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Bitcoin for beginners

In Insights

What is Bitcoin, why was it created and how does it work?

Why was Bitcoin created?

There are many possible answers to this question, but it’s worth looking at the context of the timing of when Bitcoin was created.

Bitcoin was the world’s first cryptocurrency, with the first Bitcoin block created on January 3, 2009. This coincides with the global recession that saw a number of large corporations go bankrupt.

Many governments tried to protect financial institutions with bailouts, a move that drew a lot of public criticism as it relied on the use of taxpayer money.

A lot of people lost their jobs during this global recession, while some lost their houses as they could not repay their mortgages.

Out of this crisis was created Bitcoin, a counter to the inefficiencies of the global financial system.

Though we may never know the real reasons Satoshi Nakamoto created Bitcoin, what we do know for sure is that just 10 years on, the total number of cryptocurrencies has increased to more than 2,000, showing no signs of slowing.

What does Bitcoin achieve?

Criticism leveled at the global financial system often points out the centralized nature of our financial institutions.

The Bitcoin whitepaper describes how the Bitcoin blockchain network and Bitcoin as currency units can be used to send Bitcoin without the need to trust any financial institution.

We can therefore theorize that the aim of creating Bitcoin may have been to replace the centralized nature of financial institutions with a decentralized mechanism.

What is blockchain?

The cryptocurrency industry continues to grow, but how do these cryptocurrencies work?

Many cryptocurrencies use blockchain – a data management system that treats chunks of transaction data as blocks and joins them together to process transactions.

These aren’t physical blocks, but rather, they are conceptual blocks that work to group transaction data.

The cryptocurrency industry evolves quickly, so perhaps in the future there will be a mechanism that replaces blockchain.

For example, a data management method called DAG, or Directed Acyclic Graph, used in currencies such as IOTA usually takes each transaction rather than a block as a unit of data.

As we look to the future, who knows what kind of technology we may have available to us in 10 years.

The cryptocurrency industry is filled with endless possibilities.

This content is not financial advice and should not form the basis of any financial investment decisions nor be seen as a recommendation to buy or sell any good or product. Trading cryptocurrency is complex and comes with a high risk of losing money, particularly if you trade on leverage. You should carefully consider whether trading cryptocurrencies is right for you and take the time to learn how trading works and decide how much money you are prepared to lose.

WRITTEN BY

Liquid

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