoin trading is also popular. Injust the last few months, the price of Bitcoin has skyrocketed into thousands of dollars, trading Bitcoins can earn you money in no time flat.

The History of Bitcoin

Bitcoin is a popular digital currency that was developed by the pseudonymous software developer Satoshi Nakamoto. It is an electronic payment system which is based off of mathematical proof. The main idea was to produce a means of online exchange that would be completely independent of any central authority and which could be transferred online in a verifiable, secure and immutable way. Even to this day, no one knows who Satoshi Nakamoto is, but everyone considers him to be the inventor of Bitcoin.

How Is Bitcoin Different From Traditional Currencies?

Bitcoin is used to make payments digitally, if both parties agree. Bitcoin is like a conventional currency such as dollars, Yen or Euros- which can also be traded digitally. However, there are some major differences when compared to fiat currencies, like:

  • Decentralization – One of the most important characteristics of Bitcoin is that it is a decentralized currency system. No institution or authority controls the Bitcoin network. This new currency system is maintained by a group of coders and run by an open source network spread all around the world. This is ideal for individuals or groups who are uncomfortable with the control that banks or government authorities have over their money.

Bitcoin also solves double spending problems of digital currencies through a creative combination of economic incentives and cryptography. In electronic fiat currencies, this specific function is fulfilled by the financial institute, giving them control over the conventional system. With the Bitcoin currency system, the integrity of transactions are maintained by an open and distributed network owned by no individual person or entity.

  • Limited supply – All traditional currencies such as Euros, Dollar, Yen, etc. have an unlimited supply. The central bank or government authorities can issue new currency as per the need and can manipulate the currency value relative to other currencies. Currency holders, especially the citizens of that country, have to bear the cost. Bitcoin is completely different. An underlying algorithm tightly controls the supply of Bitcoin. A small number of Bitcoins trickles out every hour. This speed will diminish over time till the maximum 21 million units is reached. This makes Bitcoin attractive as an asset. Theoretically, if supply remains the same and demand grows, the value will increase.
  • Pseudonymity – Senders of traditional electronic payments are identified, but users of Bitcoin operate in semi-anonymity. As there is no central validator, digital currency users don’t need to identify themselves while sending Bitcoin to another user. When a transaction request is submitted, the protocol checks all previous transactions to confirm that the sender has the necessary amount of Bitcoin, as well as the authority, to send those Bitcoins. This system doesn’t need to know the user’s identity. In reality, each user is generally identified by his or her wallet address. Transactions can be tracked in this manner. Law enforcement authorities have also developed several methods to identify users when necessary.
  • Immutability – Unlike electronic fiat transactions, Bitcoin transactions can’t be reversed. As there is no central adjudicator, who can approve the returning or refunding of money – if a transaction has been recorded on the network it is impossible to modify. This may bother some, but make sure you are careful when sending Bitcoins; you can’t reverse the transaction.

Bitcoin is still in its development stages and many countries have began to create or to consider regulating this currency. Some governments are concerned about lack of control over Bitcoin and taxation, even with these concerns Bitcoin use continues to increase daily.

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