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How does Bitcoin Work?

Does it Store Value? Is it a Currency? Perhaps an Asset? Or Maybe a Payment System?

There is quite a controversy on what Bitcoin (abbreviated BTC) is, so it may be easier to say what it is not.

What it is not, is one of those beautiful shiny coins you see representing Bitcoin with the nice engraving. No, Bitcoin was created to be and is all digital. A set of protocols and processes that represent a value.

Bitcoin has remained the most successful of all attempts to create a digital currency and has a commanding lead in market capitalization over it’s imitators who have come on the scene after Bitcoin and has maintained this status over a decade of it’s history.

In 2008, when a person calling himself Satoshi Nakamoto introduced Bitcoin, he also introduced a Public Ledger for it to run on called a Blockchain. As stated, each “transaction” of Bitcoin is publicly stored on the Blockchain (a public ledger) for anyone to see and cannot be deleted or manipulated, creating an environment where Trust is not needed.

Over time many other Crypto-currencies have come into being, and other Blockchains have been created to run those Crypto-currencies on using similar cryptography. For example: Etherum has it’s own blockchain which is geared to “smart Contracts”.

The Blockchain stores transactions chronologically in a single chain called a “block”. Since information is basically 1’s and 0’s it opens up lots of possibilities. Things like emails, marriage licenses, land contracts and just about any type of contract can be put on a Blockchain ledger that would basically takes away the need for a third party intermediary being involved.

Currently Bitcoin on the Blockchain is mostly transaction history, but it could certainly be use at some point as a payment system or a store of value. A consensus would have to be reached in order for this to happen, however.

Etherum’s goal and purpose is to create a platform where “smart contracts” can be made thereby making way for a whole array of decentralized products. Thus, doing away with any third party middlemen and eliminating fees and possible data breaches that seem to happen often.

There is no central party who maintains the Blockchain or “distributed ledger” as this information is stored on computers world-wide. Anyone can download the complete transaction history of Bitcoin or go to any of several sites that parse this information out. There are complicated measures in place for updating the Blockchain Ledger.

Investopia says – Here are some Key Takeaways on Bitcoin:

  • Bitcoin is a digital currency, a decentralized system which records transactions in a distributed ledger called a blockchain.
  • Bitcoin miners run complex computer rigs to solve complicated puzzles in an effort to confirm groups of transactions called blocks; upon success, these blocks are added to the blockchain record and the miners are rewarded with a small number of bitcoins.
  • Other participants in the Bitcoin market can buy or sell tokens through cryptocurrency exchanges or peer-to-peer.
  • The Bitcoin ledger is protected against fraud via a trustless system; Bitcoin exchanges also work to defend themselves against potential theft, but high-profile thefts have occurred.

https://www.investopedia.com/news/how-bitcoin-works/

About the author

Gail holds one of the most challenging role in the Compumatrix Leadership: Membership. She ensures that that members and potential members enjoy the benefits of being part of the Compumatrix community.

Comments

  1. In my mind, the answer to all your 4 questions in the beginning sentence would be “yes” to all. BTC seems to fill the role in all of those areas. I’m sure you will explain on this in your future posts. There are so many more avenues opening up to be able to spend BTC but because it is still limited in “spendability”, I think the stored value of BTC is what makes it attractive to such a majority of users. My tax man calls it an asset. It definitely can be used as currency, and a form of payment. We are only just scratching the surface of all a blockchain will be able to do in the coming future. I’ts exciting to be a part of it all.

    1. Thanks for the reminder Gail. Yes,definitely to all four questions. There is more to bitcoin than I thought. It is more than just an asset. A way of saving, increasing value and as an expenditure vehicle. More valuable than gold and earns better interest than a bank will ever give us.

  2. I would agree with you Jeff Phelps — in the answer to all 4 original questions Yes — I am hoping very very soon that not only BTC is usable as this and that but if that becomes viable business parts then soon afterwards the rest of the digital world will be also accessible using BTC as a guide and it gets exciting truly — great !st article Gail — thank you

  3. This is an informative article! I look forward to seeing Part 2 in this series.

    My thoughts:
    How does Bitcoin Work? I works very well.
    DOES IT STORE VALUE? Yes it does, and very well too.
    IS IT CURRENCY? Yes, absolutely it is!
    PERHAPS AN ASSET? Perhaps? It most definitely is and asset.
    OR MAYBE A PAYMENT NETWORK?? Yes, in fact it is a BORDERLESS global payment network.

