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Bitcoin for dummies

Journey from Barter system to Bitcoin –

There has been much talk about Bitcoin within libertarian and economic circles. Its becoming a buzzword, but like all new systems that break onto the public stage quickly, Bitcoin brings with it excitement, speculation and of course, rumor. After all, it is an entirely new global monetary system – both a currency and a payment network for the currency. Bitcoin is thus the only currency and money system, in the world, which has no counter-party risk to hold and to transfer.

bitcoin accepted

Bitcoin (abbreviated as BTC) is the world’s first decentralized borderless currency. It is a virtual currency, or crypto-currency, used for online transaction. It is also called Money 3.0, the next gen currency. It was invented in the wake of global financial crisis in November 9, 2008 by mysterious computer guru pseudonymous developer Satoshi Nakamoto. With most transactions being effected online these days, e-payment world is finding it convenient to switch to Bitcoins. It can be stored either virtually or on user’s hard drive, and offers a largely opportunities. It is based on an open source protocol, which makes use of a public transaction log. It is world’s most expensive currency.

PROCEDURE OF BITCOINS TRANSACTION

There is no exchange of notes or tokens between purchaser and seller, Bitcoin comes into existence through mining only. If you want to buy anything you should have bitcoins in your e-wallet. It can be obtained through two ways:

  1. Purchase from exchange: It can easily be exchanged with conventional currencies. It can be brought and sold in return for traditional currency exchange, and can also be directly transferred across the internet from one user to another by using appropriate software. The total coins generated by August 2013 through mining are nearly 11.5 million and that is the total number of coins available for circulation today.

  2. Mining: If you don’t want to purchase the bitcoin, you can mine it through super computers dedicated towards processing mathematically complex calculations. These are mathematically generated by computers in this network execute difficult number-crunching tasks, a procedure known as Bitcoin”mining. The mathematics of the Bitcoin system was set up to that it becomes progressively more difficult to “mine” bitcoin overtime. Miners must invest computer processing power and electricity to mine it and are currently awarded 25 bitcoins every 10 minutes by the bitcoin network.

Bitcoins can be stored on your computer using wallet software (equivalent to the wallet in your personal pocket) which is an open source and can be downloaded, or in an online wallet. Both methods provide you with an address which you use similar to a paypal address, Send the address to people from whom you want to receive Bitcoin from. Instead, the buyer requests an update to a public transaction log, the blockchain (Integral to a Bitcoin-a public transaction log, that records Bitcoin ownership currently as well as in the past). This master list of all transaction shows who owns what bitcoins currently and in the past and is maintained by a decentralized network that verifies and timestamp payments. The operators of this network, known as “miners” are rewarded with transaction fees and newly minted coins.

Bitcoin__VS_Currency_World_Wide

BlockChain is a master list of all transactions that is maintained by a distributed network of computers that does thee payment processing work of bitcoin. Payment processing work done by miners verifies each transaction as valid and adds it to the blockchain. As more bitcoins come into circulation, the reward for doing payment processing decreases and will stop altogether when the bitcoin ceiling of 21 Million has been reached . As by the end of December 2013, the number of bitcoin network peers was about 172,000.

Advantages of Bitcoin

  1. Lesser Transaction Cost: Merchants have an incentive to accept the currency because transaction fees are lower than the 2-3% typically imposed on credit card processors. Notable vendors accepting Bitcoin include Wikileaks, OkCupid, Reddit, WordPress and Virgin Galactic. In India, Kolonial Vintage themed Pizza outlet at Worli Mumbai & Castle Blue Spa & Salon at Mumbai started accepting Bitcoins. The network recommended fee is 0.0005 BTC, which is equivalent to INR 3.

  2. New Investment Venue

  3. World Wide Acceptance

  4. Peer to Peer transactions (no single authority)

  5. Anonymity.

Limitations of Bitcoins:

  1. No authority Agency

  2. Speculation

  3. Cyber Security Risk

  4. Instability of Prices

  5. Illegal/Illicit use

  6. Others: Bitcoin transactions are untraceable, untaxed and ownership changes instantly.

bitcoin-minging-rig

FUTURE ASPECTS

Sources: Coinmonk, thehindubusinessline.com, economictimes.com.

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One comment on “Bitcoin for dummies

  1. Phil Sarisky
    October 30, 2017

    Thanks! We’re glad you like it!

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This entry was posted on June 24, 2014 by in Finance and tagged , .
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