At present Bitcoin is a form of digital currency, created and held electronically. No one controls it. Bitcoins aren’t printed, like dollars or euros – they’re produced by people, and increasingly businesses, running computers all around the world, using software that solves mathematical problems. Bitcoin is an open-source Peer-to-Peer payment service that has done away with any kinds of middlemen transaction fees. You can make use of these Bitcoins to buy anything online and many merchants are beginning to accept this new form of digital currency. Many networks like Amazon (Amazon Gift Cards), eBay, Zappos, Microsoft, Dell, Shopify and more already accept Bitcoins as a form of payment.
What is Bitcoin?
With the Bitcoin price so volatile everyone is curious. Bitcoin, the category creator of blockchain technology, is the World Wide Ledger yet extremely complicated and no one definition fully encapsulates it. By analogy it is like being able to send a gold coin via email. It is a consensus network that enables a new payment system and completely digital money.
It is the first decentralized peer-to-peer payment network that is powered by its users with no central authority or middlemen. Bitcoin was the first practical implementation and is currently the most prominent triple entry bookkeeping system in existence.
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What makes it different from normal currencies?
Bitcoin can be used to buy things electronically. In that sense, it’s like conventional dollars, euros, or yen, which are also traded digitally.
However, bitcoin’s most important characteristic, and the thing that makes it different to conventional money, is that it is decentralized. No single institution controls the bitcoin network. This puts some people at ease, because it means that a large bank can’t control their money.
Who created it?
A software developer called Satoshi Nakamoto proposed bitcoin, which was 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. The first Bitcoin specification and proof of concept was published in 2009 by an unknown individual under the pseudonym Satoshi Nakamoto who revealed little about himself and left the project in late 2010. The Bitcoin community has since grown exponentially.
Satoshi's anonymity often raises unjustified concerns because of a misunderstanding of Bitcoin's open-source nature. Everyone has access to all of the source code all of the time and any developer can review or modify the software code. As such, the identity of Bitcoin's inventor is probably as relevant today as the identity of the person who invented paper.
Who controls the Bitcoin network?
Nobody owns the Bitcoin network much like no one owns the technology behind email or the Internet. Bitcoin transactions are verified by Bitcoin miners which has an entire industry and Bitcoin cloud mining options. While developers are improving the software they cannot force a change in the Bitcoin protocol because all users are free to choose what software and version they use.
In order to stay compatible with each other, all users need to use software complying with the same rules. Bitcoin can only work correctly with a complete consensus among all users. Therefore, all users and developers have a strong incentive to protect this consensus.
How does Bitcoin work?
From a user perspective, Bitcoin is nothing more than a mobile app or computer program that provides a personal Bitcoin wallet and enables a user to send and receive bitcoins.
Behind the scenes, the Bitcoin network is sharing a massive public ledger called the "block chain". This ledger contains every transaction ever processed which enables a user's computer to verify the validity of each transaction. The authenticity of each transaction is protected by digital signatures corresponding to the sending addresses therefore allowing all users to have full control over sending bitcoins.
Thus, there is no fraud, no charge backs and no identifying information that could be compromised resulting in identity theft.
For the purpose of understanding how the Bitcoin network is managed, we now have to introduce a new sect of people known as ‘Miners’ on the network.
Miners are individual groups of people who lend their computing power and capacity to the community and to keep the integrity of transactions on the network in check. These Miners verify the transactions on the network and are rewarded with the newly generated Bitcoins for their efforts.
A transparent publicly maintained ledger is then updated with transactions on the Bitcoin network. Often known as a form of ‘crypto currency‘, Bitcoin is the largest form of digital currency of its kind.
Is Bitcoin Legal?
It is fair to say that Bitcoin operates off the physical grid and doesn’t involve any kind of central agency or the banks, is it still legal?
The answer would be, it depends on user location
The legality of Bitcoin depends primarily on your location of interest and the purpose accordingly. Given that Bitcoin is a form of decentralized digital currency, it is illegal to use Bitcoins in many countries and some governments allow its use.
- The United States, for example, have now declared it as a commodity.
- Indian Deputy Governor of the Reserve Bank of India has stated that they have no plans to legalize Bitcoins in India.
- Bangladesh government has stated that “anybody caught using the virtual currency could be jailed under the country’s strict anti-money laundering laws”.
- Some other countries are particularly neutral about the usage of Bitcoins.
So, it makes sense that you double-check your local government laws pertaining to Bitcoins before making use of them.
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