Bitcoin was invented by software developer Satoshi Nakamoto (believed to be a pseudonym), who developed and implemented the algorithm in 2009, after decades of research into cryptography. His true identity remains a mystery click more info here.
A tangible commodity (such as gold or silver) does not help this currency; bitcoins are exchanged electronically which makes them a commodity in themselves.
Bitcoin is an open-source software which is available to every person. To get started, all you need is an email address, access to the Internet and money.
Where do those things come from?
Bitcoin is mined on a distributed computer network of users running specialized software; the network solves some mathematical proofs, and searches for a specific data sequence (“block”) that generates a particular pattern when the BTC algorithm is applied to it. A match gives rise to bitcoin. It is time- and energy-consuming and complex.
Just 21 million bitcoins are ever to be produced (at the moment only 11 million are in circulation). Progressively more difficult to keep the mining operations and supply in order are the math problems that the network computers solve.
Even this network validates all transactions through cryptography.
How does Bitcoin?
Internet users transfere digital assets (bits) on a network to each other. There is no online bank; Bitcoin has been defined as a distributed ledger distributed over the Internet instead. Users buy Bitcoin in cash or through the sale of a Bitcoin product or service. This digital currency is stored in Bitcoin wallets and used. Users will sell their Bitcoin out of this virtual ledger by trading it to someone else who wants in. Anyone, anywhere in the world can do this.
There are smartphone applications for carrying out mobile Bitcoin transactions and the Internet is dominated by Bitcoin exchanges.
Why does Bitcoin get valued?
Bitcoin is not owned or kept by a financial institution; it is completely decentralized. Unlike real-world currency, Governments or banks can not devalue it.
Instead, the importance of Bitcoin lies simply in embracing it as a means of payment between users, and because its supply is finite. The foreign currency prices fluctuate in terms of supply and demand and market speculation; as more people build wallets and carry and invest bitcoins, and as more companies embrace it, the value of bitcoin should increase. Banks are now attempting to measure Bitcoin and several finance websites expect a bitcoin’s price in 2014 would be several thousand dollars.
What are its advantages?
Consumers and retailers who choose to make use of this payment option have advantages.
- Quick Transfers-Bitcoin is instantly transmitted over the Internet.
- No fees / small fees — Bitcoin can be used for free or very small fees, unlike credit cards. No authorisations (and fees) are required without the centralized entity as a middle man. This increases revenue margins for the company.
- Eliminates the possibility of theft-Only the Bitcoin owner may deliver the payment to the intended recipient, who is the only recipient to receive. The network understands that the transfer has taken place, and transactions are validated; they can not be questioned or recovered. This is important for online retailers who are often subject to reviews by credit card processors as to whether a transaction is fraudulent or not, or businesses that pay the high price of credit card charges.
- Data is safe — As we’ve seen with recent hacks on the payment processing networks of national retailers, the Internet isn’t always a secure place for private data. Users aren’t giving up private details with Bitcoin.
- We have two keys-a public key that acts as an address for bitcoin, and a private key with personal details.
- Transactions are digitally “signed” by combining public and private keys; a mathematical function is applied, and a certificate is created to prove the transaction was initiated by the recipient. Digital signatures are special and can not be re-used for every transaction.
- The merchant / recipient never sees your secret information (name, number, physical address) so it’s a bit anonymous but traceable (to the public key Bitcoin address).
- Practical payment system — retailers can make full use of Bitcoin as a payment mechanism; they don’t have to keep any Bitcoin currency because Bitcoin can be converted to dollar. Consumers or merchants can at any time trade in or out of Bitcoin and other currencies.
- International payments-Bitcoin is used worldwide; e-commerce merchants and service providers can easily accept foreign payments, opening up new potential marketplaces for them.
- Simple to monitor — The network records every transaction in the Bitcoin block chain (database) and logs it forever. In the event of potential fraud, tracing such transactions is easier for law enforcement officers.
- Micropayments are possible-Bitcoins can be divided up to one hundred millionth, so running small dollar payments or less is a free or near-free transaction. This could be a real boon for convenience stores, coffee shops, and websites (videos, publications) dependent on subscriptions.