What is Bitcoin and how does it work?
Bitcoin is a decentralized digital currency that was created in 2009 by an unknown person or group using the name Satoshi Nakamoto. Transactions are made with no middle men – meaning, no banks! Bitcoin can be used to book hotels on Expedia, shop for furniture on Overstock and buy Xbox games. But much of the hype is about getting rich by trading it. The price of bitcoin skyrocketed into the thousands in 2017.
How does it work?
Bitcoin is a cryptocurrency, meaning it is a digital or virtual currency that uses cryptography for security. Transactions are verified by network nodes through cryptography and recorded in a public distributed ledger called a blockchain. Bitcoin is unique in that there are a finite number of them: 21 million bitcoins exist and they are progressively discovered through a process called mining.
What is mining?
Mining is the process of adding transaction records to Bitcoin's public ledger of past transactions. This ledger of past transactions is called the blockchain as it is a chain of blocks. The blockchain serves to confirm transactions to the rest of the network as having taken place. Miners earn newly minted bitcoins for each block they add to the blockchain.
How do you acquire Bitcoin?
One can acquire bitcoins by either mining them or buying them from someone who already has them. You can buy bitcoins with real money using an online exchange or brokerage service. Some companies also allow you to use bitcoin to pay for products and services.
How do you store Bitcoin?
Bitcoins are stored in a digital wallet, which exists either in the cloud or on a user's computer. The wallet is a kind of virtual bank account that allows users to send or receive bitcoins, pay for goods or save their money. Unlike bank accounts, bitcoin wallets are not insured by the FDIC.
What are the advantages of using Bitcoin?
Decentralization: Bitcoin is not controlled by any government or financial institution.
Lower transaction fees: Since there are no middlemen, transaction fees are lower than traditional banking.
Privacy: Bitcoin transactions are private and anonymous.
Accessibility: Bitcoin can be used by anyone with an internet connection and a digital wallet.
What are the disadvantages of using Bitcoin?
Volatility: Bitcoin's value can fluctuate rapidly and unpredictably.
Irreversible transactions: Once a transaction is confirmed, it cannot be reversed.
Security: Since Bitcoin is a digital currency, it is susceptible to hacking and theft.
Acceptance: Not all merchants accept Bitcoin as a form of payment.
Is Bitcoin legal?
The legality of Bitcoin varies from country to country. Some countries have outright banned it, while others have embraced it as a legitimate form of currency. In the United States, Bitcoin is legal but the IRS considers it property for tax purposes.
Bitcoin is a fascinating technology that has the potential to revolutionize the way we think about money and transactions. While it has its drawbacks, it is clear that Bitcoin is here to stay.
