What is Bitcoin
Have you already heard about Bitcoin and was curious about the crypto-currency which is frequently a hot topic in newspapers and newscasts? Then this is the right place for you. In the following sentences we will explain what Bitcoins is and how you could use it as a currency!
To put it in simply, Bitcoin is a decentralized currency system. That means that nobody is the owner of this currency and it’s not manage by any government. Bitcoin is so to speak “free money” which is transmitted thru a peer-to-peer (P2P) network.
You can compare it with your online banking. There you define the recipient, the amount of money to transfer and a reference text. The settlement will be transmitted by your bank by electronic means. The same thing happens with Bitcoin but there is no bank between you and the recipient.
What is unique about Bitcoin payments is its speed. A payment can be confirmed in ten to sixty minutes wherever the recipient is. Making bank transfer will take more time. If the payment goes to another bank, perhaps in foreign countries, the transfer can take two to three days. Also, Bitcoin allows you to make payments for a fee. The higher the fee, the faster the transfer will be confirmed.
The Bitcoins are stored in a virtual purse called a wallet. You can compare it with your banking account too. The wallet contains cryptographic keys which are necessary to perform and authenticate a payment. You have to make sure that nobody takes over your wallet and you have to safeguard it against malware or else it could be possible that you lose your Bitcoins to criminal hackers.
Every transaction that takes place thru the P2P network is recorded in a public database which is provided by the whole network and is assigned a digital signature. This way it is guaranteed that the transaction cannot be forged or tampered with.
With Bitcoin, it is also possible to pay in online shops, local stores and even restaurants using the crypto-currency. The number of establishments that allows Bitcoin payment is constantly rising. In addition to that, you can exchange Bitcoin in more than twenty currencies. Therefore you will receive the real value if you want to.
In these times when trust in well-known finance and banking institutions decline, crypto-currencies come across fertile ground. The fact that Bitcoin are limited on a finite amount, it offers security from inflation and it becomes more and more interesting for investors because they are independent to traditional financial systems.
Where Bitcoins come from?
Every currency has its source and so does Bitcoin. Bitcoins are generated by processing power. The performance of computers will use to complete lavishly calculations. If one of these task is finish, a block will be approved to the person respectively the computer who or which complete the task. And every block contains a specified amount of Bitcoins. This payout will resolved about 10-minute intervals.
This process is called mining in the Bitcoin community and requires special computer which are designed to the calculations. As against conventional computer we use at home or office, this mining computer are equipped with multiple graphic cards which supply the power for the calculations. Many a time a number of computer will be combined to a so called mining pool so they can use the whole power to complete the task in a short time. Every member of the mining pool get his portion of the block when the task is finished.
As already mentioned Bitcoins will created under control and it was defined that not more than 21 millions of units could be generated – and nobody can have an effect on it. This number of Bitcoins should be reached in 2040. This fact shows that Bitcoin is a very young currency and has a great future. By the way, the first block was calculated on January, 3 2009 by the innovator of Bitcoin himself, Satoshi Nakamoto, and generated the first 50 Bitcoins. In January 2013 approximately 42,000 computer were concerned in mining and implementation of the transactions.
Because the Bitcoin had no quantifiable value in the early stages, in 2010 the member of the bitcointalk forum fixed exchange rates. To be written large in the history of Bitcoin is a pizza order which was paid with 10,000 Bitcoin. One of the first products on offer, which could be paid with Bitcoins, where alpaca socks that have a cult status inside the Bitcoin community.
Like any other process where transaction of money is involved, the establishment of a very good security framework is one of the primary goals in the Bitcoin scene. An important point for most of the Bitcoin users is that every transfer is anonymous. Without giving information, Bitcoin transactions are untraceable. The Bitcoin addresses is not relatable to a specific person therefore Bitcoin protects the privacy of an individual more than any traditional payment methods.
But privacy has his limits and so it is impossible to guarantee complete protection against police investigation or any government intelligence service. In making transactions with Bitcoin, the other participant can reveal your identity partially. Each transaction is publicly accessible therefore it could be tracked back to subsequent recipients from the chain of the transactions.
In case of criminal transactions the investigation authorities have an easy access to internet call detail records, browser profiles and contact details therefore tracing is very possible. This is especially true if the transaction was from delivery of goods or service. In that case, there is a record of the recipient name and a physical address.
More important than anonymity is the safety of the users’ Bitcoins. We read and hear news in media about stolen Bitcoins, hacked wallets and similar criminal activities. Even large Bitcoin exchange cannot guarantee 100% safety against attacks from outside. Mt. Gox is a good example for that.
There is big advantage on another hand. Compared from payments via credit cards or debit notes, Bitcoin has no risk that any piece of information used for the payment process can be abused for unwanted debiting. That is half the battle won compared to other payment processes.
For everything else it means, that it’s necessary to attend to the subject matter and make arrangements to get maximum security. Normally, clients use automatic coding as basic security which protect against theft but it is not effective against dangers like malwares or key loggers. Online wallets also employ additional configuration such as two-factor authentications to increase the safety for users.
Another tip for ensuring a safe wallet is to back up the wallet file to a USB drive. The USB drive don’t have to be related with the computer so nobody could get access from outside. And without the needed keys it’s impossible to charge Bitcoins from the wallet. It is also not necessary to relate the USB-drive to a computer when receiving Bitcoins.
Beside the clients and online wallets there is a third option which is the offline or paper wallet. The paper wallet is a simply a piece of paper as the name implies. Therewith you are not related by a computer or the internet and so there is no chance for hackers to absorb the wallet. If you do not lose the paper wallet or somebody swipes it off the jacket pocket it’s relatively safe. To the paper wallet pertains an address where the Bitcoins could transferred to an on the paper itself a private key is noted. This private key conduces as proof of the wallet amount. If you would use Bitcoins for shopping or something else you have to import the key in a client you choose.
As previously mentioned also the paper wallet is only relatively safe because by creation of the wallet it can lead to problems with safety. It is appropriate to make arrangements otherwise it doesn’t works in the extent you need it. To describe all valid precaution at this place would break the mold. If you interested in paper wallets, there are many suggestions and guides on the internet.
Bitcoins in everyday life
If you decide to use Bitcoin in everyday life today, you will have fewer problems as it was in the early days of Bitcoin. There are many online shops and entertainment offers that accept Bitcoin as a payment method. Also, there are web services too that provides services such as programming, designing, copy writing and many more that can be paid via the crypto-currency.
It is not only on the web can you pay with Bitcoin. More and more restaurants and stores in big cities offer the option to pay via Bitcoin. Every day the number of these establishments grows. It is especially interesting that now there are Bitcoin ATMs which exchange Bitcoins in cash or the other way round. The ATM’s are becoming more and more popular in some active cities.
At last we are now at the beginning of many possibilities. Every month we find new ways to use Bitcoin and nobody could foresee what will be normal for us in the next year or year after next. But one thing is sure. It is exciting and it will be fascinating to follow up the progress.