Bitcoin is a decentralized, global, peer-to-peer, digital and an online currency No one controls it. Bitcoins aren’t printed, like dollars, euros or naira – they’re produced by lots of people running computers all around the world, using software that solves mathematical problems. It’s the first example of a growing category of money known as cryptocurrency.
The bitcoin was introduced as an open-source software in 2009 by a software developer Satoshi Nakamoto. He created the bitcoin, which is an electronic payment system based on mathematical proof. The idea was to produce a currency independent of any central authority, transferable electronically, more or less instantly, with very low transaction fees.
This currency isn’t physically printed. Instead, bitcoin is created digitally, by a community of people that anyone can join. Bitcoins are ‘mined’, using computing power in a distributed network. This network also processes transactions made with the virtual currency, effectively making bitcoin its own payment network.
The Bitcoin protocol – the rules that make bitcoin work – say that only 21 million bitcoins can ever be created by miners. However, these coins can be divided into smaller parts (the smallest divisible amount is one hundred millionth of a bitcoin and is called a ‘Satoshi’, after the founder of bitcoin).
Bitcoin has several important features that set it apart from normal fiat currencies.
- It’s decentralized
The bitcoin network isn’t controlled by one central authority. Every machine that mines bitcoin and processes transactions makes up a part of the network, and the machines work together.
- It’s easy to set up
You can set up a bitcoin address in seconds, no questions asked, and with no fees payable.
- It’s anonymous
Users can hold multiple bitcoin addresses, and they aren’t linked to names, addresses, or other personally identifying information.
- It’s completely transparent
Bitcoin stores details of every single transaction that ever happened in the network in a huge version of a general ledger, called the block chain. The block chain tells all. If you have a publicly used bitcoin address, anyone can tell how many bitcoins are stored at that address.
- Transaction fees are miniscule
Your bank may charge you an amount for international transfers. Bitcoin doesn’t.
- It’s fast
You can send money anywhere and it will arrive minutes later, as soon as the bitcoin network processes the payment.
- It’s non-reputable
When your bitcoins are sent, there’s no getting them back, unless the recipient returns them to you. They’re gone forever.
Bitcoins can be obtained through various methods. These include paying cash for Bitcoin, providing a good or service in exchange for Bitcoin, or verifying other Bitcoin transactions (a process known as “mining”)
Mining is an important and integral part of Bitcoin which ensures fairness while keeping the Bitcoin network stable, safe and secure. Surprisingly, it’s nearly impossible to buy bitcoins with your credit card or PayPal. This is one of the problems bitcoin is here to solve). Since it’s hard to prove any goods changed hands in a transfer of bitcoins, exchanges avoid this payment method and so do most private sellers.
To store a new bitcoins, you will need a wallet which could be regarded as a bank account. Bitcoin wallets store the private keys that you need to access a bitcoin address and spend your funds. They come in different forms, designed for different types of device. You can even use paper storage to avoid having them on a computer at all. The four main types of wallet are desktop, mobile, web and hardware A popular wallet service is the CoinBase which trades dollars for bitcoins and has web and mobile (Android) apps.
Blockchain.info is another popular online wallet option that does not exchange fiat, but has a mobile solution available for Android.
The Bitcoin Wallet allows Online purchases from vendors who accept bitcoin, Face to Face purchases via Mobile and QR codes and Bitcoin ATMs which scan a user’s palm print, face, and government-issued ID to verify identity.
The bitcoin ATM is a new concept and its gradually gaining momemtum. The Robocoin ATM in Vancouver, Canada was reported to be the world first bitcoin ATM.
It is said to have performed $1,000,000 CAD in 29 days of operation. With a bitcoin ATM you insert your cash and receive a paper receipt with the codes necessary to load the bitcoins onto your wallet.
Bitcoin ATMs may prove most useful in enabling cross-border e-commerce for under banked parts of the world, allowing, for example, Online purchases by those without bank accounts or credit cards, or the inability to use these internationally.
Travelers’ withdrawal of cash in local currency at competitive rates, again, without needing a bank account or ATM card.
A traveler could also convert excess local currency back into Bitcoin at the end of a trip, something many conventional ATMs do not allow today.
Bitcoin’s value is backed only by supply and demand and nothing physical. Its value is a combination of strength of economy, risk of economy changing and number of notes in circulation.
Buyers and sellers must agree on price as the Bitcoin has no official value. Its value is usually based on recent trades elsewhere.
People used the bitcoin because it is
globally accepted as an online currency which can be used for payment of goods and services especially where other forms of payment facilities such as banks, ATMs, and payment card machines are rare.
Other reasons are:
It is easy to carry- $1 billion worth of Bitcoin fits in your pocket encrypted onto a memory stick.
Bitcoin accounts are anonymous thus providing added security from hackers and thieves. Accounts cannot be frozen for any reason as no country or company can own or regulate the bitcoin. Yet, all been said its has its own risks.
The bitcoin is not backed by any government, bank or country thus it is not a legal currency.
Payment cannot be stopped or refunded if a thief dupes you or a hacker accesses your bitcoin wallet.
No insurance company will provide you cover if you loose your bitcoin currency.
The bitcoin is not accepted in many places, especially in physical shops.
Because of its anonymity, criminals use it for quick untraceable riches.
In October 2013 the US FBI shut down the Silk Road online black market and seized 144,000 bitcoins worth US$28.5 million. They were involved in anonymous trafficking of drugs, firearms, employment of hackers and assassins.
The big question is how safe is the bitcoin as a trading commodity given the implications and risks involved, you may want to take serious precautions in using the bitcoin. And how safe, that depends on you.