what-is-bitcoin

What is Bitcoin?

Crypto currencies or digital currencies are electronic tokens generated by networks of computers to replace traditional currencies.

Bitcoin is by far the most popular cryptocurrency and was created by an individual known only by the pseudonym Satoshi Nakamoto who limited the number of Bitcoins generated by the distributed network of computers in his exchange to 21 million. This limitation in supply ensures demand for the tokens which subsequently increases its value.

It is decentralized meaning there is no central authority controlling Bitcoin rather Bitcoin is peer-to-peer or controlled by the people that use Bitcoin. Compared to other alternatives, Bitcoins have a number of advantages.

Bitcoins are transferred directly from person to person via the net without going through a bank or clearinghouse. This means that the fees are much lower. You can use Bitcoin in every country, your account cannot be frozen and there are no prerequisites or arbitrary limits. Bitcoin has no international transaction fees and many would say no currency regulations either.

Bitcoins are generated all over the Internet by anybody running a free application called a Bitcoin miner. Mining requires a certain amount of work for each block of coins. This amount is automatically adjusted by the network such that Bitcoins are always created at a predictable and limited rate.

All Bitcoin transactions are recorded in a huge distributed ledger called a blockchain. Bitcoin transactions are grouped into a block and added to the public ledger by a process called mining. Bitcoin mining is used as a way to verify legitimate Bitcoin transactions from fraudulent attempts to respend Bitcoins.

Each block is encrypted using a different mathematical algorithm that requires substantial computing power to solve. Once a block is mined it must contain a proof of work before it’s added to the blockchain. After a block is verified and accepted the miner that solved or verify the transaction is paid a subsidy of newly created Bitcoin. Thus the purpose of Bitcoin mining is twofold first and foremost to verify and record Bitcoin transactions and secondly to introduce new Bitcoins into the system.

Bitcoins like other crypto currencies such as Light Coin or Etherium have value based on the exchange of conventional currencies and commodities for the tokens through special internet exchanges such as BitPay

Bitcoin is changing finance the same way the web changed publishing. When everyone has access to a global market, great ideas flourish.

Although Bitcoin can be used to purchase many legitimate goods and services it is undoubtedly an easy medium for criminals to engage in illegal activities such as money laundering, the purchasing of illegal goods or any other transaction that criminals wish to be untraceable. On a similar note there have been almost a dozen hacks of Bitcoin exchanges since 2010 and losses range in the hundreds of millions of dollars. Programmers and cryptocurrency communities are working hard to identify and mend the vulnerabilities in their blockchain networks.

When you transfer Bitcoins, an electronic signature is added. After a few minutes the transaction is verified by a miner and permanently and anonymously stored in the network. The Bitcoin software is completely open source and anybody can review the code.

Anyone who invests in Bitcoins should have the proper internet security in place before accessing financial information and making transactions.

Your Bitcoins are stored in your digital wallet which might look familiar if you use online banking. Don’t keep all of your Bitcoins in online banks or stock exchange services instead use an offline Bitcoin coin wallet service like Electrum or Armory that let you store your Bitcoins in heavily encrypted cases on your own hard drive. Always make sure to use a strong password with these, preferably with an open-source password generating software. For the ultimate security keep this offline wallet on a separate hard drive or a computer that isn’t connected to the internet, only transferring Bitcoins to your internet-connected device when you need to complete an online transaction.

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