Bitcoin is designed to let you store, receive, and send money to anyone in the world without the need for any bank or company.
Before Bitcoin came along, you always needed third parties like BDO, Cebuana Lhuillier, or Western Union since they are responsible for verifying the money you send and receive.
The problem? These banks and companies make the process more inefficient than it needs to be. Whenever you send money locally or internationally, you often pay hefty fees, wait a long time, need to show a ton of documentation, or face logistical problems such as ATMs shutting down.
Bitcoin is a monetary network that lets you handle your money without all of those. It doesn’t need any bank, corporation, or government to function. It is a completely trustless network. And the best part? All you need is a phone and an Internet connection.
Now, let's take a look at Bitcoin's more formal definition.
Bitcoin is a peer-to-peer, decentralized cryptocurrency that enables users to send value from one another without the need for intermediaries.
Yep, I know… This definition is full of jargon and might sound a bit intimidating. Let's break down the terms one by one to better understand what Bitcoin is.
Peer-to-peer refers to a network where different computers act as both clients and servers, taking out the need for a central party to communicate.
Imagine a network with computers A to H. This is how your regular network looks like today. You have your central server in the middle and all of the other computers around it. The central server is responsible for conducting all communication and processes happening among all the computers.
So let's say computer A wants to say "Hi!" to computer F. For that to happen, computer A's message must go through the central server to reach computer F. Once it does, the communication is complete.
Now, this is different from what a peer-to-peer network is. Let's take the same example, but this time, without the central server. It will look something like this:
In a peer-to-peer network, all the computers help out by acting as servers in our original example.
So again, let's say computer A wants to say "Hi!" to computer F. Instead of the message going through the central server, all the computers in the network help deliver the message to computer F.
One famous example of a peer-to-peer network is torrenting. Remember PirateBay, YTS, or Torrentz2? A peer-to-peer network also has a lot of benefits such as reduced costs, efficiency, security, and extendability. Pretty cool, right?
Being decentralized refers to an entity's lack of need for a central authority or organization to operate.
Since Bitcoin is decentralized, it allows anyone from any part of the world to partake in the Bitcoin network. A person of any sex, race, or religion can participate. There are no gatekeepers. All you need is a device and an Internet connection.
Decentralization is the opposite of traditional finance companies like BDO, BPI, or Metrobank, which are all centralized. In these cases, a single authority controls all the transactions happening in their network.
The decentralized nature of Bitcoin also minimizes risk because there is no single point of failure. The Bitcoin network is supported by computers spread across the world — from the United States to Russia, China, and Germany.
If 10% of the Bitcoin network were to go offline for some reason, it would still run. If 25% goes offline, it would still run. If 40% of it goes offline, it would still run. If 50%... you get the idea.
To recall, a cryptocurrency is a type of digital currency secured by cryptography — making it nearly impossible to counterfeit or hack.
Cryptography refers to the practice of techniques to secure communication in the presence of adversaries or bad actors. Simply put, cryptography is the practice of hiding information.
Hopefully, Bitcoin sounds less daunting to you now. Just to reiterate, Bitcoin is a peer-to-peer, decentralized cryptocurrency.
Bitcoin is efficient. No need for hefty fees, long wait times, or unnecessary documentation. You are your own bank.
Bitcoin is inclusive. It’s money that is accessible to anyone, anywhere, all the time as it can be brought, spent, or sent with effortless ease.
Bitcoin is secure. It has no one point of failure. You’d need to shut down global Internet access altogether to bring Bitcoin down.
Bitcoin also does well against other currencies, check out our chart comparison below.
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So… You might be wondering, what exactly makes all of these possible? Well, this is all thanks to a technology called the blockchain. We’ll look more into this together in the next chapter.