What Are BitCoins
In 2009, Satoshi Nakamoto wrote a paper on the implementation of the idea of crypto-currently. Nakamoto is assumed to be a pseudonym, and he abandoned the project within a year after its inception. His paper, however, materialized into the Bitcoin system. But what are bitcoins? They are a form of digital or cryptographic currency, are not regulated or centralized, and provide anonymity to users. The virtual currency can be exchanged for goods, services, or traditional currency. This can prove to have disadvantages as well as advantages. While this economy offers users more control and freedom, it is still a work in progress with significant fluctuations in value.
What are bitcoins?
While Bitcoin represents a virtual economy, bitcoins are the currency used within that economy. A process, called mining, creates them. A computer running specialized software and hardware solves an extremely complex mathematical problem. The network then generates a 64-digit string of numbers that in turn releases more currency into the pool. Each year, the number of virtual coins released decreases by half and will eventually cap at 21 million. About 11 million are currently in circulation. In addition to increasing the currency pool, miners also process transactions, synchronize, and secure the network.
The economy works much the same way as any other: goods or services are exchanged for the currency of choice. What distinguishes bitcoin trading as an online economy is that it is a direct peer-to-peer exchange, meaning that there are no banks or intermediaries to go through. Each user has a digital wallet with and individual address using either their computer or a free mobile application. When they enter into a transaction, one party transfers the agreed on amount of currency to the other party. The network assigns a unique digital signature to each transaction. A public block chain provides a ledger of every transaction.
Users can also purchase the virtual coins via exchanges by using traditional currency sources like credit cards. The value of the virtual currency is volatile due to fluctuating supply and demand. For example, between January 2013 and July 2013, pricing ranged from under $20 in January, spiking to $220 in April 2013, and dropping again to about $70 in July of that year.
Small transactions are possible down to the microbitcoin level, or .000001 (one millionth) of a bitcoin, making them viable for everyday transactions and not just for large exchanges. Other trading occurs when one party accepts the coins as payment for work or goods sold. A growing number of businesses are starting to accept this type of virtual payment. Transaction fees tend to be very low if there is a fee at all. Mining is also a way to acquire bitcoins.
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