What exactly is a bitcoin? Many are apt to ask this very question, as the digital currency continues to dominate and gradually supplant money in the world economy. From Washington to Tokyo, Bitcoin, over the past twenty years, has steadily been changing the globe’s financial landscape—the impact is sure to reinvent how we all come to think of business and commerce.
Digital currency, Bitcoin is a type of money that is basically stored and subsequently controlled entirely by computers. Still confused…we thought so. So here is a down and dirty overview of the wonderful world of Bitcoin. Enjoy!
Think of Paypal. This is a system that lets you make and accept payments, right? With bitcoin you do much the same but you can also hold money, trade it, or move it between various locations—virtually free of charge. Cheap and easy, it is certainly revolutionizing how we approach transactions of this nature. Also, with Bitcoin you can remain anonymous. While the transactions themselves are public and thus front and center in the world’s eye, your identity is not.
Not to mention, Bitcoin facilitates the international exchange of funds, breaking down previously complex financial barriers between countries and their respective currencies. Run and controlled by software existent across the planet, Bitcoin maintains flexibility and agility.
The Inception of Bitcoin
Half a decade ago, a computer programmer sought to revolutionize the world of money. Under the pseudonym Satoshi Nakamoto, this person created what is now the Bitcoin software system. This software in essence, gave rise to what are called bitcoins—these are simply digital addresses stored in what is known as a blockchain. The system was designed in such a way as to foster growth and encourage people to use bitcoins. And a group of people known as miners are the ones responsible for keeping track of the Bitcoin transactions and adding them to the blockchain.
So where does the inherent value of the bitcoin come from? That is the question…It’s simple supply and demand really; with increased demand comes increased value. If people want it, it is worth something. And by keeping the bitcoins in limited supply, demand is essentially fueled. The currency itself therefore evades becoming diluted to the point where its value decreases.
How the Bitcoin System Works
How exactly do you go about spending this digital currency? How is anyone able to use it? Because Bitcoin is controlled by cryptography, when you own bitcoins, you essentially own a key connected to an address that is associated with a publicly known ledger. This address is how you go about transacting bitcoins. So in order for someone to pay you with bitcoins, they need the address in question. And in turn, if you want to send bitcoins as payment, you of course will need their personal address. You also will need your cryptography key to engage in any sort of exchanges.
Because Bitcoin is math based, the miners—those responsible for Bitcoin quality control let’s say—will consequently reject transactions that don’t add up. So if the math doesn’t figure correctly, they are able to stop it.
Okay, so now how do you go about keeping track of everything, of what’s been purchased, how much you’ve spent, and what transactions have ensued. Surely this can get very complex very quickly…Fortunately, they now have what are called wallets. These are programs that can be installed to help keep track of your Bitcoin activity for you. Wallets make it easy to send and receive bitcoins. And fortunately, the number of businesses and ecommerce sites accepting bitcoins is growing by leaps and bounds.
As wallets can be mobile as well, real world Bitcoin transactions are slowly becoming more the norm. For instance, there are restaurants that now allow you to scan a QR code and pay for your meal that way. Make no doubt about it, Bitcoin is definitely becoming the new money-based reality.
How to Get Started with Bitcoin
Welcome to a brand new world of money exchanging—glad you decided to give it a go! Firs thing’s first—get a wallet. There are plenty of apps and sites out there that will direct you as to how to procure and download your wallet, and then it’s just a matter of getting the actual bitcoins.
You basically need to purchase these bitcoins. Sites such as Coinbase, offer these at a very low 1% fee. Bigger exchanges such as Bitstamp allow you to make larger purchases.
As previously mentioned, Bitcoin enables you to remain anonymous for the most part. Some sites do require that you input your information as well as bank info, but there are others like LocalBitcoins through which you can purchase without supplying your personal data. Additionally, you can hook up with someone “real world” style and make a trade in person. In this way, one person provides the cash, and the other, the bitcoins.
Watch Out For Thieves!
While the system is pretty secure, if someone does happen to gain access to your private key or wallet, you could be in for an unfortunate surprise. And if they do happen to steal your bitcoins, you can pretty much kiss them goodbye. In the Bitcoin universe, lost or stolen money is irretrievable. A smart tip may be to move your wallet off of the internet, once those bitcoins do start to accrue.
Bitcoin Dominance—Is it Inevitable?
Because the fees are so low, Bitcoin could start to threaten the likes of Paypal or even Visa and Mastercard. The logic is quite easy to figure out—if a platform emerges that allows you to move money anywhere in the world, virtually free, odds are, that platform will ultimately surpass the others. And while, it may not be an instantaneous transaction, there are Bitcoin processors in development which could help speed things up a bit.
Bitcoin’s biggest obstacle currently: the US. The feds are out to try and shut Bitcoin down, or at least greatly slow its progress. Federal regulators are perplexed as to how to deal with this system and so their answer is to create an environment in which people are hesitant to use it. As a result of recent US actions, American Bitcoin companies are complaining that banks are refusing to deal with them and absorb the consequent risks. Federal guidelines are stringent when it comes to Bitcoin, making is very difficult for Bitcoin companies to operate in the United States.
So while Bitcoin is certainly poised to overhaul the world’s financial and economic systems and practices, it still may take a little bit for all to see the light.