Do you know what "Bitcoin" is? I think many people have heard of it as digital money. If it's digital money, how is it different from contactless payment card (like Suica in Japan or Octopus Card in Hong Kong) or digital wallets (like PayPay in Japan, WeChat Pay / Alipay in China) that we use every day?
Not at all. Bitcoin is completely different from such digital money or digital wallets!
Here we will explain in an easy-to-understand way what Bitcoin is and what makes it special.
What is Bitcoin?
Unlike physical money like banknotes or coins, Bitcoin is money (virtual currency) that exists in a digital form on the Internet.
In 2008, a mysterious person named Satoshi Nakamoto proposed the mechanism of Bitcoin to the world in a paper called " Bitcoin: A Peer-to-Peer Electronic Cash System ". Bitcoin was born in January 2009.
Bitcoin, which does not have bills or coins, uses the technology of "blockchain." For information on what blockchain is, please see " What is blockchain? " for an easy-to-understand explanation. For the purposes of this article, think of blockchain as a ledger on the Internet that records transactions.
Bitcoin records transactions on the blockchain, an internet-based ledger. These records are not stored in one place, but are shared and stored on many computers around the world.
Bitcoin Features
So, what makes Bitcoin different from regular money?
1. Bitcoin allows instant transfers to someone on the other side of the world.
Bitcoin is a form of money that anyone with a smartphone or computer connected to the Internet can use to make transactions: With Bitcoin, anyone with a smartphone or computer connected to the Internet can create a wallet and send money instantly, even to someone with a wallet on the other side of the world.
You don't need a bank account to send money. You can do the transaction directly without going through the bank transfer procedure or waiting for the bank's permission.
You can trade with anyone, anywhere, anytime using Bitcoin. This kind of convenience and freedom is not available with Japanese yen or US dollars.
2. No centralized organization
The biggest feature of Bitcoin is that it is not issued or managed by a central bank or government. Regular "legal tender" currencies such as the Japanese yen and the US dollar are managed by the central bank or the central government.
In Japan, the Bank of Japan manages the Japanese yen. In the UK, the Bank of England manages the pound. In the US, it's a little more complicated, with the Federal Reserve System ( the FRB is the highest decision-making body, and is made up of 12 Federal Reserve Banks within the US) at the center of the FRB (Federal Reserve Board), playing the role of central bank and managing the US dollar.
On the other hand, Bitcoin does not have an organization that manages money, such as a central bank. Bitcoin records transactions on the blockchain, which is an online ledger. These records are not stored in one place, but are shared and stored on many computers around the world. Furthermore, Bitcoin is issued and distributed automatically based on certain rules.
3. The amount of money issued is fixed
The fiat currency like US Dollors or Japanese Yen is controlled by the central bank, which controls the amount of yen issued and circulated, but the amount of Bitcoin issued is limited in advance by program, and no one can increase or decrease the amount issued.
Since the birth of Bitcoin in 2009, the maximum number of Bitcoins that can be issued has been set at approximately 21 million BTC (BTC is the trading unit of Bitcoin, similar to the Japanese yen). The amount of Bitcoin issued is issued according to a predetermined schedule and is not influenced by policies decided by governments, politicians, or central banks.
In this way, Bitcoin is an attempt to solve the problems of the fiat currency system, namely, being free from bank bailouts that ordinary people find unfair, and from policies that determine the value of money (raising or lowering interest rates).
4. No personal information is made public
Bitcoin transactions are visible to anyone on the internet, but the specific identities of the people making the transactions are not made public, protecting the privacy of both the coin and those who use it.
Nowadays, if you want to send a large amount of money in Japan, you need a bank account. Your name and address are all registered with the bank, so the bank can see who made the transaction. Recently, banks have also been passing on transaction information to the tax office or police if they receive inquiries from them. In the sense that the contents of transactions are visible, you could say that there is no privacy.
5. Peer-to-peer network
Bitcoin operates on a peer-to-peer (P2P) network, which allows users to make transactions directly between each other. Another way to say a peer-to-peer network is that it is a network of peers or a direct network between participants. This allows monetary transactions to take place without the need for a third party.
Peer-to-peer networks are easier to understand when compared to a client-server model of networking, which is illustrated by the web browser (the client) used to view a website.
When you view a website with a web browser, data is retrieved from the server that contains the website information. In this way, the roles of the server providing the data and the client (web browser) receiving it are clearly defined.
Client-server model
On the other hand, in a peer-to-peer network, all participants (peers) are equal and share the information they have directly with other participants (peers). In other words, participants (peers) sometimes act as data providers (roles like servers) and sometimes as data recipients (roles like clients). And because each peer communicates directly, the network can function without a central server.
Peer-to-Peer Network
This peer-to-peer model allows Bitcoin to be a decentralized network: if the central server is attacked or becomes corrupted, the entire network will not go down, and no one person or company has control over the network.
6. All transactions are publicly available on the Internet, making them highly transparent
All Bitcoin transactions are publicly available on the Internet and are recorded in the "blockchain," a system for permanently recording transactions, making them highly transparent. (For more information, see " What is Blockchain?" ) All Bitcoin transactions can be viewed on sites such as Blockchair and BTC.com , which are search sites known as "blockchain explorers."
7. It is highly secure because transactions are verified through mining.
In order to add new transactions to the blockchain, which stores Bitcoin transaction data, a calculation called "mining" must be performed. Computers that solve this calculation are rewarded with newly generated Bitcoins and Bitcoins paid as fees when sending Bitcoin. Today, with the enormous computing power of computers, including ourselves, being invested in it, it has become nearly impossible for malicious hackers to carry out fraudulent Bitcoin transactions. (For more information, see " What is Bitcoin Mining?" )
8. Unique transaction unit "BTC"
Bitcoin has its own unit of currency called "BTC". PayPay and Suica use the Japanese yen as their unit, so they are really just "digital money backed by the Japanese yen" and not true digital money.
9. The smallest trading unit is 8 decimal places
Bitcoin's smallest trading unit is 0.00000001 BTC. Because it is digital money, there is no need to trade in round units like 10,000 yen bills or 500 yen coins, and it can be traded in smaller units and there is no need to give change. Incidentally, the smallest unit, 0.00000001 BTC, is sometimes called 1 satoshi, after Satoshi Nakamoto, the creator of Bitcoin. (1 satoshi = 0.00000001 BTC)
We believe that Bitcoin, with all these wonderful features, is "a new currency born from the Internet." Just as the Internet came out, email and messengers like LINE came into use, and people stopped sending letters by mail, we believe that old legal tender currencies (US dollar, Euro or Japanese Yen etc.) may no longer be used in the future.