It is not a real currency; it is “cryptocurrency,” a form of digital payment that is produced (“extracted”) by many people around the world. It enables peer-to-peer transactions directly, worldwide, for free or at a little cost.
Bitcoin was invented after decades of cryptographic research by software developer Satoshi Nakamoto (presumably a pseudonym), who designed the algorithm and introduced it in 2009. The real identity remains a mystery.
This currency is not backed by a tangible asset (such as gold or silver); bitcoins are traded online, which makes them an asset in themselves.
Bitcoin is an open-source product, accessible to anyone who is a user. All you need is an email address, internet access, and money to get started.
Where it comes from
Bitcoin is mined on a distributed computer network of users using specialized software; the system solves some scientific tests and searches for a particular set of data (“block”) that a specific model yields when the btc profit applied. A game yields a bitcoin. It is complex and takes time and energy.
Only 21 million bitcoins will be mined (approximately 11 million are currently in circulation). The math problems that network computers solve are becoming increasingly challenging to control extraction and feed operations.
This network also validates all transactions through encryption.
How does Bitcoin work?
Internet users transfer digital sources (bits) to each other via a network. There is no online bank; instead, Bitcoin has been described as a ledger distributed on the Internet. Users buy Bitcoin in cash or by selling a Bitcoin product or service. Bitcoin wallets store and use this digital currency. Users can sell from this virtual ledger by exchanging their Bitcoin with someone else who wants it. Anyone can do it anywhere in the world.
Smartphone apps exist to conduct mobile transactions on Bitcoin, and Bitcoin exchanges populate the internet.
How is Bitcoin rated?
Bitcoin is not managed or controlled by a financial institution; it is entirely decentralized. Unlike real money, it cannot be devalued by governments or banks.
Instead, the value of Bitcoin lies in its acceptance by users as a form of payment and because the offer is limited. Global currency values fluctuate based on supply, demand, and market speculation; as more people create wallets, hold and spend bitcoins, and more and more companies accept it, the value of Bitcoin will increase. Banks are now trying to evaluate Bitcoin, and some investment websites predict that the price of a bitcoin will be several thousand dollars in 2014.
What are the advantages?
There are benefits for consumers and traders who want to take advantage of this payment option.
1. Fast transactions – Bitcoin is sent directly over the internet.
2. No commission / low commissions – Unlike credit cards, Bitcoin can be used for free or very low commissions. Without the central institution as an intermediary, no authorizations (and committees) are necessary. This improves sales of profit margins.
3. Eliminate the Risk of Fraud – Only the Bitcoin owner can send the payment to the intended recipient, who is the only one who can receive it. The network is aware of the transfer, and the transactions are validated; they cannot be challenged or taken back. This is important for online sellers who are often subject to credit card processor reviews to determine if a transaction is fraudulent or for companies that pay the high price of credit card chargebacks.
4. Data is safe – As we have seen with recent hacks on the payment processing systems of domestic retailers, the internet is not always a safe place for private data. With Bitcoin, users do not provide private information.
a. They have two keys: a public key that acts as a bitcoin address and a private key containing personal information.
b. Transactions are digitally “signed” by combining public and private keys; a math function is applied, and a certificate is generated stating that the user-initiated the transaction. Digital signatures are unique to each transaction and cannot be reused.
c. The merchant/recipient never see your secret information (name, number, physical address), so it’s a bit anonymous, but it’s traceable (to the bitcoin address on the public key).
5. Convenient Payment System – Traders can fully use Bitcoin as a payment system; they must have no value