    One of my favorite things about Bitcoin is that, as stated above, “…each “transaction” of Bitcoin is publicly stored on the Blockchain (a public ledger) for anyone to see and cannot be deleted or manipulated, creating an environment where Trust is not needed.” I think that is very important because people, corporations, and governments are often not trustworthy. So I find it refreshing to have a financial instrument to use as a tool that by design is beyond corruption. It is based on mathematics, which are precise and reliable.

  4. It is challenging to explain Bitcoin quickly because it is different from anything that ever existed before and it is more than one thing. Also plenty of people don’t take the time to READ much anymore. So a few years ago I found this 4 minute VIDEO that features some of the wealthiest people in the world, which gets people’s attention, sharing their opinions about Bitcoin. It has been a helpful tool for me that I’ve shared with many over the years.

    Even though the video is dated, as you will hear the price of Bitcoin at the time the video was made was under $1000.00 USD per BTC, it is still a very powerful video that has become my favorite. Actually the fact that it is dated makes it even more powerful because the predictions of some in the video have ALREADY come true! Enjoy!.

    https://www.youtube.com/watch?v=vG7p511WHOQ

  5. Bitcoin is gaining popularity and we MUST KNOW how it works. It’ s value is increasing and Blockchain gives it more importance ( recorded transactions).
    We need to know much more about it, and understand it better – reason being that we shall be using it much much more than paper currency. Compumatrix has certainly opened new avenues for all of us..Looking forward to part 2 of the series…

  6. Note: I’m posting in spanish on purpose. To let know that it is accepted to post in other languages (unless it is told otherwise)
    ¿ALMACENA VALOR? ¿ES MONEDA? Quizás un activo? ¿O PUEDE SER UNA RED DE PAGO?
    Almacena valor ? Todos los dias se puede consultar con una casa de cambio , a cuanto esta el btc hoy.
    Es Moneda ? Si pero digital y se puede usar en linea o fuera de linea
    Quizas un activo ? Kiyosaki define un activo como cualquier cosa que pone dinero en su bolsillo. Entonces si lo es
    Y por ultimo, UNA RED DE PAGO? Si , se puede enviar, recibir y guardar

  7. Jorge, ¡estoy feliz de verte publicando tus comentarios en español! Gracias por hacerlo porque los miembros de Compumatrix se encuentran en muchos países y también hablan otros idiomas. Tiene sentido que todos disfruten de la comodidad de expresarse en su propio idioma. Estoy orgulloso de ti liderando el camino. Bien hecho señor!

    Hoy temprano publiqué lo siguiente en inglés: ¡Este es un artículo informativo! Espero ver la Parte 2 de esta serie.

    Mis pensamientos:
    ¿Cómo funciona Bitcoin? Yo trabajo muy bien
    ¿ALMACENA VALOR? Sí, y muy bien también.
    ¿ES MONEDA? Sí, absolutamente lo es!
    Quizás un activo? ¿Quizás? Definitivamente es un activo.
    ¿O PUEDE SER UNA RED DE PAGO? Sí, de hecho es una red de pago global SIN BORDES.

    Una de mis cosas favoritas sobre Bitcoin es que, como se indicó anteriormente, “… cada” transacción “de Bitcoin se almacena públicamente en Blockchain (un libro público) para que cualquiera pueda verla y no se puede eliminar ni manipular, creando un entorno donde se encuentra la confianza innecesario.” Creo que eso es muy importante porque las personas, las corporaciones y los gobiernos a menudo no son confiables. Por lo tanto, me parece refrescante tener un instrumento financiero para usar como herramienta que, por diseño, está más allá de la corrupción. Se basa en las matemáticas, que son precisas y confiables.

  8. BITCOIN represents Financial Freedom to me. The banking system has taken that freedom away from us. Each month, when we pay our bills, there is a little more we must pay: INTEREST. When I think of Bitcoin, I think about getting my financial affairs in order. I look forward to breaking the chains of our monetary system and having the choice that was taken away years ago. I remember one financial author stating: “Fiat is the governments’ money, Gold and Silver is God’s money and Bitcoin is the People’s money.”

  9. Totally agree with my fellow travelers here and the young lady who authored the post. I find that trying to explain what Bitcoin is to people that have a limited knowledge are usually the nay sayers. As we say in sales. Dead end, move on! That light will come on one day, with some effort it will be soon and they will be back with the big question. “How do I get in program.”

    No doubt that Bitcoin will continue to grow into the program that was envisioned by our fearless leader, Henry. The future is going to be interesting.

    I feel the the Asset program we have is a huge advantage in helping to build a Bitcoin stash as well as slicing off what you need here and there. Even taking a small piece of our withdrawals to add to the assets or purchasing more CBTC is a great way to invest in our program. Adds credibility to what we have or are going to acquire in the coming years.

