Bitcoin is a digital currency based on mathematics. It differs from digital money in bank accounts. Approval from the bank is required to use the money in a bank account, such as transferring it. In contrast, in bitcoin, creating a wallet and transferring bitcoins are verified through mathematical algorithms. Therefore, no institution’s approval is needed.
Being based on mathematical algorithms ensures that bitcoin cannot be censored. This means anyone can create a wallet at will and transfer their bitcoins to anyone, at any time and in any amount. Creating a wallet and transferring bitcoins cannot be blocked by any authority. Bitcoin has no owner or central authority controlling it.
From another perspective, bitcoin can also be considered digital gold.
Why Was Bitcoin Created?
Before bitcoin was created in 2009, the world experienced a period known as the “real estate bubble.” Many governments, particularly the United States, printed excessive money to prevent economic stagnation. Initially, this policy stimulated the markets, but over time, it caused high inflation and disrupted the financial balance. As the economy deteriorated, markets crashed, companies went bankrupt, and millions lost their homes and assets.
In response to governments printing money out of thin air and causing economic harm to the public, an individual known under the pseudonym Satoshi Nakamoto created bitcoin in 2009. His goal was to develop a digital currency that, unlike government-controlled fiat currencies, could not be arbitrarily increased and was resistant to inflation. To achieve this, he limited the total supply of bitcoin to 21 million coins, making it impossible to produce more than this amount.
This limited supply ensures that bitcoin increases in value over time. When new bitcoin production ends, those who want to buy it will have to pay more due to its increasing scarcity. This increase in value is based on the fundamental economic principle: ‘The scarcer something is, the more valuable it becomes.”
How Does Bitcoin Work?
Bitcoin operates on two fundamental mechanisms: the creation of new bitcoins and the recording of transactions. All transactions are stored in a computer file called the blockchain, which is distributed across thousands of independent computers worldwide and can be downloaded by anyone.
The process of generating new bitcoins and adding transactions to the blockchain is called mining. Miners use high-powered computers to solve complex mathematical problems. As a result of these calculations, new bitcoins are produced, and transactions are mathematically verified.
Anyone can mine bitcoin using a personal computer, but it is not cost-effective. Mining requires powerful computers that consume large amounts of electricity. As a result, solo mining at home is usually unprofitable due to high electricity costs.
Mining pools—digital collaboration—have been created to address this issue. Individuals combine their computational power to mine collectively and share the rewards. Additionally, mining farms exist, which house thousands of computers and collaborate with power plants to mine bitcoin at lower costs using cheap electricity.
Since bitcoin’s operation relies on the collective efforts of people worldwide, no single person, institution, or government controls it.
Why Isn’t Bitcoin Managed by a Centralized System Like Banks?
Instead of using an expensive and complex system like mining, why aren’t bitcoin transactions managed by a bank-like institution? If bitcoin were controlled by a centralized entity like a bank or government, they could print unlimited bitcoin, arbitrarily cancel transactions, or prevent certain people from using it.
This would contradict bitcoin’s core principle of decentralization. Decentralization means that bitcoin data is not stored in a single location but is distributed worldwide. This characteristic sets bitcoin apart from traditional currencies and ensures that anyone can use bitcoin without requiring approval from any authority—thus making it resistant to censorship.
Final Thoughts
In this article, I have briefly explained why bitcoin was created and how it works. There are many more topics I want to cover, and I will address them in future articles. I hope this article helps you gain financial awareness and protects your money from losing value due to inflation.
I believe that bitcoin will continue to gain value due to its limited supply. However, bitcoin prices can experience significant fluctuations. During sharp increases or drops, panic buying and selling will ultimately result in losses. Always conduct your own research and avoid making emotional decisions. Do not let others dictate how you manage your money.
Remember
Please do not invest in bitcoin without understanding how it works. Before buying bitcoin, thoroughly research how it operates, how transactions work, and what security risks exist. Remember that it is impossible to recover your money if you make an incorrect transaction.
I wish you a life that makes a difference.