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. Think you know what is bitcoin? Test your knowledge of bitcoin with this quick and easy bitcoin quiz.
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. You can also click the banner below to claim free bitcoin.
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.
Bitcoin�s core protocol is viewable by anyone, has been vetted by thousands of security researchers around the world, and has proven to be robust and reliable after immense scrutiny. Using bitcoin is similar to using other private applications on the internet, such as email or online banking. Just like these other web services, you must access your bitcoin with a password in order to ensure only you have access to your money.
Is it tied to the value of the dollar?
The value of a bitcoin is not tied or pegged to the value of any other currency. Similar to stocks or property, bitcoin�s value is determined by buying and selling in the open market. A bitcoin�s price changes in real time based on the number of people who want to buy or sell it at a given moment.
Why does it change value?
Bitcoin is traded for dollars, euros, yen, and other currencies in real time 24 hours a day. Depending on the demand for buying or selling bitcoin, the price can fluctuate from day to day. This is similar to the manner in which the value of a stock or property can go up or down based on supply and demand. Bitcoin�s value can be volatile compared to traditional currencies such as the US dollar because it is still an emerging technology.
Is it similar to a credit card or paypal?
Unlike credit card networks like Visa and payment processors like Paypal, bitcoin is not owned by an individual or company. Bitcoin is the world’s first completely open payment network which anyone with an internet connection can participate in. Bitcoin was designed to be used on the internet, and doesn’t depend on banks or private companies to process transactions.
Why would I use bitcoin?
Bitcoin allows you to instantly send any amount of money to anyone in the world without needing a bank. It allows you to access your money without needing an ATM or credit card – bitcoin gives you back control over your money. Plus you can pay friends back for dinner, buy your next computer, and donate to charity, all using bitcoin.
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For another option at how to explain Bitcoin to different age groups check out this article here.