Bitcoin is an experimental, decentralized
digital currency that enables instant payments to anyone, anywhere in the
world. Bitcoin uses peer-to-peer technology to operate with no central
authority: managing transactions and issuing money are carried out collectively
by the network.
In many ways, Bitcoin is similar to physical
payment networks like Visa credit cards or Paypal. But Bitcoin is different
from those and other payment networks in two important ways. It has a
peer-to-peer structure, with hundreds of computers all over the Internet
working together to process Bitcoin transactions.
People don't need anyone's permission or
assistance to create new Bitcoin-based financial services.The second thing that
makes the Bitcoin unique is that it comes with its own currency. Paypal and
Visa conduct transactions in physical currencies such as the U.S. dollars. The
Bitcoin network, however, conducts transactions in a new monetary unit, also
called Bitcoin.
Why would we use a payment network based on an
imaginary currency?
Almost
everyone who encounters the idea for the first time (including me) has the same
reaction: That can't possibly work. But so far the market has proved the skeptics
wrong:
This graph shows the price of one Bitcoin since
the start of 2011, when the currency began to adopt mainstream attention. The
price has been extraordinarily volatile -- it lost more than 90 percent of its
value between June and October 2011, for example. But there's also been an
unmistakable upward trend. Notice that the chart is on a logarithmic scale. It
shows the currency's value rising from around $0.30 at the start of 2011 to
around $600 today. There are almost 12 million bitcoins in existence, so the
Bitcoin "money supply" is now worth around $7 billion..
Who
created Bitcoin?
The currency was created by a person who
indentified himself as "Satoshi Nakamoto." While the name sounds
Japanese, Bitcoin's creator never provided any personal details. Nakamoto
passed his torch to a mild-mannered developer named Gavin Andressen, who is
currently the project's lead developer. Andressen now works under the auspices
of the Bitcoin Foundation, the closest thing the anarchic Bitcoin community has
to an official public face.
How do we
get bitcoins?
One option is to mine them yourself, but that's
not a good choice for beginners. For everyone else, your best bet is to
purchase them with a physical currency. Web sites known as exchanges will let
you trade bitcoins for physical currencies with other users. Even more
convenient are companies like Coinbase, which will withdraw cash from
your bank account and convert it to bitcoins at the current exchange rate. A
few are popping up, which will directly
trade paper money for Bitcoins.
After you bought some bitcoins , Next you'll
need a place to store them. Bitcoins are stored in "wallets," which
in this case are just files that contain encryption keys, or secret codes that
allow you to transfer your bitcoins to other people. There are several options.
One is to store them yourself using one of the Bitcoin programs available for
Mac, PC and Android.
Another option is to entrust them to a
third-party Web site known as a "online wallet."
A third option is what's known as a "paper
wallet," where you print out your encryption keys and store them in a safe
place, such as a safe deposit box.
Why Use Bitcoin?
Low Fees
Bitcoin is a digital currency that is designed for global commerce in the modern age, with the ease of a credit card but without the high fees.
Global
Bitcoin can be used at the same value anywhere in the world where Bitcoins are authorized, thus becoming the first truly global currency.
The
nature of Bitcoin means that, compared to credit cards or other financial
tools, your identity is safer from theft. Your level of privacy is up to you,
and in the online world privacy and protection are an asset.
How Bitcoin Works
How Bitcoin Works
Digitally
Created
Financial
systems take a lot of power to run. With Bitcoin, individuals and groups
willing to dedicate computer processing power to support the network are
rewarded with Bitcoins. This process is known as mining, and it's how every
Bitcoin comes into existence.
Secure
All
newly mined Bitcoins, along with every transaction, are publicly recorded and
verified through the network. This record is known as the Blockchain and is one
of the features that helps keep the system secure from fraud and abuse.
Bitcoins cannot be duplicated or forged.
Getting Started With Bitcoin
Storage
There
are several ways to store and manage your Bitcoins. An online web wallet is an
easy way to get started with storing Bitcoin, and more and more wallets are
offering the ability to buy Bitcoin in your local currency.
Trade Locally
You
can acquire Bitcoins by buying or trading for them from local vendors, or accepting
them for your business instead of cash or credit.
Exchange Globally
To
use Bitcoin at a more advanced level, an exchange connects you to people all
around the world buying and selling Bitcoins. Exchanges offer both a web wallet
for storage and management, and an easy way to trade using major currencies.
By
Ankush Mohanty