You may have heard of the term Bitcoin around the internet or some other source these days. So what is Bitcoin and why is it getting this extended coverage? Bitcoin is a type of digital currency, which was created and is held electronically. No one single person or authority controls it. Bitcoins aren’t print produced, like rupees or euros – they’re produced by lots of people simultaneously running computers all around the world, using specialized software that solves mathematical problems. Bitcoin is the first example of an expanding category of money known as cryptocurrency.
What is Bitcoin: How is it different from normal currencies?
You can use Bitcoin to buy things electronically. So in this particular way the Bitcoin is like conventional currency like euro, dollar etc. which can also be used to purchase things electronically.
The most important characteristic of Bitcoin and what specifically differentiates it from conventional money is that it is decentralized i.e. no one particular institution has complete control over bitcoin network. Many people like this feature because they like the fact that no large bank can control their money.
What is Bitcoin: Who created it?
Bitcoin was created by Satoshi Nakamoto, a software developer. Bitcoin was proposed as electronic payment system based on mathematical proof. The inspiration was to a currency that could be produced electronically and be independent of any central authority and be transferable instantly, with as low transaction fees as possible.
What is Bitcoin: Who prints it?
No one. Yes that is right, No One ! Bitcoin currency is not physically printed by a central authority i.e. a Bank, unanswerable to the general populace and making its own rules. Banks can produce more money if the nation is under debt to cover, thus devaluing the currency.
Bitcoin is produced digitally, by a community of people, which is open to anybody. Production Bitcoins by individuals is known as ‘bitcoin mining’ and is done by utilizing computers in a distributed network. The network also contains transactions made with Bitcoins, thus making bitcoin its own payment network.
So does this mean that we can’t mine unlimited bitcoins?
That is right. Bitcoin has a specific protocol that are rules for making bitcoin work. It has been decided that there will be only 21 million bitcoins ever. A bitcoin can be divided into smaller portions with the smallest amount being one hundred millionth of a bitcoin and known as a ‘Satoshi’, named after the creator of bitcoin.
What is Bitcoin: What is it based on?
Conventional money is based on silver or gold. You can hand over your money to get equivalent amount of gold or silver, though in reality banks won’t be handling out gold to you. Bitcoin, on the other hand is based purely on mathematics.
Around the globe, people are using specialized software which are following a specific mathematical formula to mine bitcoins. The formula is open source so anyone can view it. The software code is also open source so anybody can verify that it is doing what it is supposed to.
What is Bitcoin: What are its characteristics?
There are several key characteristics that separate Bitcoin from normal flat currencies.
Bitcoins are not stored by one central authority. Any machine that processes bitcoin transaction and mining can be a part of the controlling network and all the machines work together. So no one central authority can interfere with working of Bitcoin and its policies to cause a meltdown or take away the bitcoins. If a part of a network stops working and goes offline, the rest of the process keeps on happening.
A normal bank will require you to fulfil many pre requisites and paper work before opening even a simple bank account. A business or merchant account for payment is even more of a hassle. With the bitcoin, it takes mere seconds to setup an account, no questions asked and no upfront dues required.
A user can have multiple bitcoin addresses, and the information linking isn’t personal like names, addresses etc.
However bitcoin is extremely stringent in storing the details of every single transaction that ever happened in its gigantic version a ledger, known as block chain. The block chain has all the info. If you have a public bitcoin address, anyone can know how much bitcoins are at that address, though they would not know that it is yours. They are some actions that can increase your privacy like changing bitcoin addresses consistently and not transferring many bitcoins to a single address.
Bitcoin also don’t charge for international transfers. You can send your money anywhere and see it arrive in minutes, as soon as bitcoin network finishes processing the payment.
If you have send the bitcoins, though, you won’t be ever able to get them back unless the recipient gives them back to you.[related]How to mine Bitcoins and How bitcoin mining works[/related]