Heard someone talking about Bitcoins lately? Did it make you feel a tad bit old, as you had no idea what was being referred to?
Were you a bitconfused?!
Well, let’s unravel the mystery for you and tell you all that you wanted to know about this new-age digital currency!
What’s a bitcoin after all?!
Bitcoin is a type of digital currency that is created, held and used electronically. There is no single person or company that controls it. These coins aren’t printed either, like your euros or dollars. Bitcoins are produced by people like you and me, (increasingly by businesses these days) who run heavily loaded computers capable of solving complex mathematical problems. Bitcoin is a rapidly growing type of money referred to as the cryptocurrency.
How is bitcoin different from the other currencies?
Bitcoins are just like your regular yen, euro or dollars in the manner that they can be freely used for buying things on the Internet. They can even be traded digitally for real, physical currencies.
However, what sets bitcoin apart from the majority of currencies out there is its most important characteristic – that it’s decentralized. Hence there’s no one institution or organization that controls and/or runs the bitcoin network. Many people consider this as the bitcoin’s biggest advantage because it means that no single banking entity can control their money.
Who invented bitcoin?
The idea of bitcoin was proposed by a software developer named Satoshi Nakamoto, who introduced it in the form of an electronic payment system based entirely on the mathematical proof. The basic intent behind bitcoin’s creation was production of a currency that could be used independently, free from the holds of any central authority, and could be transferred electronically, almost instantly, involving negligible transaction fees.
Who prints them?
There’s no single person or entity that produces/prints bit coins. It isn’t printed physically under close supervision of any central banking establishment, which has no accountability towards the population and is free to set its own rules. Those type of banks are free to produce more money at will, for covering the national debt, devaluing their currency in the process.
Bitcoins on the other hand are produced digitally by a community of people, belonging to various backgrounds. Anyone can join and contribute. The process of producing bit coins is referred to as ‘mining,’ and involves usage of a good amount of computing power, in a distributed network. The same network is also responsible for processing transactions made with this currency, and hence bitcoins are their own payment network.
So, can you produce as many bitcoins as you want?
Yes, you are free to do that! However, as per the bitcoin rules – known as the bitcoin protocol, no more than 21 million bit coins can ever be produced by the miners. What’s also so special about bitcoins is that they can be divided up to 100 millionth level (called ‘Satoshi,’ after the inventor).
What are bitcoins based on?
All major forms of currencies produced in the past have been based on silver or gold. Theoretically it means that you could always get some gold/silver back from the bank by handing over your money to them (despite the fact that it doesn’t work like that in the real world today!) However, bitcoins are not based on gold or silver. Instead, they are based on mathematics.
People use software programs that abide by certain mathematical formula to manufacture bitcoins no matter where in the world they are. This mathematical formula can be freely accessed and anyone is free to check it. The software program used is also open source in nature, implying that anyone is free to peek into it and learn about its workings.
Some important characteristics of bitcoins
There are some highly unique characteristics that differentiate bitcoins from the conventional government-produced currencies. Some of them are:
Easy setup – Unlike as in case of opening of conventional bank savings accounts and/or merchant accounts, for which you need to complete many formalities, you can set up your bitcoin account (known as bitcoin address) pretty easily, in a matter of few seconds, with no fees and no questions asked.
Decentralization – As mentioned earlier, the bitcoin network isn’t managed or controlled by any single central authority. Instead, every machine involved in bitcoin mining process and processing bitcoin transactions constitutes an integral part of the bitcoin network. Furthermore, all these machines work along with each other. It essentially means that no central authority can fiddle with the monetary policy and lead to a meltdown. No one can forcefully take away your bitcoins. Moreover, the money continues to flow even if a part or some parts of the network go off-line.
Anonymity – It’s kind of anonymous in a way that no names, addresses or personal information is linked to the bitcoin addresses. And one can hold more than one bitcoin address if he/she wants. However, there’s ample transparency.
Transparency – Every single bitcoin transaction that happens on the network is stored inside a huge general ledger referred to as the blockchain. So, anyone can tell the amount of bitcoins stored at your publicly-used bitcoin address. However, there are certain measures you can take to make your activities more hidden while using the bitcoin network. For instance, you can avoid using the same bitcoin address every time and never transfer large quantities of bitcoins using the same bitcoin address.
There’s no ‘Ctrl-Z!’ – There’s no way you can call back your bitcoins once you’ve sent them to someone, unless of course the recipient agrees to return them back to you. If not, consider them gone for good!
Quick and with negligible transaction fees – Money can be sent to almost any location in the world in a matter of few minutes, as soon as the transaction is successfully processed and completed by the bitcoin network. While the conventional banking establishments may charge you a fee for the international transfers, there are no such charges involved in case of bitcoins.