The countries we live in dictate our use of certain currencies. Bitcoin, however, does not belong to any state. It can be used by anybody in any country of the world.used for payments.
Bitcoin is virtual money. It is a new cryptocurrency (digital currency) invented in 2009 by an unknown programmer who goes the alias “Satoshi Nakamoto”.
What is bitcoin?
He invented the bitcoin and proposed its principle of operation (computer software and a wallet app).
Nobody knows who this man is or where he comes from.
Bitcoin has features similar to any conventional currency:
- it can be traded;
But bitcoin is a cryptocurrency, which means that it “plays by its own rules”. Bitcoins are issued through a decentralized process (there is no single center of control) based on cryptographic methods.
How does bitcoin work?
Anybody on the network can carry out bitcoin transactions without the involvement of any intermediaries (banks).
Each bitcoin represents a unique cryptographic hash code that cannot be used twice.
Bitcoin cryptocurrency is created through mining, which is a complex computational process that might take an ordinary computer several months to handle (this is why it is not cost-effective to mine bitcoins using ordinary computers).
Miners (users that produce bitcoins) run powerful, custom-built machines connected together to form a network.
These computers are known as a “pool” or “farm”. On average, 25 bitcoins are produced every 10 minutes, depending on the software process..
You can get bitcoins in other ways, by:
- accepting them as payment for goods or services;
- receiving a gift;
Advantages of the bitcoin cryptocurrency
- No data about the payee/payer.Bitcoin uses algorithms similar to those used in online banking. However, user data is disclosed in traditional online banking.
The bitcoin network has only transaction data and has no access to data about the wallet owner.
However, we must note that the system does not offer complete anonymity, but rather “pseudo-anonymity”, because transactions can be traced back to input/output points (exchange offices).
- No inflation.The number of bitcoins increases at a certain rate similar to the rate of global gold extraction. However, the number of bitcoins to be issued is limit to 21 million.
Nothing can change this procedure, so bitcoins are free from inflation. In practice, this means the cryptocurrency is more reliable than gold.
Therefore, the rigorous mathematical calculation points toward a shortage of bitcoins in the near future.
The algorithm is deflationary.
The number of bitcoins produced by miners reduces two-fold every 4 years. The next “halving”, i.e. reduction in miners' compensation, is expected to take place in July 2020.
Currently, 12.5 bitcoins are mined approximately every 10 minutes. Accordingly, 6.25 bitcoins will be produced instead of the 12.5 bitcoins produced every 10 minutes at present.
- Peer-to-peer network.The process cannot be modified.
The cryptocurrency system has no main server responsible for transactions. Bitcoins are exchanged between client programs.
All bitcoin users’ wallets are part of the bitcoin network. Transactions are carried out using thousands of distributed servers (nodes). As a result, governments and banks cannot control the flow of bitcoins.
To be more precise, we don't actually exchange bitcoins. Instead, bitcoin ownership is reassigned from one address to another (this is called a “transaction”).
This means the payer's wallet publishes a transaction in the network (sending it to the “nodes”, which are machines in the network that store a complete copy of the blockchain.)
The blockchain is a massive database that contains all transactions that have ever been executed and all information about every bitcoin address that has ever existed. This database consists of interconnected blocks of public data.
Nodes write data into the current block and inform all the other nodes in the network about the completed transaction. Miners verify the validity of blocks mathematically, thus also confirming the validity of all transactions in each block.
There are 2 types of bitcoin wallets:
- Bitcoin Core is a core client developed by the Bitcoin Foundation (it contains a complete copy of the blockchain and broadcasts transactions directly to the network).
- Light wallets do not contain the blockchain. They broadcast transactions through the developer's server, rather than directly.
Thus, bitcoin core clients are a part of the bitcoin network (i.e. the “nodes”), while light wallets are not. Cost-effective transactions with no boundaries.
You can make payments to any place on the planet, to anyone, and for anything—no one can prevent or prohibit you from doing it.
Wallet owners pay no fees or charges apart from a certain fee, which depends on the transaction amount and is paid to bitcoin miners (producers). Honesty and reliability.
Payments made through the bitcoin system cannot be reversed. Cryptocurrency cannot be forged, copied, or spent twice (this is why miners exist—to verify block validity by comparing previous transactions). All of this creates a foundation of honesty and reliability in bitcoin transactions.
Moreover, the number of companies that accept bitcoins as payment is growing each month. Opportunities to make money.
Bitcoin is a great tool to make money through trading. Traders earn money on exchange rate fluctuations. Today, there are over 10 million bitcoin users, and the number of daily transactions has surpassed 100 million.
The bitcoin exchange rate may rise or fall, depending on news reports or statements by government authorities.
It is also affected by mass panic. If the rate drops, traders, fearing losses, will dump their bitcoins. There is also the “stop-loss breakout” effect, when trading bots' limits collapse as the rate drops, and they also start selling at the “market” rate.
Within the law
Bitcoin cryptocurrency is legal. No one has been convicted of using it.
Last year, the number of bitcoin transactions has grown 94%. In the last 1.5 years, the bitcoin exchange rate has climbed 225%.
The prospects of this digital currency are obvious
The bitcoin network is growing rapidly. Consider this:
Unofficially, it comprised 10,000 users in 2010. In 2012, this number had already reached 100,000. In 2014, the number of users in the bitcoin network surpassed 1 million users, and in 2016 over 10 million people have traded bitcoins.
Of course, these numbers are estimates as the exact data are impossible to obtain.