It’s not an actual coin, it’s “cryptocurrency,” an electronic form of payment that’s produced (“mined”) by lots of people 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 gold or silver); bitcoins are traded online making them a commodity in themselves.
Bitcoin is an open-source product, accessible by anyone who’s a user. All you need is an email address, Internet access, and money to begin with.
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 looks for a specific data sequence (“block”) that produces a specific pattern when 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 in circulation). The math problems the network computers solve get progressively more difficult to keep the mining operations and supply 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 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 utilize this digital currency. Users may sell using this virtual ledger by trading their Bitcoin to someone else who wants in. Anyone can perform this, all over the world.
There are smartphone apps for conducting mobile Bitcoin transactions and Bitcoin exchanges are populating the web.
Paper wallet BITCOIN How is Bitcoin valued?
Bitcoin isn’t held or controlled by way of a financial institution; it really 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 according to supply and demand and market speculation; as more folks create wallets and hold and spend bitcoins, and much more businesses accept it, Bitcoin’s value will rise. Banks are now trying to value Bitcoin and some investment websites predict the price of a bitcoin will be several thousand dollars in 2014.
What are its benefits?
There are advantages to consumers and merchants that are looking to use this payment option.
1. Fast transactions – Bitcoin is transferred instantly on the internet.
2. No fees/low fees — Unlike bank cards, Bitcoin can be used for free or very low fees. Without the centralized institution as middle man, you can find 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. That is big for online merchants that are often subject to charge card processors’ assessments of if a transaction is fraudulent, or businesses that pay the high price of credit card chargebacks.
4. Data is secure — As we have seen with recent hacks on national retailers’ payment processing systems, the web isn’t always a secure place for private data. With Bitcoin, users usually do not give up private information.
a. They will have two keys – a public key that serves because the bitcoin address and an exclusive key with personal data.
b. Transactions are “signed” digitally by combining the general 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, physical address) so it’s somewhat anonymous but it is traceable (to the bitcoin address on the general public key).
5. Convenient payment system — Merchants can 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 along with other currencies at any time.
6. International payments – Bitcoin can be used around the world; e-commerce merchants and providers can simply 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 could be divided down to one one-hundred-millionth, so running small payments of a dollar or less becomes a free of charge or near-free transaction. This could be a genuine boon for convenience stores, coffee shops, and subscription-based websites (videos, publications).