Bitcoin is a digital currency, created for the internet-connected world around us. Bitcoin operates on a decentralized network, which means there is no company, organization, or CEO. All participants in the Bitcoin network have an equal say in its operation.
Bitcoin transactions can be sent anywhere in the world–via the internet, satellite, ham radio, or many other methods–instantly. Transactions are sent peer-to-peer, meaning no third party company–WesternUnion, CashApp, or others–is required or even necessary. Transactions are settled with minimal cost and added to the blockchain, often within minutes of being initiated.
Bitcoin enables increased efficiency in financial systems, much like the internet improved efficiency in communications, media, and news.
Here we will answer a few of the most common questions around Bitcoin.
Who created Bitcoin and when?
Bitcoin was created by an unknown person (or persons) known as Satoshi Nakamoto. Bitcoin started running in 2009 and Satoshi disappeared just over a year later, in early 2011. Satoshi’s true identity–man, woman, or group–is still a mystery.
What is the blockchain?
The blockchain is a record of every single Bitcoin transaction. Miners group transactions into blocks, which are then added to the blockchain. Blocks are added in 10 minute intervals.
Who are the major users?
There are three major types of participants in the Bitcoin network: Users, Node Operators, and Miners. All participants are Users, many are node operators, and few are miners.
- Users send and receive transactions.
- Nodes, which are computers running software with a copy of the entire blockchain, verify that all transactions are legitimate to prevent fraudulent behavior.
- Miners perform computationally intensive calculations on blocks of transactions in order to secure the network and prevent external attacks.
How does a transaction work?
The receiver’s Bitcoin wallet generates an address to which bitcoins can be sent. This address is usually represented by a QR code, but can be a string of letters and numbers. The sender scans the QR code or pastes the address into their wallet as a destination, inputs how much to send, and authorizes the transaction. The receiver sees the bitcoins in their wallet in seconds, and the transaction is settled in minutes.
If you need to receive some Bitcoin, you will use your wallet (on your phone, computer, or a dedicated hardware device) to generate a receiving address. Think of the receiving address as your checking account number: anyone can use that to send you money into your account without needing any additional information from you. The Bitcoin sender generates a transaction and broadcasts it to the entire Bitcoin network.
You can see the bitcoins in your wallet in a matter of seconds, and they are fully settled within minutes.
Are bitcoins only used in whole-units?
No. Bitcoins have subunits known as a satoshi (named after Bitcon’s creator). Just as the dollar has pennies, Bitcoin has satoshis. There are 100 pennies to the dollar, and there are 100 million satoshis to the Bitcoin.
At the time this blog post was published $1 = approximately 2400 satoshis (conversely, 1 satoshi = 0.04 cents!).
How secure is Bitcoin?
The Bitcoin network is immensely secure. Bitcoin is protected from external and internal threats. The amount of energy miners use—which is more than some small countries—protects the network from external threats by making it immensely expensive and difficult to attack. Nodes verify that all transactions are legitimate, preventing a user from copy & pasting their bitcoins to increase their wealth.
Who is in charge of Bitcoin?
No single person, company, or entity is in charge of Bitcoin. The code itself is open-source, meaning it is publicly viewable and anyone can review it or suggest edits. Bitcoin’s monetary policy is predetermined in the code itself, meaning the network does not require any governing board to oversee monetary policy–the users are the governing board.
Where can I get Bitcoin?
There are many ways to get Bitcoin.
- Online exchanges & Phone Apps: There are many exchanges that allow users to create accounts, deposit US Dollars, and exchange them for Bitcoin. Many exchanges have phone apps that provide all the functionality of their web-based platform. In addition, there are other providers that operate only a phone-based app for purchasing Bitcoin.
- Bitcoin ATMs: Unlike conventional ATMS (where the user receives cash), users put cash into Bitcoin ATMs and convert it to Bitcoin. The ATM sends the bitcoins to the user’s wallet. Bitcoin ATMs offer one of the fastest methods of purchasing Bitcoin, but usually come with the highest fees.
- Sell goods or services: Bitcoin, like any other commodity that has value, can be used as a method of payment for a business’s operations.
- More options are always arriving: Many new ways of buying and selling Bitcoin are always being thought up. Stay tuned to the Frontier Bank blog, where we’ll always keep you up-to-date on relevant Bitcoin & cryptocurrency news.
Where can I store Bitcoin?
Bitcoins are stored in wallets–pieces of software designed solely for storing Bitcoins. You can download a wallet to your phone or computer. There are also physical devices—hardware wallets—that allow a user to separate their Bitcoin wallet from their everyday use device, minimizing the risk of hacking or loss.
Additionally, there are third-party organizations that custody Bitcoin for a user. These options decrease the likelihood of accidental loss of Bitcoin, and many offer insurance on any Bitcoin deposited.
If you have any additional questions about Bitcoin, reach out to Frontier Bank’s Digital Banking Manager, Andy Ott at AndyO@frontierbank.com or call (605) 331-2889. If your organization is interested in learning more, Frontier Bank would be happy to schedule a time and present on Bitcoin.
Digital Bank Manager