  10. I’d love to know why BTC is shown as a “shiny coin” like mentioned above. It must really confuse a lot of people, as I don’t think that this actually is a physical representation of the coin anywhere, please correct me if I’ve missed something.

    Bitcoin is interesting, in that just like the cost of paint has absolutely no link to a famous paintings value (nor the hours spent painting it for that matter) – value is given by the market for its beauty, message, and other factors. Whereas Bitcoin is given a value by users as an alternative asset that has a finite number of “coin” and therefor valued for its controllable inflation and other value given only by users.

  11. Thank you Gail for the wonderful post describing Bitcoin.It certainly gives us a better vision about Bitcoin,Blockchain and crypto currencies.

  12. I agree wholly that this is a great post and I am looking forward to the rest of the series as Gail puts it out here — this is a worthy post to read a few times and maybe more to get all the info from it — I am very thankful for being here and I will continue to learn what I believe is the right way in doing business here and in other business ventures —

  13. Bitcoin was Satoshi Nakamoto’s answer to the financial crisis of 2008. A system where the banking cartel is not required or welcome. It is a peer to peer system the same as physical gold and silver. Only a digital version of such. IN a book I read, there is a passage saying “You shall have just weights and measures in your bag” A just weight and measure is something that holds it’s purchasing power and represents the same value in 2020 as it did in Julius Caesar’s day.

    I don’t look at Bitcoin rising in value but the value of government currency losing it’s purchasing power in relation to BTC. And any other crypto out there. I find it very interesting that in 1933, when all US Citizens were sold on the idea that a piece of paper was just as valuable as the gold coin they posessed. And so many people gave up their gold coins for a $20 bank note. The purchasing power that $20 bank note had back then was far greater than what a $20 note could purchase today. Yet the $20 gold coin would purchase about the same amount of goods and services it did in 1933 and before.

    Bitcoin was and is the answer to this swindle. A just weight and measure. A way of storing our time in a manner that is beneficial to the individual over any government.

    “Who’s picture is on this coin?
    Caesar’s.
    Give unto Caesar that which is his and unto God that which is His.”

    Too many people think that statement was about paying taxes. It wasn’t. It was about ownership of your assets and God’s recommendation that we not hold government money and hope, but hold true assets and be prosperous.

    Give back the IOU’s we hold from the central banking system and use what our Creator suggests. And we will experience true wealth, right here, in Heaven.

    Blessings.

  14. It will be interesting to see what happens with bitcoin in these trying times. With so many businesses having to close, will more people look to bitcoin? Then to see how our company grows and changes to take advantage of the changes in the economy….as bitcoin is an asset And a payment network.

  15. I apologize if I am doing the wrong thing here, but I’d like to express my opinion, about what Jorge and Kevin wrote: write in one’s own language… here… I don’t agree. Why does the readers, the colleagues, have to feel obligated to go to a translator to read what his/her fellow member wrote?

    I tell my team – the ones who have to use a translator because they actually don’t read or speak English – to use it to make their comments, or even, who knows, later on write their own blogs?! I think the one who HAS TO use the translator are these people, it’s THEIR job to make themselves be understood, to be able to read and participate in our business chats, forums, blogs… not the other way around!!!

    Can you imagine if we come to a blog and it’s all in German, or Greek, or Chinese, or Russian… or, worse, each comment in a different language?! And WE have to look for whatever it is that are written? I don’t think this would be right. You would have given the precedent… have you thought about that?!

    Not to mention that probably people would simply NOT read all this… Why bother, if the other one, the one who might have had taken the time to do it, couldn’t care less to?

    Guys, I may know English, but it’s not my language and I surely make mistakes, BUT I would NEVER make someone have to go to a translator to unravel anything I wrote.

    Well, that’s what I think.

    1. Agree Dora!
      But perhaps some few posts in other languages could bring more “visibility” to Compumatrix ? I just think it shouldn’t be a general rule and most of the posts should still be made in English. But a few posts in other languages could be beneficial. Well, just thinking out loud here… lol

  16. Gail, I’m sorry for getting away from this topic, which you so brilliantly wrote about. You said you are starting with blogs? Well, don’t ever stop doing this! It’s so easily explained, it’s going to help many people who are starting to enter this crypto currency world and use Bitcoin.

