Bitcoins, cryptocurrencies, blockchains, mining… all these strange rather new terms that there seem to be a lot of attention around… but what are they really? What is a Bitcoin made of? Its it made of “bit”? Is it made of solid gold that has real value and lots of it? Or is it just coated in gold?
Since you clicked on my post here and are wondering what Bitcoin is made of then I’m guessing you are pretty new to the world of cryptocurrency and don’t know much about it yet… and this is okay. Everyone has to start somewhere and I remember when I was a newbie and everything seemed so confusing.
In this short post I’ll be briefly giving an overview of Bitcoin, then I’ll dive into what it is made of.
Bitcoin In a Nutshell
Bitcoin is a decentralized digital currency that no one controls. It uses a new form of technology called blockchain where all transactions that go on over the network are recorded on one single public ledger, that is hosted on computers all over the world which is the part of the makes it decentralized.
So if you were to buy Bitcoin, it would be recorded on the public ledger that would be hosted on computers all over the earth. This ledger would show how much they coin you have in your account when it was sent and everything about that particular transaction. So by looking at the public ledger, aka the blockchain, you can see the amount of Bitcoin in every account that exists.
The fact that Bitcoin is decentralized is partly what makes it so appealing to many. Many people believe that government backed currencies will fail at some point in time and they like the idea of a mathematically controlled currency such as Bitcoin. I don’t want to get into it too much, but bitcoin is governed by math. Because of the protocol it relies on, it is impossible for the network to be hacked. Mathematics is what keeps it safe from inflation, people spending Bitcoin that does not exist, and other problems many currencies could potentially face.
And what I should add to this is that bitcoin is not the only cryptocurrency out there. There are many that rely on blockchain technology. Bitcoin was just the first to enter the market. It was the one came up with the blockchain technology and this is one of the main reasons why is the most popular today.
So What Is Bitcoin Made Of?
Or the better question here might be what is cryptocurreny made of?
You may see bitcoin and other cryptocurrencies shown as being real coins that you can touch and hold. But these are just illustrations and should not be taken seriously, such as the image I used at the top of this post.
Bitcoin and other cryptocurrencies are completely digital in nature. They do not have any physical form. They are not like fiat money where you can take a dollar bill and go to the local store to buy a candy bar with it. This is what worries many people about it. Because you cannot touch them it is almost like they do not exist. However, they do exist. They exists all over the world and there are thousands of computers that can tell you this same fact.
All bitcoin really is, is a bunch of numbers in a bunch of accounts that reside on the blockchain. When you send the big coin, the transaction is verified by the rest of the network, and the sent Bitcoin is updated on the public ledger that is decentralized all over the world. The same goes for when someone receives Bitcoin, the transaction is verified by the rest of the network and then the amount of the bitcoin in your account is updated on the blockchain.
Sounds scary doesn’t it?
But in fact, the bitcoin network is very safe. Because of the mathematics that the protocol runs on, accounts cannot be manipulated and inflation is impossible. So you don’t have to worry about people stealing your bitcoin or people spending bitcoin that they don’t really have.
You Have Total Control Of Your Bitcoin
Like I said earlier, the fact that bitcoin is decentralized is one of the many reasons it that makes it such an interesting new currency that many are catching on to. Unlike fiat money, the government has no control of your bitcoin. Even if the government wanted to, they would not be able to take bitcoin out of your account, close your account, or do anything with your bitcoin. There is no one or no entity in the world that would be able to do such.
Bitcoin and other cryptocurrencies are called cryptocurrencies for a reason. They are based on cryptography that states every account on the blockchain should have one private key associated with that account. What this means is that there is one private key for every bitcoin account, which is basically like a password which consists of a serious of numbers that unlocks the account in gives you access the bitcoin inside. So if you want to spend your bitcoin you will need this password, or private key, to be able to get into your account to spend it. You will be the only one that knows this key and the only way anyone else will be will get into your account is if they steal the key or if you tell it to them or something of that nature.
The downside to having full control over your Bitcoin
The downside is that you have no protection if you make a mistake in somehow lose your bitcoin. So if you lose your private key you are completely out of luck because you are the only one that has that private key. And if you leave your private key laying around in someone else sees it and finds it, they can steal your bitcoin and there is nothing you can do about it, unless of course you were able to move your bitcoin into another account before they actually steal it.
With fiat money you have protection from banks. If someone steals your debit card in drains your bank account you are able to get your money back. With bitcoin you are not able to do such.
What You Should Take Away From This
You cannot hold bitcoin, you can touch it, you cannot smell it, you cannot feel it, you cannot taste it, all you can do is see it in the form of numbers on your computer screen. I know I know I know, it seems so unsafe. But wouldn’t you rather have mathematics governing your money than government officials?
Maybe or maybe not. Some people love the idea of a decentralized currency like bitcoin and others are very much against it. I for one, am all for the new technology and believe in the future of it.
If you are interested in purchasing bitcoin I would suggest using Coinbase to do so. Coinbase is a trusted online exchange that makes it very easy and simple to buy bitcoin with normal money. You can read my full Coinbase review here.
And as always, leave any comments or questions below and I’ll get back to you as soon as possible 🙂