You must have heard about the underground digital currency bitcoin and all the buzz it created. Almost everyone was going crazy about how it is the next big thing or how easily it provides anonymity. And yet most of us who slept through their economics classes and had no idea of the monetary system, this was an even newer ‘thing’.
To make things easier, here is an attempt to decode this digital currency. Here are 5 things you need to know about bitcoin.
#1. What are bitcoins?
The bitcoin is a form of digital currency. It does not involve any form of notes or coins. In simple terms, it is a mathematical construct that runs on an algorithm. You can better visualize it as the dollar but unlike the dollar, bitcoin isn’t centralized. This digital currency was developed by Satoshi Nakamoto (a pseudonym). However, the currency is traded, created and controlled by other bitcoin users.
#2. No central command
As mentioned earlier, bitcoin isn’t centralized, which means there is no central authority such as the government or bank controlling it. Anyone can use bitcoins. As the transactions are irreversible, no bank or any form of authority can stop you from sending your bitcoins to someone else via the internet. However, as much as it seems liberating, it can prove to be equally risky as you do not have anyone to register a complaint with in case anything goes wrong.
#3. We are living in a bitcoin bubble
Just like the dot com bubble, there is a bitcoin bubble too. The currency became too popular during 2013 which led to some instability in the international markets. Since there is no value assigned to a bitcoin apart from anything the user wants to pay for, there is a lot of instability and volatility associated with bitcoin.
#4. A secure wallet
There are various types of wallets available but separates them all is the private keys required to use those bitcoins. Some bitcoins wallets will hold the user’s private keys and then start acting as banks. Be very cautious if you choose to use any such service. However, most wallets allow users to control their own private keys and security. This means only you can access your bitcoin wallet but at the same time, if you somehow lose access to your account, you will lose the account.
#5. How do you acquire and spend bitcoins?
You don’t have to work very hard to acquire bitcoins. You can earn the digital currency via various ways such as mining (bitcoins can be mined with the help of a special software known as Bitcoin Miner that can detect a new block in a series of Bitcoin network) or providing services to someone else in return of bitcoin. You can also exchange physical currency such as dollars or Euros from a bitcoin provider services such as Mt. Gox.
Just like with your physical money, it is very easy to spend bitcoins. You can use bitcoins to buy goods, donate to some NGO or send them to someone else. There are various sites that accept bitcoins such as Wikileaks, P2P Foundation, WordPress.com and Bitcoin.travel.