Bitcoins is a payment system invented by a programmer under the pseudonym of Satoshi Nakamoto.
The system is peer-to-peer and transactions take place between users directly, without an intermediary such as the banks.
These transactions are verified by network nodes and recorded in a public distributed ledger which is called the blockchain which uses bitcoin as its unit of account.
Since the system works without a central repository, it is classified as decentralized virtual currency. No one controls it.
Bitcoins aren’t printed, like dollars or euros – they’re produced by people, and increasingly businesses, running computers all around the world, using software that solves mathematical problems.
It’s an example of a growing category of money known as cryptocurrency.
Coins are created as a reward for payment processing work in which users offer their computing power to verify and record payments into a public ledger. This activity is referred to as mining and miners are rewarded with transaction fees and newly created bitcoins.
Besides being obtained by mining, bitcoins can be exchanged for other currencies, products, and services.The European Banking Authority and other sources have warned that bitcoin users are not protected by refund rights or chargebacks.
What is Blockchain
The blockchain is a public ledger that records bitcoin transactions.This is accomplished without any trusted central authority.
The ‘‘book keeping’’ of the blockchain is performed by a network of communicating nodes running bitcoin software.
Network nodes can validate transactions, add them to their copy of the ledger, and then broadcast these ledger additions to other nodes.
The blockchain is a distributed database – to achieve independent verification of the chain of ownership of any and every bitcoin (amount), each network node stores its own copy of the blockchain..
What are the units of Bitcoin?
The unit of account of the bitcoin system is bitcoin. Small amounts of bitcoin used as alternative units are millibitcoin (mBTC), microbitcoin (µBTC), and satoshi.
Named in homage to bitcoin’s creator, a satoshi is the smallest amount within bitcoin representing 0.00000001 bitcoin.
A millibitcoin equals to 0.001 bitcoin. Onemicrobitcoin equals to 0.000001 bitcoin. A microbitcoin could also be referred to as a bit.
What does ownership of bitcoins imply?
Ownership of bitcoins implies that a user can spend bitcoins associated with a specific address. To do so, a payer must digitally sign the transaction using the corresponding private key.
Without knowledge of the private key, the transaction cannot be signed and bitcoins cannot be spent.
The network verifies the signature using the public key. If the private key is lost, the bitcoin network will not recognize any other evidence of ownership.
For one to have bitcoins, he/she must have a bitcoin wallet.
What is the exchange rate of bitcoins?
It’s very important to note that the value of bitcoins fluctuate just as every other currency. Hence people Buy and Sell bitcoins in order to capture the profit margin.
When bitcoins were 1st launched, they traded on the premises of 1BTC for 10USD but over the years, there has been an upsurge in the worth of Bitcoins.
Currently in 2017, at the time of updating this article, 1BTC is equivalent to $2750.
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 to conventional money, is that it is decentralized.
No single institution controls the bitcoin network.
This currency isn’t physically printed in the shadows by a central bank rather bitcoin is created digitally, by a community of people that anyone can join. Bitcoins are ‘mined’, using computing power in a distributed network.
In order to limit the amount of bitcoins produced by a miner, the bitcoin protocol ensures that only a maximum of 21 million bitcoins can ever be created by miners.
Around the world, people are using software programs that follow a mathematical formula to produce bitcoins. The mathematical formula is freely available, so that anyone can check it.
What are the benefits of using bitcoins?
Bitcoin has several important features that set it apart from government-backed currencies.
1. It’s decentralized
The bitcoin network isn’t controlled by one central authority. Every machine that mines bitcoin and processes transactions makes up a part of the network, and the machines work together.
That means that, in theory, one central authority can’t randomly adjust monetary policy and cause a devaluation.
2. It’s easy to set up
Regular financial institutions such as banks would make one go through a tiring journey in order to open an account but this is not same with bitcoins, as one can set up a bitcoin address in seconds, no questions asked, and with no fees payable.
3. It’s anonymous
Users can hold multiple bitcoin addresses, and they aren’t linked to names, addresses, or other personally identifying information.
Although if you have a publicly used bitcoin address, anyone can tell how many bitcoins are stored at that address but they wouldn’t know that it’s yours.
However, there are measures people can take to make their activities clandestine on the bitcoin network, such as not using the same bitcoin addresses consistently, and not transferring lots of bitcoin to a single address.
4. It’s completely transparent
Bitcoin stores details of every single transaction that ever happened in the network in a huge version of a general ledger, called the blockchain.
5. Little or no Transaction fee
A bank may charge you a $10 fee for international transfers. Bitcoin doesn’t.
What are the setbacks in use of Bitcoins?
1) It’s non-refundable
When your bitcoins are sent, there’s no getting them back, unless the recipient returns them to you. They’re gone forever.
So it’ll pay a great deal to ensure that transactions are only carried out with TRUSTWORTHY sites that I’ll be telling you about in a jiffy.
The anonymity which it confers has been exploited by criminal organizations to launder money and carry out racketeering under the radar.
This is because bitcoins are virtual and hence non-traceable. This means stiffer measures will be taken by financial organizations sometime in the future to plug this loophole.