What is Bitcoin - a virtual currency or is there more to it?

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What is Bitcoin - a virtual currency or is there more to it?

Bitcoin is a digital or virtual currency based on a peer-to-peer network that was created in 2009 to replace traditional fiat currencies and payment systems. Based on a decentralized mechanism, Bitcoin is referred to by the BTC and aims to remove control of money from governments and large organizations and give it to the people. Bitcoin is not a physical entity; it is code that exists on a ledger that is present on every computer on its network.

Every transaction that takes place on the blockchain is transparent and visible to everyone. No bank, state or central authority has any power over Bitcoin, and its price is strictly determined by the demand and supply dynamics in the market. Since 2009, Bitcoin has become the most popular and valuable cryptocurrency , accepted by hundreds of retailers and brands worldwide.

Why was Bitcoin invented?

Bitcoin was introduced in January 2009 by an anonymous individual or team using the pseudonym Satoshi Takemoto. The Bitcoin blockchain and currency were created to regain control of the money from major financial institutions and governments, and to hand it over to the people. It was designed to work on a transparent and decentralized infrastructure. In addition, it also allowed for a higher level of anonymity and affordability.

When Bitcoin came out, nations around the world were grappling with a recession caused by the collapse of the U.S. housing market. The recession created a feeling that these large financial institutions had an inadequate degree of control over the country's economy. The regulations in force have failed to keep them in check. That being said, using these institutions for financial matters meant sharing your personal information with them, dealing with the delays, and paying a heavy transaction fee.

Bitcoin was the first cryptocurrency to attempt to solve these problems by offering an alternative to people who did not want to rely on banks to manage their finances and transactions.

How does Bitcoin work and what technology is behind it?

Bitcoin relies on a peer-to-peer network, a collection of computers called nodes that are connected to each other and run the Bitcoin blockchain. It's known as blockchain because it creates blocks of codes that are chained together in chronological order, with each block containing a record of transactions. Since the blockchain is present on every computer or node, no one can make changes on their own because other nodes do not review these changes.

The people who own these nodes and who process and review the transactions are known as miners. If they invest in the Bitcoin ecosystem and facilitate verification, they will be rewarded with Bitcoin. These miners ensure that no unauthorized transactions take place on the blockchain and ensure that no single person has control over the infrastructure of the blockchain in order to maintain decentralization. New bitcoins are reimbursed to miners at a rate that is continuously decreasing as the total supply of bitcoin is limited - i.e. to 21 million BTC.

Unlike fiat currencies, which are printed based on the number of goods and services a country creates in order to maintain price stability, the cryptocurrency Bitcoin is created by an algorithm that takes various factors into account. Bitcoin works with two types of keys - public and private. These keys are long strings of letters and digits that are generated by the Bitcoin block chain's encryption algorithm. Public keys are visible to everyone for transparency and documentation, while private keys enforce ownership and portability.

Is Bitcoin Real Money?

Yes and no. Currently, Bitcoin is the most viable alternative to traditional currency. However, it is still so far from achieving the ubiquity, convenience and speed of cash that traditional financial institutions support. Nonetheless, HSB has reported that around 36% of small and medium-sized businesses in the US accept Bitcoin as a valid currency. Some of the notable names are Expedia, Microsoft, AT&T, Overstock, Burger King, and Wikipedia.

It's important to note that when compared to altcoins, Bitcoin is more popular with consumer-facing brands like KFC, Playboy, Twitch, Cheap Air, and Subway. The majority of other digital currencies are generally accepted by brands and companies that have built their business with a cryptocurrency focused approach. Over the years, Bitcoin has gained a greater share of mainstream consciousness than any other virtual currency. However, it still has a long way to go to be considered as good as real money.

Bitcoin Fees & Costs

At the time of this writing, Bitcoin's average transaction fee is $ 3.074 per transaction, up 40% compared to last year when the average transaction fee was around $ 2.196. The average fee for a Bitcoin transaction is set in USD when a miner processes and verifies a transaction on the Bitcoin blockchain. Keep in mind that fees can vary based on network traffic or high demand for proof of work. In the final month of 2017, when Bitcoin hit its peak, the average transaction rate peaked, almost touching the $ 60.00 mark.

Additionally, the commissions and fees charged by different crypto exchanges, including trading services, differ in terms of percentage and pricing structure. Generally speaking, it will cost you anywhere from 0.5% to 3% to buy and sell via wire transfer, while you can save up to 10% when using debit cards. In this context, it should be noted that bank transfers can be associated with a fixed fee. The pricing around Bitcoin transactions can be quite complex and varies significantly depending on factors such as payment mode, Bitcoin amount and geographic presence.

What are the benefits of Bitcoin?

Bitcoin is designed as a viable payment alternative and offers a variety of benefits, including the following:

Fast Transactions - With the help of a peer-to-peer network that spans all inhabited continents, Bitcoin can process and verify transactions regardless of the amount in a matter of minutes.

Global Payments - With conventional money, international payments are always a nuisance. Bitcoin reduces the number of challenges associated with international transactions and ensures fast and affordable transfers.

Affordable - One of the key benefits of Bitcoin transactions is the low processing fees that allow consumers to send and receive any amount of money worldwide without paying exorbitant fees or service charges.

