The Basics You Should Know About Bitcoin

By now, practically everyone is familiar with the virtual currency that is bitcoin, even if they only know enough to associate it with the nerdy preoccupations of computer geeks and technophiles. But to reduce bitcoin to nothing more than an exclusive fad would be a mistake, as the virtual currency has become has become more relevant to the modern of era of economics, with indisputable implications as to the future of finance.

What is a digital currency?

A digital currency, sometimes called simply ‘digital money’ or ‘virtual currency’ is a term used to describe money that is dealt with in an electronic format as opposed to physical money such as coins and banknotes. Digital currencies date back to the advent of the internet which made possible instantaneous and borderless transaction.

What is a cryptocurrency?

A ‘cryptocurrency’ is a form of digital currency, so called because of how it uses cryptography as a secure and coded medium of transferral.

What is bitcoin?

Bitcoin has become the most popular type of cryptocurrency. The Bitcoin Network refers to the software used in dealing with the currency. Its value fluctuates based on what people are willing to pay for it. In the beginning, bitcoins were worth mere pennies. At its most popular, a bitcoin was valued at 1,250 USD.

Bitcoin allows for peer-to-peer exchanges which means that there is no ‘middleman’ or third-party taking a share of whatever is being transferred. Usually, currencies rely on a bank or processor (such as Visa) in verifying a monetary transaction so as to ensure that the payment is sent successfully. With bitcoins, however, transactions are permanently recorded on the publicly viewable Blockchain.info.

This automatic confirmation is also what allows for bitcoin’s decentralization. There is no individual or institution which holds any authority over bitcoin- this is perhaps one of the defining aspect of bitcoin.

It is also, however, what makes some governments concerned over its use. The main worry is that cryptocurrencies can be used to transfer funds for criminal activities. It is worth, noting, however, that cryptocurrencies are not anonymous. Many people incorrectly believe that it is impossible to trace bitcoins and that one can therefore be anonymous while using the currency, however many bitcoin service providers now require proof of identity or residence before allowing transactions.

Who created bitcoins?

Someone known as Satoshi Nakamoto first introduced the concept of Bitcoin as a peer-to-peer cryptocurrency in 2008. Nakamoto is, however, an anonymous individual. In 2016, an Australian man by the name of Craig Wright claimed to be Nakamoto, though some are uncertain as to whether this is true. Some people even believe that Satoshi Nakamoto is not one single person, but a collective group that have selflessly decided to be anonymous in support of a financial revolution.

How do I get hold of bitcoins?

The main ways of acquiring bitcoins include mining them, buying them, or receiving them in return for providing service or goods.

Bitcoin mining is a complex process which requires a good degree of specialist knowledge and a specific set of equipment. When bitcoin was at its most profitable, mining was considered a worthy investment of time and money.

Nowadays, it is more common to buy bitcoins from an online exchange – of which there are many specializing in the virtual currency.

Is bitcoin a legitimate and globally recognized form of currency?

Yes, and no. It’s a simple question with a complex answer. The legality and official recognition of bitcoin varies across the world. In Japan, for example, the currency is totally legal and widely accepted. Belgium considers governmental interference into the use of bitcoin as uneccessary, whilst Canada attempts to monitor bitcoin transactions under its regular anti-money laundering and counter-terrorist laws.

Finland even imposes tax on bitcoin. In Indonesia, on the other hand, the government has officially stated that bitcoin is not a valid form of currency and should not be used in place of monetary transactions.

Clearly, there is no definitive answer to whether or not bitcoin is a legitimate and recognized form of currency, but it can certainly be used to make payments even to international corporations and businesses.

Where can I spend bitcoins?

Some people keep bitcoin in their ‘online wallets’ purely for investment purposes. They store them away until such a time when it would be highly profitable to sell them. For those interested in spending bitcoins, there exist a wide range of businesses which will accept them as a form of payment.

You might be surprised to find that brands such as Amazon and Subway allow you to pay with bitcoins. Even the global charity Save the Children recognises the worth of bitcoins in accepting the currency as a form of donation.

Shops and services which are famous for accepting bitcoins in place of ‘real’ money vary from online poker sites to software developers and airline booking sites.

What are the risks of using bitcoin?

The primary risk that comes with using bitcoin is that of hacking. In 2015, hackers broke into the bitcoin exchange, Bitfinex, and stole $70 million worth of bitcoins. There is evidence to suggest that over a third of all bitcoin trading platforms have at some point been hacked in some way or another.

Since there are no official, regulated banks dealing in bitcoins, and users aren’t insured – the losses are particularly damaging.

From an investment standpoint, buying bitcoins can also be risky. The currency’s value fluctuates dramatically, and it is difficult to predict its future worth in the same way that one can do with traditional currencies.

What is the future of bitcoin?

If bitcoin goes away, it will be because a more efficient virtual currency has been developed as a replacement. Many experts predict, however, that bitcoin will enjoy a period of growth before that happens. Cryptocurrencies are not going anywhere – and bitcoin looks to dominate for a few years yet.

 

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