Bitcoin can be described as a digital currency, virtual currency or cryptocurrency. Simply put, Bitcoin is completely virtual. The cryptocurrency can be used for purchasing services and products, but is only accepted by certain businesses. Physical photographs of bitcoin are worthless because the value is in the private codes inside of the cryptocurrency.
Every bitcoin is like a little computer file with a digital wallet used for storage. The cryptocurrency can be sent to other people or a digital wallet. Part of a bitcoin can also be sent as opposed to the entire virtual currency.
The main reason for the creation of bitcoin was the removal of the middleman. When money is transferred from one country to another, the funds must be sent using a bank in the sender's country. The bank charges a processing fee when the money is sent. When the recipient receives the funds, another fee is charged by their bank. The other issue with traditional money is the data stored by the banks.
During the last decade, numerous banks have been hacked. The hackers were able to obtain a lot of private data stored by the banks. This presents a danger to their customers. Bitcoin is different than a traditional bank account because the bank is unable to block or freeze cryptocurrency. Banks have abused the power they hold over the population.
Banks had a large part in the 2008 financial crisis. A lot of people believe this crisis was a key reason for the creation of Bitcoin in 2009. Unlike a bank, virtual currency does not have a single authority. This was never meant to enable banks or financial institutions to gain the power to control entire populations. Once currency was controlled by governments and banks, the solution was a new currency.
The solution was bitcoin because the single authority was eliminated. Cryptocurrency prevents funds from being frozen by governments and banks. The issue is, most people do not yet understand how bitcoin works. All transactions are recorded on a public list referred to as the blockchain. Since the history of every transaction is traceable, it is impossible for anyone to spend any coins belonging to someone else.
Some people purchase bitcoin in bulk to be used for purchasing services or products. Others purchase the cryptocurrency as an investment. Japan is already legally accepting bitcoin for purchasing both services and goods. It is possible this will become the currency of the future. Depending on the savvy of the investor, it is possible to make money. The more money invested, the bigger the potential profit.
New users do not need to understand all of the technical details of cryptocurrency. The first step is the installation of a bitcoin wallet on a mobile phone or computer. The user's first bitcoin address will be generated, with additional addresses created as necessary. The address can be given to friends or family to enable payments. The process is a lot like email with one big exception.
To make certain the bitcoin remains secure, the address should never be used more than once. There are several different ways to acquire bitcoin. This includes:
Bitcoin Mining: Mining can be used for earning bitcoin. The computer costs and technical expertise required mean mining is not an option for most people.
Cryptocurrency Exchanges: Numerous exchanges are available throughout the world. These exchanges offer cryptocurrency including bitcoin to interested parties.
Peer-To-Peer-Purchases: Due to the original spirit of the cryptocurrency, bitcoins can be directly purchased through other owners using tools created for this purpose.
Other Brokers: There are numerous brokers who have announced they will be providing bitcoin trading in the not so distant future.
Bitcoin ATMs: There are currently over 3,000 bitcoin ATMs located in the United States. Purchases can be made by visiting any of them.
The blockchain is basically a shared public ledger. The network is reliant on the blockchain because this is where all confirmed transactions are recorded. This enables the owners of bitcoin wallets to determine how much of their balance is available. Verification of all new transactions makes certain the spender is the rightful owner of the cryptocurrency. Cryptography enforces the integrity of the blockchain.
Digital currency is stored in a hot wallet in the cloud using a trusted provider or exchange, A smartphone app, desktop or computer browser can be used for accessing the funds. A cold wallet is a portable and encrypted device enabling the user to download and keep bitcoins with them. The biggest difference is a hot wallet requires an internet connection and a cold wallet does not.
Any transfer from a bitcoin wallet resulting in inclusion in the blockchain is called a transaction. Every bitcoin wallet used secret data referred to as seed or a private key. This is required to sign a transaction because the key mathematically proves the transaction is coming from the person who owns the wallet.
Once the transaction has been issued, it is unable to be altered due to the owner's signature. A broadcast for every transaction is sent to the network to start the confirmation process. This generally requires between 10 and 20 minutes using the mining process.
Miners are responsible for ensuring all bitcoin transactions are recorded and legitimate. This is accomplished by grouping each new transaction into a block in the time frame when the transaction was made. Once a block is complete, it becomes a part of the chain. This is then linked with complicated cryptography. The public ledger consists of chains of blocks, with the transactions protected by the complexity.
Mining is classified as a distributed consensus system for the confirmation of pending transactions through their inclusion in the blockchain. Chronological order is enforced within the blockchain for the protection of neutrality in the network. This enables an agreement to be reached among the different computers regarding the state of the system.
To be confirmed, transactions are packed inside of a block compliant with extremely strict cryptographic rules verified by the network. The rules prevent modification of previous blocks because this would invalidate subsequent blocks. Mining additionally prevents anyone from adding new blocks easily and consecutively to the blockchain.
This prevents any individual or group from controlling what is or is not included in the blockchain or from replacing any portion of the blockchain with the intention of rolling back their spending.
The system was created to produce a maximum of 21 million bitcoin. Once this occurs, no more bitcoin will ever be released. The most common approximation regarding when this will happen is 2040. Miners do not build blocks for philanthropic reasons. In order for a block to be built, a series of complicated mathematical puzzles must be solved.
The first miner to solve the puzzle correctly unlocks a specific amount of bitcoin. The miner keeps the bitcoin as a reward for being both fast and smart. The competitions are referred to as halving events. The founder of bitcoin is Satoshi Nakamoto. The first time bitcoin was mined, he kept the 50 bitcoin released. After this, whenever a puzzle was completed by a miner, they received a prize of 25 bitcoin.
During the summer of 2016, this amount was once again cut in half to 12.5 coins. The amount will continue to be periodically halved until the total of all 21 million is released.
According to the opinions of numerous cryptocurrency experts, the public ledger is completely safe. For the ledger to be changed, the individual would need to use an enormous amount of computing power. The interesting part is this would have to be accomplished in a public space with thousands of users and computers watching what was happening.
Any changes made by either a computer or an individual impacts the entire blockchain. This means the transactions are literally policed by everyone watching the blockchain.
Bitcoin offers a tremendous potential for growth. Investors are purchasing and holding onto the cryptocurrency because they believe once mature, the trust factor will substantially increase. The result will be much more use of the currency resulting in an increase in value.
The transactions are secure, private and have fewer potential fees. Once owned, transfers can be made from anywhere and at any time. The result is a lower expense with a faster time. As opposed to credit card numbers or names, there is no personal information necessary for a transaction to eliminate the risk of identity theft, fraudulent purchases or stolen information.
Bitcoin enables the user to avoid government intermediaries and traditional banks. Many investors are interested in a decentralized and alternate currency due to the Great Recession and the financial crisis of 2008. The blockchain removes the control of third parties, governing authorities and regular banks. These are just a few of the numerous reasons bitcoin continues to increase in popularity.