Bitcoin Definition and Meaning

Bitcoin is the world’s first digital currency. It is a virtual payment system that is completely decentralized, i.e. not regulated by the classic, central banking system. The price of the coins (= currency unit; named per currency with a specific abbreviation) fluctuates strongly, but is many times higher than that of other crypto currencies. Users can buy Bitcoins, generate (mine) them themselves, exchange them for other monetary units, pay with them or keep them as an investment. Which of these makes sense depends on the individual wishes of each one.

  • Bitcoin is a digital means of payment with a high degree of anonymity.
  • It is a cryptocurrency that you can create yourself (through so-called mining), buy and trade.
  • The main points of criticism are a relatively high price and a structural growth problem.

What are cryptocurrencies?

Cryptocurrencies are digital means of exchange based on a cryptographic protocol, ie based on an electronic, encrypted system. Its mostly public network protocol enables simultaneous use by various users and makes it possible to trade with it internationally without a central control or distribution authority. Cryptocurrencies are limited in their number of coins or are “mineable”. This means that either their units are fixed and available from the start or they can be created (“digged” or “mined”) at will or with a maximum limit. For this, the applied algorithm, a kind of programmed solution pattern for mathematical tasks, is decisive, which can vary depending on the motto.

The data arising from all sub-processes are stored on the cryptocurrency’s own blockchain, a continuously expandable chain of data. This structure, which is comparable to a list or a register, is divided into sub-units, so-called “blocks”. Structurally, each new data storage means adding a new block to the existing chain. This increases the amount of data stored and the chain gains in data length and “grows” with it. The data includes, among other things, the time of the transaction, the total and the sender / recipient – each encrypted, which ensures anonymity. This means that every action within the decentralized network is clearly traceable, which is why blockchains are also referred to as a type of digital accounting.

What is bitcoin

The mother of all cryptocurrencies was released in 2009. It comprises the currency unit (coin) BTC and a peer-to-peer network, with the help of which bitcoins are generated, transferred and stored. The motto has a limited number of coins of 21 million and can be mined. Their basic idea is to guarantee their users maximum independence as a global and decentralized means of payment and transaction and to provide them with an anonymous, free payment and exchange medium. Bitcoin is not only considered the mother of all cryptocurrencies, but also a blockchain pioneer in this area. There are now Bitcoin spin-offs, such as Bitcoin Cash or Bitcoin Gold. These use blockchain and source code from Bitcoin, but have modified the software.

Bitcoin technology

The Bitcoin network protocol is based on open source software that manages the blockchain, enables transfers and makes payment units accessible. Bitcoin works with a proof-of-work algorithm (PoW for short), an energy- and computer-power-intensive solution mechanism that relatively decelerates the transaction or mining process in order to better protect it from misuse. Anyone can participate in the Bitcoin system, but mining requires special software.

All data changes or additions are saved on the own Bitcoin blockchain and can be traced transparently. BTC transactions are considered relatively safe. This is due to the digital signatures used, a combination of a private key and a public verification key, i.e. a combination of cryptographic information that can be controlled between secret and openly visible via an algorithm. For the user, this means that he sends his transaction privately, but it is publicly encrypted in the confirmation pool, i.e. it is received anonymously.

Where can I buy and sell Bitcoin?

BTC can be exchanged for other digital currencies or fiat currencies (here: funds issued by central authorities; e.g. euros, US dollars) on online exchanges (= exchanges for digital currencies). Some of such online platforms are for example: Binance, Bitfinex, Coinbase or Anycoindirect. The range of possible exchange pairs is large, after all, Bitcoin is probably the best-known coin that has been on the market for the longest time. There is usually a small transaction fee for every purchase or sale. In Germany, costs can usually be paid via instant transfer or credit card payment.

For every action on an online exchange, registration is required, which in the vast majority of cases is free and easy. In addition, the user needs a so-called wallet, a type of electronic wallet in which the coins are kept and from which or into the transactions. There are mobile, desktop or hardware versions for this, whereby only the latter have to be purchased. All software versions are available for download. Hardware wallets are particularly secure, device-independent and the best, because they are the safest, option for larger sums of money.

Bitcoin mining: generating coins

Bitcoin mining means that new blocks are found and added to the blockchain, which then become newly issued payment units. Mining also confirms transactions. So-called miners are rewarded for their services with the Bitcoin transaction fee. The number of BTC paid out will decrease over time as a cap has been set for Bitcoin. Bitcoin uses the SHA-256 PoW algorithm to mine its coins. Mining needs a lot of computing power and the energy consumption is therefore very high. In addition, expensive, special mining software (so-called ASICs) is required. This can call into question the lucrative nature of mining.


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