Bitcoin is a type of digital cash that is programmed, developed and held electronically. Nobody controls it. Bitcoins aren’t printed, similar to United States Dollars, the British Pound or Euros – they’re created by unique individuals and organizations running computers all around the globe, utilizing programming that takes care of numerical issues.
It’s a new age in finance and the most controversial yet profitable money is being put on what is known as cryptocurrency.
What makes it different from normal currencies?
Bitcoin can be used to buy things electronically. In that sense, it’s like conventional dollars, euros, or yen, which are also traded digitally.
However, bitcoin’s most important characteristic and the thing that makes it different from conventional money, is that it is decentralized. No single institution controls the bitcoin network. This puts some people at ease, because it means that a large bank can’t control their money.
Who created it?
A software developer called Satoshi Nakamoto proposed bitcoin, which was an electronic payment system based on mathematical proof. The idea was to produce a currency independent of any central authority, transferable electronically, more or less instantly, with very low transaction fees.
Who “prints” bitcoin?
No one makes or prints bitcoin, thankfully. The bitcoin currency isn’t physically printed in the depths of central banking institutions and governments unaccountable to the people and making their own rules. As traditional currency stands, banks and or governments can simply produce more money to cover the national debt, thus devaluing their currency and creating inflation. This problem is exactly why the 100-trillion Zimbabwean note is (Use of the Zimbabwean dollar as an official currency was abandoned on April 12, 2009.) only worth about $40 USD.
Instead, bitcoin is created digitally, by a community of people that anyone can join. Bitcoins are ‘mined’, using computers in a distributed network. However the energy consumption used to mine bitcoin has become so expensive that it’s rarely economical to mine bitcoin from your desktop or laptop computer.
This network also processes transactions made with the virtual currency, effectively making bitcoin its own payment network.
So you can’t “print” unlimited bitcoins?
Exactly. The bitcoin protocol – the rules that make bitcoin run – say that only 21-million bitcoins can be created. However, coins can and are frequently divided into smaller parts (the smallest bitcoin fraction is one-hundred-millionth of a bitcoin and is called a ‘Satoshi’, affectionately named after Satoshi Nakamoto, the founder and developer of bitcoin).
What is bitcoin based on?
Traditionally, major world currency has been based on gold or silver. Theoretically, if you handed over a dollar at the bank you could get gold back (this didn’t work in in the long run due to the unfettered government’s printing of money which causes inflation). Luckily bitcoin is not based on gold but is instead rooted in math.
All around the world people use computer programs that follow mathematical formulas in order to mine and produce bitcoins. The mathematical algorithms are freely available so that anyone can utilize them.
The software is open source, meaning that anyone can look at it to make sure that it does what it is supposed to without paying royalty fees.
What are bitcoin’s main characteristics?
Bitcoin has many important and secure features that set it apart from volatile, government-backed currencies.
1. Bitcoin is decentralized
The bitcoin network is not controlled by one central authority, nation, company, bank or individual. Each machine (computer) that mines bitcoin and processes transactions makes up a part of the network and thus all machines work together to create a global peer-to-peer-network.
This ensures that one central authority can’t tinker with monetary policy and cause a financial collapse which has happened in the United States and many other first world nations (or actually forcibly to take civilian investor’s bitcoins from them, as the Central European Bank decided to do in Cyprus in 2013. And if some part of the bitcoin network goes offline for some reason (which is nearly impossible), the bitcoin keeps on flowing.
2. It’s extremely easy to set up
Conventional banks force you to jump through hoops in order to open any type of account — credit scored, earning reports and “welcome fees” are just the beginning. Setting up merchant accounts for payment is another daunting task that is clouded in bureaucracy. On the other hand, one can set up a bitcoin address or account in seconds, no questions asked, and with no fees payable up front or for the duration.
3. It’s completely anonymous
Well, for the most part… Users can hold multiple bitcoin addresses or accounts, and they are not linked to names, addresses, or other personally identifying information.
Unfortunately, because bitcoin is so anonymous, the cryptocurrency has unjustly come under fire for contributing to shady, dark-web dealings by news agencies that do not fully grasp the stability and benefits of bitcoin.
4. It’s completely transparent
Bitcoin logs details of every transaction that happens in the network. The log is essentially a massive version of a payment ledger called the blockchain. The blockchain records every transaction and logs it indefinitely.
If you have a publicly used a bitcoin address, anyone can see how many bitcoins are stored at said address. However, no one will ever know that the address or account is yours.
There are measures that users can take in order to make their activities more private on the bitcoin network. Using different bitcoin addresses and not transferring lots of bitcoin to a one address are two ways investors accomplish this.
5. Transaction fees are marginal to nonexistent
Your bank may charge you a $10 fee or more for traditional international bank transfers but bitcoin charges you nothing.
6. Bitcoin is extremely fast
A bitcoin user can send money anywhere in the world and it will arrive minutes later. As soon as the bitcoin network processes the payment, the money has been transferred.
7. It’s non-reputable
When your bitcoins are sent, there is absolutely no getting them back. Of course unless the recipient returns them your bitcoin to you. As it has accidentally happened before, mistakenly transferred or lost bitcoin is literally gone forever.
Where to Buy and Sell Bitcoin: