What is bitcoin? More and more persons are asking the question because it just keeps popping up. The major news networks are now reporting on bitcoin in their financial news sections. Even Yahoo now has a reporting of the day to day value of bitcoin. So what is bitcoin? Read on to learn five important things that relate to the question of what is bitcoin.
What is Bitcoin?
Bitcoin is a virtual currency that you can buy with real money. That sounds very special, but that’s all right. If you buy a gift voucher, or coins at the fair, you do the same thing. The most important difference is who the coins spend. That’s not the shopkeeper or the fairy boss. It’s not even the bank or government. It is the participants in Bitcoins themselves who manage the currency.
The big advantage is that the currency can be exchanged between participants without anybody having a seat. And at a time when people are less confident in banks and governments, Bitcoin seems to be an attractive alternative for some.
Who is the boss or founder of Bitcoin?
Japanese programmer Satoshi Nakamoto has devised Bitcoin, but who he is and whether he really exists is unclear. He noticed that not a bank but the computers of all participants together manage the system and approve transactions. Based on his ideas, programmers have been working globally and have built the software that makes this possible. It is open source so everyone can contribute.
The system uses heavy cryptography to prevent coin creation being a matter of copy paste . And there is only a maximum number of Bitcoins that can be issued. Up is on. And thus, scarcity is inherent in the system. Some analysts, among others those of the European Central Bank, therefore compare Bitcoins with gold.
Where do the coins then come from?
The coins are not beaten but calculated. They call it ‘mining’. The algorithm that Bitcoin uses is made so that as more Bitcoins come, more computing power is needed to calculate them. Whoever contributes to calculating gets Bitcoins as a thank you. But now the demand is so high and the difficulty is so high that it only pays to mining Bitcoins with special computers. People build oneself and there are more and more companies where you can buy them.
How do I get to Bitcoin?
There are several marketplaces where you can buy Bitcoins in exchange for euros or dollars. The best known is Mt. Gox in America. A more than vibrant trade in Bitcoins has now evolved. There is even a waiting list for who wants to participate. In the Netherlands you can buy Bitcoins at BitBank or Bitonic via iDEAL. The rate is a lot less favorable than in America. Bitcoins save you in a wallet , a digital wallet. It can be on your own computer, or managed on the Internet. You can read more about Bitcoin.org.
What is the risk?
Bitcoin’s rate fluctuates enormously. There is no protection against a digital stock market crash. According to critics there is currently another analogy with gold, a real gold fever in progress. According to some, it may only end in a digital crash.
Furthermore, more and more governments are beginning to ask themselves what to do with it. More regulation is on the verge. And finally of course hackers. They have already stolen tons of Bitcoins in the past.