  17. this is a great Posting by Gail and the replies are very informative and in a company of such diversity and from all over the world there are going to be issues that are brought up and opinions that do not always mesh together we are all people who have grown up in different worlds and ideas so part of the beauty here is the differences of thoughts and ways we all see the world and our individual lives —

  18. 1 0 and a . Who would have thought that such numbers could become so important to normal people. Exciting to see how normal people around the world are adopting these numbers in BTC form. Just owning a small part of of Bitcoin is a start to growing it on many platforms and the opportunity to live as we are supposed to, in charge of, controlling what we have and even leaving a legacy for your descendants. How the Bitcoin family love these digital numbers.

  19. Thank you Gail for another very informative blog. The blogs written here along with the comments are interesting and so enriching, there is so much wealth of information. I am learning so much and I believe this Bloggers Network is a blessing in disguise to better prepare us prior to the final roll out. You know, some of us may not know that we do not know, hahaha. Read on!

  20. Jorge, it is nice to know we are allowed to post in other languages! Aqui no Brasil o bitcoin tem um enorme potencial ainda adormecido. Muitos já ouviram falar dele, mas poucos sabem o quê é ou entendem realmente o grande potencial que se esconde por trás do bitcoin. Com o passar do tempo tenho certeza que mais e mais pessoas, não só no Brasil mas ao redor do mundo, adotarão o bitcoin em suas vidas diárias e uma grande transformação econômica mundial entrará em andamento, simplificando as transações monetárias e melhorando financeiramente a vida das pessoas.

  21. I know it may not be totally acceptable but as an American and I speak English or better yet American it would be nice that others who are posting in their native tongue would kind of put both up on the screen if possible ?? i just know that there is lots of information that is discarded or not thought of because of language differences and in a global business we need ALL to be on the same page — just my humble thoughts and 40+ years of Business experience — rjh

  22. When I talk with my friends about bitcoin they always say that I know quite a lot about it but I have to disappoint them. I read about bitcoin and blockchain on a regular basis but I am not an expert. Blogposts like this one are an interesting read and I learn from it. It is valuable information.

  23. I enjoyed reading this article. It broke down the fundamentals of Bitcoin and its usage in the world. It took a hard to grasp concept and explained it by using real life scenarios in which BTC could be used for: emails, marriage licenses, and land contracts. This article confirmed my understanding that BTC makes it impossible for any person or organization to alter a document or piece of writing after it is connected to a “block”. That technology alone will eliminate crime and give lawyers time to work on other tasks instead of reviewing contracts that could have potentially been altered before BTC was invented. If everything goes “right” for BTC, the world will change drastically.

  24. One important thing to note is that Bitcoin is decentralized which means no one party controls the value of the coin. This blog gives a base level overview of how bitcoin transactions work. From my understanding the blockchain connotations multiple blocks and each block is different because each transaction creates a new block. The way blockchain completes and verifies its transactions are very complex, but I am glad this blog post gave some key takeaways on Bitcoin so that I can wrap my head around this information!

  25. Although I do not understand all the technicality
    behind blocks, transactions and crypto currency,
    I do know about Bitcoin. Why? Because I have seen
    it described in many articles about Compumatrix,
    like this excellent description by sophye!
    I am happy to know that sometime in the future
    I may be able to use my Bitcoins to pay for my
    needs!

  26. it is an ever moving forward process — not just here at Compu but in the Crypto world and by seeing and researching so many of the bits and pieces of Bitcoin and other currencies –this is so fascinating honestly and and as i read thru blogs and replies I just keep wanting more — thank you all —

  27. this ever changing Crypto world living in an ever changing Cyber world is such a fascinating study and with each day of learning and then putting that into the speed of the changes and adaptations in this world — I am where in a biz sense more likely to put together a professional team to work within to stay at cutting edge of Bitcoin World — great info a fifth time over —

  28. I am not too fussed about the insides and outside of how it works. As long as it is legal and has tangible value which I can translate into hard cash that can buy my essentials that is good enough for me. Let us hope that greedy regulators dont see this a s tax grab target we should be ok.
    I look forward to the day when CDAP allows me to access my strored BTCs and I can get on with my life.

  29. I say yes to all 4 questions but it does work very differently than fiat and with much more transparency which is actually better I think also it is decentralized which is even better yet, no middle man to interfere. There is risk involved if you trade it with price fluctuation though.

  30. Gail, very informative blog! Of course, the answer to all four is “YES” Bitcoin plays an important role in blockchain technology,this is a huge asset and a very secure payment system,It is a valuable asset more than fiat currency and gold.

  31. Thank you, Gail. I loved the blog. Bitcoin means different things to me. Financial freedom, Funds to help build this company, and help my friends and family. I will have a few humanitarian projects starting up, like many others. Crypto is going to change the world.

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