Have you heard about this Bitcoin stuff? Perhaps, yes. The first digital currency has become the talk of the town due to the astonishing rise in value. The Bitcoin having a value of $1000 in Jan 2017 want up to $19,000 at the end of that year. During the first part of 2018, the cryptocurrency lost 50% of its value and currently, it stands at around $6000. Except for the surprising pricing swings, there is more interesting about this digital currency. This article provides the fundamental concepts and answers to basic questions regarding Bitcoin.
What is Bitcoin?
Bitcoin can be explained as a form of electronic cash. It is the first digital cryptocurrency which operates without any central bank or single administration. The first decentralized cryptocurrency gets transferred from user to user through peer to peer network and without intermediaries. The network nodes verify the transactions of Bitcoin through cryptography and then these transactions are recorded in a public distributed ledger known as blockchain.
Who Invented Bitcoin?
An anonymous person or group who called himself Satoshi Nakamoto invented Bitcoin and rolled out as open-source software in 2009. The digital currency was created as a reward for a process called mining. The owner of the cryptocurrency can exchange it with other currencies, products, and services. According to research conducted by Cambridge University, there were 2.9 to 5.8 million users of cryptocurrency, the majority of which were using Bitcoin.
What determines the value of Bitcoin?
There is no government, bank or other institution to control this cryptocurrency. The owners of bitcoins remain anonymous despite disclosing their names, tax IDs and social security numbers. The buyers and sellers of this currency get connected through encryption keys. This is not issued from the top down, rather it is ‘mined’ through powerful computers connected to the internet.
According to the rules established by Nakamoto, only 21 million bitcoins can be mined which means there is a limited supply of this currency just like gold and other precious metal reserves. Almost 12 million bitcoins have been mined so far and 9 million are remaining. There are several mathematical and economic theories which explain why Nakamoto chose number 21 million.
Similar to gold reserves, Bitcoin also does not have real intrinsic value. The value of a Bitcoin is determined by what people will pay for it. The value of the cryptocurrency is open to interpretation. However, the process of Bitcoin pricing also involves assumptions and manipulation.
How to Buy Bitcoin?
Buying Bitcoin with debit and credit card can really be problematic. Fortunately, the companies like Coinbase and CoinMama have simplified the process to buy Bitcoins. With Coinbase, you can use your bank or PayPal account to make a deposit into your Bitcoin wallet. Your account would be funded within a few days after which you can exchange traditional currency for Bitcoin.
How to Use Bitcoin?
You can use Bitcoin to buy products and services from more than 100,000 merchants. Though not every major supplier accepts this digital currency, you may find several companies offering products and service against Bitcoin. Also, you can sell this digital currency in exchange for other currencies or things. It is pertinent to mention here that there are no inherent transaction fees with this electronic cash. However, Coinbase charges a nominal fee when you buy or sell Bitcoin.
Is Bitcoin Legal?
Bitcoin is legal, just like other currencies, but using this digital currency for illegal purposes is, of course, unlawful. A few years back, Bitcoin was the only currency which was accepted in the Dark Web marketplace for drugs and other illicit products and services. In 2013, FBI seized that website.
The illegal use of this digital currency has attracted law enforcement, legislative bodies, and media. Several new reports asserted that the popularity of cryptocurrency depends on its ability to use it for the purchase of illicit goods and services. The University of Kentucky conducted a research in 2014, in which they found that the factors driving interest in Bitcoins are computer programming and illegal activities. They found limited or no support for investment or political purposes.
In 2017, Australian researchers found out that 25 percent of all Bitcoin users were involved in some sort of crime and 44 percent of all Bitcoin transactions were linked with illegal activities. Almost 24 million Bitcoin users holding $8 billion worth of Bitcoins were mainly using this cryptocurrency for illegal purposes and made 36 million transactions of worth $72 billion for illegitimate motives.
The advertisement of Bitcoin and other cryptocurrencies is banned on several online platforms including Facebook, Google, Twitter, Snapchat, LinkedIn, Line and Baidu among others.
What are the Risks?
Bitcoin, both as a currency and investment, carries several risks. When it comes to dollars and other local currencies, you may assume how much it can buy the next day. However, the financial value of Bitcoin is uncertain and may swing widely from a day to day. The value of this digital currency may increase and decrease incredibly within a few hours.
Meanwhile, the anonymity of the Bitcoin owner can make it problematic for buyers and sellers of this cryptocurrency. You can never be sure who is selling these bitcoins to you or who is buying these from you. This increases the chances of money laundering as Netherland arrested 10 men in such case, two years back.
Similar to Bitcoin, there are thousands of cryptocurrencies developing every day. Of the descendants of Bitcoin, the recognized digital currencies include Ripple, Ethereum and Litecoin.1