It’s not an actual coin, it’s “cryptocurrency,” an electronic form of payment that is produced (“mined”) by lots of people worldwide. It allows peer-to-peer transactions instantly, worldwide, for free or at very low cost.

Bitcoin was invented after decades of research into cryptography by software developer, Satoshi Nakamoto (believed to be a pseudonym), who designed the algorithm and introduced it in ’09 2009. His true identity remains a mystery.

This currency isn’t backed by a tangible commodity (such as for example gold or silver); bitcoins are traded online which makes them a commodity in themselves.

Bitcoin is an open-source product, accessible by anyone who’s a user. All you need is an email address, Access to the internet, and money to get started.

Where does it come from?

Bitcoin is mined on a distributed computer network of users running specialized software; the network solves certain mathematical proofs, and searches for a particular data sequence (“block”) that produces a particular pattern once the BTC algorithm is applied to it. A match produces a bitcoin. It’s complex and time- and energy-consuming.

Only 21 million bitcoins are ever to be mined (about 11 million are currently in circulation). The math problems the network computers solve get progressively more difficult to help keep the mining operations and offer in check.

This network also validates all the transactions through cryptography.

How does Bitcoin work?

Internet users transfer digital assets (bits) to each other on a network. There is no online bank; rather, Bitcoin has been referred to as an Internet-wide distributed ledger. Users buy Bitcoin with cash or by selling something or service for Bitcoin. Bitcoin wallets store and utilize this digital currency. Users may sell out of this virtual ledger by trading their Bitcoin to someone else who wants in. Anyone can perform this, anywhere in the world.

You can find smartphone apps for conducting mobile Bitcoin transactions and Bitcoin exchanges are populating the Internet.

How is Bitcoin valued?

Bitcoin isn’t held or controlled by way of a financial institution; it is completely decentralized. Unlike real-world money it cannot be devalued by governments or banks.

Instead, Bitcoin’s value lies simply in its acceptance between users as a form of payment and because its supply is finite. Its global currency values fluctuate in accordance with supply and demand and market speculation; as more people create wallets and hold and spend bitcoins, and more businesses accept it, Bitcoin’s value will rise. Banks are now trying to value Bitcoin and some investment websites predict the price of a bitcoin will be several thousand dollars in 2014.

What are its benefits?

There are advantages to consumers and merchants that are looking to utilize this payment option.

1. Fast transactions – Bitcoin is transferred instantly online.

2. No fees/low fees — Unlike credit cards, Bitcoin can be used free of charge or very low fees. Minus the centralized institution as middle man, there are no authorizations (and fees) required. This improves income sales.

3. Eliminates fraud risk -Only the Bitcoin owner can send payment to the intended recipient, who’s the only one who is able to receive it. The network knows the transfer has occurred and transactions are validated; they cannot be challenged or taken back. That is big for online merchants who are often subject to credit card processors’ assessments of whether or not a transaction is fraudulent, or businesses that pay the high price of charge card chargebacks.

4. Data is secure — As we have seen with recent hacks on national retailers’ payment processing systems, the Internet isn’t always a secure place for private data. With Bitcoin, users do not give up private information.

a. They have two keys – a public key that serves because the bitcoin address and a private key with personal data.

b. Transactions are “signed” digitally by combining the general public and private keys; a mathematical function is applied and a certificate is generated proving the user initiated the transaction. Digital signatures are unique to each transaction and cannot be re-used.

c. The merchant/recipient never sees your secret information (name, number, physical address) so it’s somewhat anonymous nonetheless it is traceable (to the bitcoin address on the general public key).

5. Convenient payment system — Merchants can use Bitcoin entirely as a payment system; they do not need to hold any Bitcoin currency since Bitcoin can be converted to dollars. Consumers or merchants can trade in and out of Bitcoin along with other currencies at any time.

6. International payments – Bitcoin can be used around the world; e-commerce merchants and service providers can easily accept international payments, which open up new potential marketplaces for them.

7. An easy task to track — The network tracks and permanently logs every transaction in the Bitcoin block chain (the database). In the case of possible wrongdoing, it is easier for police to trace these transactions.

8. Micropayments are possible – Bitcoins can be divided down to one one-hundred-millionth, so running small payments of a dollar or less becomes a free or near-free transaction. This may be a genuine boon for convenience stores, coffee shops, and subscription-based websites (videos, publications). bitcoin blender