It’s no actual coin, it’s “cryptocurrency,” an electronic form of payment that is produced (“mined”) by many individuals worldwide. It allows peer-to-peer transactions instantly, worldwide, for free or at very low cost.
Bitcoin was invented after decades of research into cryptography by software developer, Satoshi Nakamoto (believed to be a pseudonym), who designed the algorithm and introduced it in 2009 2009. His true identity remains a mystery.
This currency is not backed by a tangible commodity (such as for example gold or silver); bitcoins are traded online making them a commodity in themselves.
Bitcoin can be an open-source product, accessible by anyone who’s a user. All you need is an email address, Access to the internet, and money to get started.
Where does it result from?
Bitcoin is mined on a distributed computer network of users running specialized software; the network solves certain mathematical proofs, and searches for a specific data sequence (“block”) that produces a specific pattern once the BTC algorithm is put on it. A match produces a bitcoin. It’s complex and time- and energy-consuming.
Only 21 million bitcoins are ever to be mined (about 11 million are currently in circulation). The math problems the network computers solve get progressively more challenging to keep the mining operations and offer in check.
This network also validates all of the transactions through cryptography.
How does Bitcoin work?
Internet surfers transfer digital assets (bits) to one another on a network. There is absolutely no online bank; rather, Bitcoin has been described as an Internet-wide distributed ledger. Users buy Bitcoin with cash or by selling a product or service for Bitcoin. Bitcoin wallets store and use this digital currency. Users may sell out of this virtual ledger by trading their Bitcoin to another person who wants in. Anyone can do this, anywhere in the world.
There are smartphone apps for conducting mobile Bitcoin transactions and Bitcoin exchanges are populating the Internet.
How is Bitcoin valued?
Bitcoin is not held or controlled by a financial institution; it is completely decentralized. Unlike real-world money it can’t be devalued by governments or banks.
Instead, Bitcoin’s value lies simply in its acceptance between users as a form of payment and because its supply is finite. Its global currency values fluctuate in accordance with supply and demand and market speculation; as more folks create wallets and hold and spend bitcoins, and more businesses accept it, Bitcoin’s value will rise. Banks are actually trying to value Bitcoin plus some investment websites predict the price of a bitcoin will be several thousand dollars in 2014.
What are its benefits?
There are benefits to consumers and merchants that are looking to utilize this payment option.
1. Fast transactions – Bitcoin is transferred instantly online.
2. No fees/low fees — Unlike credit cards, Bitcoin can be used free of charge or very low fees. Without the centralized institution as middle man, there are no authorizations (and fees) required. This improves profit margins sales.
3. Eliminates fraud risk -Only the Bitcoin owner can send payment to the intended recipient, who’s the only one who can receive it. The network knows the transfer has occurred and transactions are validated; they cannot be challenged or taken back. This is big for online merchants that are often subject to credit card processors’ assessments of if a transaction is fraudulent, or businesses that pay the high price of charge card chargebacks.
4. Data is secure — Once we have seen with recent hacks on national retailers’ payment processing systems, the Internet isn’t always a secure place for private data. Offline paper wallet With Bitcoin, users do not give up private information.
a. They have two keys – a public key that serves as the bitcoin address and a private key with personal data.
b. Transactions are “signed” digitally by combining the public and private keys; a mathematical function is applied and a certificate is generated proving the user initiated the transaction. Digital signatures are unique to each transaction and can’t be re-used.
c. The merchant/recipient never sees your secret information (name, number, home address) so it’s somewhat anonymous nonetheless it is traceable (to the bitcoin address on the public key).
5. Convenient payment system — Merchants may use Bitcoin entirely as a payment system; they do not need to hold any Bitcoin currency since Bitcoin can be changed into dollars. Consumers or merchants can trade in and out of Bitcoin and other currencies at any time.
6. International payments – Bitcoin is used around the globe; e-commerce merchants and providers can easily accept international payments, which start new potential marketplaces for them.
7. An easy task to track — The network tracks and permanently logs every transaction in the Bitcoin block chain (the database). In the case of possible wrongdoing, it is easier for police to trace these transactions.
8. Micropayments are possible – Bitcoins can be divided down to one one-hundred-millionth, so running small payments of a dollar or less becomes a free or near-free transaction. This may be a real boon for convenience stores, coffee shops, and subscription-based websites (videos, publications).