Extremely Secure - Blockchain is a system designed to enforce security through unanimity. A single person with malicious intent cannot compromise the system, and security is also reinforced by cryptographic encryption.

Widely Accepted - Bitcoin is the only major cryptocurrency with wide appeal from consumer brands like Microsoft, Burger King, KFC, Wikipedia, and many others. Other altcoins have failed to achieve a similar level of attraction.

Continuous improvement - There are currently hundreds of developers working on the Bitcoin Core developer project to further improve the Bitcoin payment system, including faster processing and verification and even lower transaction fees.

Can Bitcoin be used anonymously?

Everything you do on the internet cannot be completely anonymous. Still, Bitcoin can be viewed as relatively anonymous compared to traditional financial transactions. The issue is governments trying to regulate trading in crypto exchanges, which means that they require exchanges and trading platforms to comply with KYC (Know Your Customer) and AML (Anti-Money Laundering) regulations. When buying or selling Bitcoin on a larger trusted crypto exchange , you will need to provide at least some personal information for verification.

There is also a downside to anonymity. The more anonymous you want your transactions to be, the further you move away from the crypto exchanges. Even then, there is a very good chance that a government agency or a skilled hacker will find out about you.

How Safe is Bitcoin?

Bitcoin is an inherently secure system as the blockchain mechanism is designed to be immutable - which - in simple terms - cannot be reversed once a transaction has taken place. In addition, the transaction cannot take place until all nodes verify it and give their consent. Bitcoin is also secured by cryptographic encryption, making it impossible for hackers or other malicious cyber attackers to break into the blockchain.

There are many software and hardware wallets available to keep bitcoins safe and secure, ensuring that your digital holdings are not compromised. These wallets can be further secured with two-factor authentication and a passphrase.

Which teams are working on Bitcoin development?

Bitcoin is a huge and dynamic project with several teams and hundreds of developers working on various aspects of the project around the world.

One of the best things about Bitcoin is that it is a free service and any developer can contribute to it. All of the code is stored in a GitHub repository, while conversations about future developments continue on the Bitcoin dev mailing list and on GitHub. Developers can participate in starter projects where they can write tests, fix existing bottlenecks, and work on solutions for known issues. The teams directly involved in Bitcoin development include the following:

  1. Bitcoin Stack Exchange
  2. Bitcoin Core Slack Channel
  3. IRC Channel # bitcoin-core-dev (on Free node)
  4. Bitcoin Talk Development & Technical Discussion Forum

The main Bitcoin financiers are listed on the website according to the number of their commitments. The most important contributors include Vladimir J. van der Lana with more than 6500, MarcoFalke with more than 2500 and Pieter While with more than 1500 “commits”. You can check out the entire list on Bitcoin's official website. In addition to the core developer and Bitcoin direct development, there are many free software projects that developers can work on, including Bitcoin Wallet, BFGMiner, and Armory.

Which financial institutions are interested in Bitcoin?

Since Bitcoin is a direct competitor to financial institutions and banks, they are not interested in investing directly in the project. However, they want to experiment with Bitcoin blockchain and other decentralized cryptocurrencies to develop a more practical and consumer-friendly payment infrastructure. These banks and financial institutions include Bank of America, JP Morgan, BNP Paribas, Segan, Citi Bank, UBS, Barclays, Banco Santander, Standard Chartered, and Goldman Sachs.

Bitcoin mining

Mining is the process that helps Bitcoin process transactions and keep blockchain secure. This includes adding new blocks to the blockchain that contain new transactions and keeping a chronological record. Once the transaction is verified, the blocks are split, keys created and the BTCs transferred. Miners can also create new bitcoins by harnessing the computing power to find solutions to cryptographic problems.

The bitcoin reward is based on the unanimous decision of the network and is usually around 6.25 bitcoins. To make sure there is no inflation, Bitcoin has a steady supply of 21 million BTCs.

Bitcoin wallet

If you want to keep your BTC safe and secure, you need a Bitcoin wallet. This can be either a physical device or software that you can use in your browser or download as an application to your PC or mobile phone. Some of the major BTC wallets are the following:

  1. Ledger Nano S (hardware wallet)
  2. Trezor (hardware wallet)
  3. Electrum (wallet for desktop PCs)
  4. Blockchain.com (online web wallet)
  5. Robinhood (For Safe Trading)
  6. Exodus (desktop wallet for beginners)
  7. Mycelium (Mobile Wallet - iPhone / Android)

Is Bitcoin Worth the Investment?

There is no easy answer to this question. The thing is, cryptocurrencies, including Bitcoin, have only been famous for a couple of years and haven't had a stable infrastructure behind them. This means that the price is strictly dictated by supply and demand, which can be influenced by various political and social factors. This has created a great deal of volatility in the Bitcoin space. On the one hand you can lose a lot of money in a few minutes, but on the other hand you can also win a lot of money in a very short time.

Because of this, you need to be extremely careful when dealing with cryptocurrencies, including Bitcoin. Only invest an amount that, if lost, will not have a negative impact on your financial situation. Bitcoin is there to stay, but no one can predict how its price will play out the next day. You must take due care when investing and ensure that you take all safety measures.