What is Bitcoin?
London, England, 4th Nov 2021, Bitcoin is a digital currency system that was created as an experimental software project in 2009. The Bitcoin website describes Bitcoin as “an anonymous, secure and uncensored [currency] that is powered by the people.” Bitcoins are not produced by any government, bank or company but instead generated through a process called mining. TrueNorthBit Broker Richard Walton says that this idea of digital currency is not widely accepted and several institutions have warned people of its possible dangers.
The Bitcoin system was created by a pseudonymous developer named Satoshi Nakamoto, who wanted to create a financial network that did not require a third party to make transactions. Bitcoins are generated all over the internet by anybody running the free open-source Bitcoin software on their computer. This process is called mining because people compete to find the solution to a certain mathematical problem, and when this happens a new block is created.
The Bitcoin protocol specifies that only 21 million Bitcoins can ever be created by miners. Currently, there are just over 11 million in circulation and they are traded on the internet for goods and services, or sold for real money to those willing to take them. Most exchanges of money require some kind of intermediaries like a bank or credit card company, but Bitcoins work without these middlemen.
The Bitcoin system has been criticized for its potential to be abused by criminals and terrorists looking for a way to anonymously transfer money across the internet. Bitcoins are already being accepted as a form of payment in some businesses, but much more common is their use as an investment vehicle because of their increasing value against the dollar and other currencies.
Just like any other currency, the value of Bitcoins fluctuates depending on people’s confidence in it. The history of real-world currencies shows that what they are worth depends almost entirely on people’s belief that they will be worth something tomorrow.
Bitcoin is a financial system set up as an alternative to bank and government regulated monetary systems. It is a decentralized cash system with no centralized controlling entity. Bitcoins can be used to purchase goods and services all over the internet, and several businesses have already started accepting them as payments for their products and services. Some people choose to hoard Bitcoins because they believe that they will increase in value over time.
Miners don’t hold mining powers only
The Bitcoin mining process is one that has been described as a way of producing money without relying on any third party, such as a bank. The developers of the Bitcoin system have not allowed the creation of new Bitcoins beyond the preset limit in order to prevent what is known as inflation. People can generate Bitcoins by running special software that solves specific mathematical problems in exchange for some newly created Bitcoins from the system.
Mr Walton says that this is ironic how bitcoin is regarded as independent and rejects the idea of the involvement of any third party but according to recent reports, half of the total world’s bitcoin is controlled by a total of 50 miners. The report states that the top 10% of the people hold a mining capacity of 90% and this seems as though a third party has been introduced to the system. This means that bitcoin has not been able to stand up to the points it was created for and this is indeed ironic. Well, even with the 50 mining companies holding control of bitcoin, it is still possible to have anonymous transactions through bitcoin without their knowledge. This means that the trust and anonymity of bitcoin promised can still be achieved.
Huge mining companies with large bitcoin holdings are called whales and they control a lot of it. This is not hidden as they openly state their business and the volume they produce daily. Such companies use huge warehouses with a computing power of hundreds of computers to mine Bitcoin. The owners believe that they are part of the future digital currency system and even accept bitcoin for payment in their stores. These companies are very secretive about their operations which makes it difficult for authorities to track them down.
Mr Walton says that it is no surprise that these mining companies have a huge number of Bitcoins in their possession and this has been the topic of discussion in recent months. The issue of miners holding bitcoin has been a subject of debate in various forums and this is blamed for the reduction in the number of people participating in mining, making it less decentralized.
This has created fear that mining will be controlled by large companies alone. This is because people with limited financial resources cannot perform mining anymore. This issue has attracted attention from authorities who are currently studying the effects of bitcoin in general. The argument is that if mining becomes centralized, bitcoin will be brought to its knees.
Disclaimer: Our content is intended to be used for informational purposes only. It is very important to do your own research before making any investment based on your own personal circumstances. You should take independent financial advice from a professional in connection with, or independently research and verify, any information that you find on this article and wish to rely upon, whether for the purpose of making an investment decision or otherwise.