Bitcoin is a type of electronic currency that is transacted over the internet. It can be seen as the internet cash.
The concept of cryptocurrency was first brought up in 1988 by Wei Dai. Wei Dai proposed an electronic currency that would use cryptography for its security to control its creation rather than using central authority to regulate it. However, the concept was not implemented until 2009 when an anonymous group or individual by the name Satoshi Nakamoto created the first cryptocurrency- the bitcoin.
How it works
Bitcoin transactions are carried out through a decentralized peer to peer network. There is no government or overall authority that controls transaction of bitcoin. Individuals within the network determine prices and with whom to transact. Bitcoins transactions operate using a blockchain technology.
The blockchain technology offers a public ledger that is accessible to all members of the network. The ledger makes a permanent record of all the transactions that are carried out within the network. Due to its permanent nature, once a record has been made, it cannot be changed without the consent of all members of the network.
Up to this point, bitcoins are an unregulated currency. No government or bank in the world controls or regulates it. Therefore, it is not subject to policing, taxation or government control. Members of the network police the currency through the distributed public ledger that gives every member of the network access to every transaction carried out.
How printed money works is that the central bank prints the money and regulates (together with economic forces) how much of that money is released to the society. The banks oversee transactions and charge a middleman fee. Only the bank keeps a record of transactions carried out by its customers.
Bitcoins have nullified the role of the traditional banking in currency management and transactions. Since it is operated on a peer to peer network, there is no intermediary needed. Anyone in the network can see the records in the public ledger. Unlike banks that operated in a geographically restricted area, bitcoin is a virtual currency, and it can be transacted from anywhere across the globe.
Bitcoins are stored online in a bitcoin wallet or offline on a hard drive. A bitcoin wallet is a type of app or software specifically created for bitcoin storage. It is created with high security to prevent access by unauthenticated persons.
- Unlikely to be counterfeited
- Transactions are verified within a short time within the network
- All members can audit transactions
- Limited supply of bitcoins ensures that their value remains high
- Easy to store in a bitcoin wallet
- Bitcoin offers a homogenous currency that can be used across the globe.
- It offers buyers and seller anonymity hence individuals cannot be tracked by governments or have their accounts frozen like in cases of traditional banking.
- Bitcoins are divisible up to 0.00001 bitcoin. This makes it possible even for people with a small budget to invest and transact with the currency.
- In the peer to peer network that bitcoins are transacted, individuals’ real identity is not revealed. Only their account numbers are. As a result, some individuals have capitalized on the anonymity offered in bitcoin transactions to engage in illegal practices such as money laundering and using the currency in black market trading online.
- Volatility of value. Although in 2017 the value of bitcoins has increased exponentially, many cryptocurrencies operate like the stock market. Its value may go high or take a deep.
- Limited acceptance. While the popularity of bitcoins has significantly grown across the globe, still many people remain unaware of it. In addition, some governments and financial institutions have come out against it making it difficult to make it a universal currency for transacting across the globe.
Uses of bitcoin
As as a means of payment.
All though many governments have not accepted the use of bitcoins and other cryptocurrencies as a mode of payment, some have. In such countries, one can use bitcoins to pay for services or products.
Alternative for paper cash.
With the growth of the increased use of the internet to transact, there emerged a need for paperless forms of currency. Many online payment methods offered internet users a way to virtualize their paper money. However, there have been limitations due to the different types of currencies from across the globe. Bitcoins and other cryptocurrencies now offer a globally acceptable and accessible option to paper currency.
Like some people invest in gold, real estate, and other premium investments, bitcoins are another avenue for investment. The value of bitcoins has skyrocketed in the last three years making them more valuable than even gold. As a result, bitcoins has emerged as a viable investment option.
How to acquire bitcoins
There are three main ways that one can acquire bitcoins
- One can buy bitcoins from either exchanges or other individuals using another type of cryptocurrency or regular currency.
- Transferring bitcoin is like sending money from one person to another digitally. Individuals can transfer their bitcoins to others via cryptocurrency mobile apps and websites. One can also acquire bitcoins if another person transfers to them as a means of paying for goods or services.
- Bitcoin mining can be done by anyone in public. All one requires is a strong computer. It involves solving complex computational problems for which one is awarded bitcoins. The total number of bitcoins that could ever exist is 21 million. This far, 11 million bitcoins have been mined and circulated across peer to peer bitcoin transacting networks.
Bitcoin value and regulation
Bitcoins prices vary on a daily basis. Currently, bitcoins in circulation are worth over two billion dollars. Its value has increased by more than 500% in 2017 making it more valuable than gold. Although by nature cryptocurrencies are unregulated, there has been a prediction that governments may put in place regulation policies for cryptocurrencies.
It has been less than a decade since the emergence of bitcoins. Its value has increased exponentially to make it more valuable than gold while its popularity continues to grow across the globe. Individuals looking for new investment opportunities could venture into bitcoin trading.