Who Owns Bitcoin?
The short answer: no one owns Bitcoin. People and organizations can own individual Bitcoin, and people and companies can own software that makes it easier to buy, store, or transfer Bitcoin, but no one owns the Bitcoin payment network itself. Bitcoin is entirely independent of any one person or organization.
The decentralized nature of Bitcoin differentiates it significantly from fiat currencies, which are issued, monitored, and backed by the government. No single third-party is involved in the production or monitoring of Bitcoin. Instead, specialized computers, also called miners, work together to maintain the Bitcoin network, sequencing all Bitcoin transactions on a distributed ledger called the Bitcoin blockchain. As a reward for the work of verifying transactions, referred to as Bitcoin mining, whoever successfully mines a block receives newly minted Bitcoin as well as transaction fees.
Like anything that defies existing frameworks, it can take time to understand how Bitcoin works. But taking that time may be worthwhile. The Bitcoin network has several key advantages over traditional networks that benefit its users in terms of privacy, cost, and speed, covered here along with the Bitcoin basics.
What is Bitcoin?
Bitcoin (BTC) is a virtual currency that allows people to make peer-to-peer transactions online. In the most basic sense, Bitcoin is a new type of digital asset. No physical Bitcoins exist, and all Bitcoin transactions require the internet. Because transactions are made online, anyone, anywhere in the world can send bitcoin to anyone else without. Bitcoin is the first and most widely adopted of all cryptocurrencies—digital currencies issued and secured by cryptography. An anonymous person or group going by the name Satoshi Nakamoto first described this idea in 2008, and Bitcoin was born. Since its inception, Bitcoin has inspired the creation of thousands of other cryptocurrencies such as Ethereum. However, Bitcoin remains ahead of its followers in terms of adoption, and market cap.
How does Bitcoin work?
Bitcoin has three components: the currency, the network, and the blockchain. Bitcoin, the currency, can be bought and held by individual people. Users can make payments to other users on the Bitcoin network. Each of these transactions is recorded to the blockchain by miners.
When you receive Bitcoin to an address you control, you use your private key to make additional transactions without verification by a third party. You need both keys to send and receive Bitcoin.
- A private key is similar to a password. It allows you to verify that your Bitcoin belongs to you, and then spend it. You can hold your private keys yourself, or, as most people do, store your Bitcoin in a cryptocurrency wallet that keeps track of your private keys.
- A public key is similar to an email address. It allows others to send Bitcoin to you. To transfer bitcoin, you simply enter the public key of your intended recipient and the amount of Bitcoin you’d like to send them. One bitcoin is divisible up to eight decimal places, providing flexibility to make payments in small amounts.
All transactions are verified using cryptography to ensure that no one Bitcoin is spent twice by the same user. The miner that completes the verification the fastest is rewarded with Bitcoin. Currently, there are roughly three million Bitcoins in circulation. The original paper outlining Bitcoin stated that only 21 million Bitcoin could ever be created. As the number of minted Bitcoin increases, the process of mining bitcoin becomes harder and harder.
What are the pros of Bitcoin?
- Easy: Sending and receiving Bitcoin with a digital wallet is simple. All you need to do is enter the amount you’d like to send and the information of your recipient.
- Universal: You can easily and cheaply send or make purchases with Bitcoin internationally.
- Irreversible: Once a user transfers ownership of Bitcoin to another user, the transaction cannot be reversed by the original sender. This greatly reduces certain types of fraud risk.
What are the cons of Bitcoin?
- Adoption: Despite relatively high adoption for a cryptocurrency, Bitcoin is still not nearly as widely accepted as fiat currencies. Few online or brick-and-mortar businesses accept Bitcoin as a form of payment.
- Volatility: The value of Bitcoin can change more often and more drastically than traditional currencies. Its value at the start of 2022 was just over $47,000 USD. As of today, the price of a single bitcoin is just over $21,000 USD. This makes Bitcoin a higher-risk investment.
- No Guarantees: Because Bitcoin is not backed by a government, no one guarantees a minimum value of Bitcoin. If a large number of investors suddenly decide to get rid of Bitcoin, its value could plummet and savings could be lost overnight.
Bitcoin is a digital currency that can be used as payment for goods or services or saved as an investment. Even though the process of creating new Bitcoin and maintaining the Bitcoin network is intricate and complex, using Bitcoin as an individual is straightforward. Though it comes with risks, Bitcoin brings a new functionality that has led to its adoption by people all over the world.