Bitcoin Definition

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Bitcoin definition

Bitcoin is a form of digital currency that is offered independently from any government or financial institution. The definition of bitcoin requires this digital currency to be capable of being transferred anywhere in the world without a central bank or other intermediary needed to transfer it from person to person. Bitcoin’s definition also requires that it has a known monetary value that can’t be altered.

In this article, we’ll help you navigate the basics of bitcoin. We’ll talk about what bitcoin is and how to get it. We’ll also discuss some of the more confusing bitcoin vocabulary, like bitcoin mining. Read on to find out more.

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What is Bitcoin?

In its simplest terms, bitcoin is a decentralized, digital currency. No government, institution, or authority controls bitcoin, which some people think is one of bitcoin’s advantages. Owners are completely anonymous and use encryption keys instead of personally identifiable information (PII) to identify themselves and their accounts. Another bitcoin advantage is that Bitcoin isn’t “issued,” like a traditional currency. Instead, it’s “mined” by computer, which is something we’ll discuss later in this article.

Understanding Bitcoin

Bitcoin was launched anonymously in 2009 by a person calling themself Satoshi Nakamoto. Nakamoto’s goal in launching bitcoin was to create a completely decentralized electronic cash system. Nakamoto allegedly turned over bitcoin’s source code to others in the bitcoin community and vanished in 2011. They haven’t been heard of or from since.

Despite bitcoin’s disadvantage of a murky origin story, it’s now a globally traded asset. Its daily traded volume is in the tens of billions of dollars. While its regulatory status varies by region, bitcoin is most commonly regulated as either a currency or a commodity. Some countries, like the U.S., continue to grapple with the regulation of the securities-like features of bitcoin.

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How do you obtain bitcoin?

Bitcoin can be purchased or “mined.” Each method has its advantages and disadvantages.

Buying Bitcoin

You’ll need to buy bitcoin on a coin exchange. Common ones include Coinbase, Binance, and others. You will need to create an account and a cryptocurrency wallet before you can begin to buy bitcoin. 

Most people won’t be able to purchase an entire coin because of the high price. Bitcoins are expensive! However, coin exchanges, like those listed above, will allow you to buy fractions of coins using an account funded in fiat currency (like U.S. dollars, Euros, or similar currencies). One of bitcoin’s benefits is that it can be purchased in fractional shares and is easily bought with other currencies.

Mining Bitcoin

Mining bitcoin requires a little more (human) brainpower and (computer) energy than just buying it. The business definition of bitcoin mining has a lot to do with complex math and record-keeping. When someone sends a bitcoin to someone else, the network records that transaction. It also records all the other transactions made over a certain period of time, in a “block.” Using special software, computers known as “miners” inscribe these transactions in a digital ledger. These blocks are known, collectively, as the “blockchain.” They create a record of bitcoin transactions that is transparent and that can’t be altered.

Miners then use increasingly specialized software and energy-intensive hardware, to convert these blocks into a sequence of code, known as a “hash.” When a new hash is generated, it’s placed at the end of the blockchain, which is then publicly updated and propagated. As payment for their work, the miner gets 12.5 bitcoins. The value of 12.5 bitcoins fluctuates but is worth more than $250,000 U.S. dollars as of mid-2022.

Bitcoin: Summary

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Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.

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