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Word of the Week: Bitcoin
Welcome to Mouth Money’s Word of the Week, a weekly dive into essential personal financial phrases and words. We want to help simplify complex financial jargon and empower your understanding of money. This week: bitcoin.
Bitcoin is a digital currency, often referred to as cryptocurrency. It was invented in 2008 by an unknown person or group of people using the pseudonym Satoshi Nakamoto and was released as open-source software in 2009.
Bitcoin operates on a peer-to-peer network, allowing users to send and receive payments without the need for a central authority, such as a government or financial institution.
To have a wider understanding of what a Bitcoin is, you need to consider:
- Blockchain technology: Bitcoin transactions are recorded on a public ledger called the blockchain. This distributed ledger ensures transparency and immutability, as each block in the chain contains a cryptographic hash of the previous block.
- Mining: Bitcoin transactions are verified and added to the blockchain through a process called mining. Miners use powerful computers to solve complex mathematical problems, and in return, they are rewarded with newly created bitcoins. This process helps secure the network and ensures the integrity of the transactions.
- Decentralisation: Bitcoin operates without a central authority, meaning no government or institution controls it. This decentralisation is a key feature that distinguishes it from traditional currencies.
- Limited supply: There is a maximum limit of 21 million bitcoins that can ever be created, making it a deflationary currency. This scarcity is intended to mimic the scarcity of precious metals like gold.
- Wallets: Users store their bitcoins in digital wallets, which can be software-based (online, desktop, or mobile) or hardware-based (physical devices).
- Volatility: Bitcoin’s value can be highly volatile, and its price is determined by market demand and supply. This volatility has led to debates about its use as a store of value or medium of exchange.
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