Bitcoin

Bitcoin is a cryptocurrency (digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.) and a digital payment system invented by an unknown programmer, or a group of programmers, under the name Satoshi Nakamoto. It was released as open-source software in 2009.

The system is peer-to-peer, and transactions take place between users directly, without an intermediary. These transactions are verified by network nodes and recorded in a public distributed ledger called a block chain. Since the system works without a central repository or single administrator, Bitcoin is called the first decentralized digital currency.

Besides being created as a reward for mining, Bitcoin can be exchanged for other currencies, products, and services in legal or black markets.

Also, Unlike currency notes that can be printed by a central bank for an unlimited value, there are only so many bitcoins that can be produced. The blockchain system is designed such that at its maximum only 21 million bitcoins can be produced and in circulation. The number cannot exceed this cap. As of February, about 15.2 million bitcoins have been mined (or produced). That is about 75% of the total cap already in circulation.

Current estimates are that the last Bitcoin that will ever be mined will come into existence in 2040.

How do people use bitcoins?

It is an electronic or digital currency that works on a peer-to-peer basis. This means that it is decentralized and has no central authority controlling it. Like currency notes, it can be sent from one person to another, but without a central bank or the government attempting to track it. The system depends on cryptography to control the creation of the currency. While no one authority controls the generation of the coins or tracks them, the system itself is designed in such a way that the network maintains a foolproof system of the record of every transaction as well as tracking issuance of the currency.

Who can you send bitcoins to?

You can send bitcoins digitally to anyone who has a bitcoin address anywhere in the globe. One person could have multiple addresses for different purposes – personal, business and the like. A bitcoin is not printed currency but is a non-repudiable record of every transaction that it has been through. All this is part of a huge ledger called the blockchain.

Where and How do you get bitcoins?

Bitcoins are available in bitcoin exchanges. You could also purchase bitcoins from other users. A Bitcoin exchange traded fund could be another source in the near future. You can become a Bitcoin miner by investing in software and hardware. More the power of the hardware that helps with encryption technology, higher the probability of your earning bitcoins.

The price of Bitcoin fluctuates constantly and is determined by open-market bidding on Bitcoin exchanges, similar to the way that stock and gold prices are determined by bidding on exchanges.

There are companies in most countries that will sell you Bitcoin in exchange for the local currency. In the United States, a company called Coinbase will link to your bank account or credit card and then sell you the coins for American dollars. Opening an account with Coinbase is similar to opening a traditional bank or stock brokerage account, with lots of verification of your identity needed.

For people who do not want to reveal their identities, there are services like LocalBitcoins that will connect local people who want to buy and sell Bitcoin for cash, generally without any verification of identity required.

Unocoin is a Bengaluru-based company that allows users to buy, sell, store or uses bitcoins. While Bitcoin usage is certainly not mainstream, there are said to be more than 500 merchants who accept bitcoins for payment in India.

How is a new Bitcoin generated?

A bitcoin is generated when an entity, i.e. a person or a business, uses software power to solve a mathematical puzzle that makes the blockchain more secure. The difficulty level of solving the problem is high enough to ensure that it takes a time to do it.

Beware of tall promises

Even if you become a bitcoin miner, there is no guarantee that you would be able to mine a certain number of bitcoins. Any scheme related to bitcoins promising a fixed return is likely a tall promise best avoided.

How does the payment system work?

When you send a bitcoin to a receiver, the transaction is included in the blockchain and broadcast to the network. The blockchain ensures that the same Bitcoin is not spent twice by the same user. A computer network validates the transaction using algorithms so that the transaction becomes unalterable. Once validated, the transaction is added to others to create a block of data for the ledger.

Why are hackers using Bitcoin?

The digital currency has emerged as a favorite tool for hackers demanding a ransom for a simple reason: You can start accepting Bitcoin anywhere in the world without having to reveal your identity.

For criminals, this makes Bitcoin much more attractive than systems like the Western Union, which generally require customers to provide identification before opening an account and receiving transferred money.

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