Bitcoin is a cryptocurrency, or a digital currency which was invented by an unknown person or group of people under the name Satoshi Nakamoto and released as open-source software in 2009. He has since disappeared. How it works ? Bitcoins are completely virtual coins designed to be ‘self-contained’ for their value, with no need for banks to move and store the money.
It is more of like possessing gold. Having the gold in one’s own pocket. You can use your bitcoins to purchase goods and services online, or you can save them with the hope that their value will increase over the years. Bitcoins are traded from one personal ‘wallet’ to another. Also Bitcoin was the first cryptocurrency to exist, all digital currencies created since then are called Altcoins, or alternative coins. Litecoin, Peercoin, Feathercoin, Ethereum and hundreds of other coins are all Altcoins because they are not Bitcoin.
How is Bitcoin Stored?
Bitcoins are stored in ‘digital wallet’ which is handled on your own computer (i.e cold storage), on your smartphone, on your tablet or on the cloud (i.e hot storage). The wallet is a kind of virtual bank account that allows users to send or receive bitcoins, pay for goods or save their money. People can transfer the bitcoins from their smartphone apps or computer in a way similar to digital cash transfer
Bitcoin Transactions Tracked?
Each user and their wallet is tagged with blockchain which is a public data ledger file. Each user will have unique blockchain. Though each bitcoin transaction is recorded in a public log, names of buyers and sellers are never revealed – only their wallet IDs. Bitcoin records the digital address of every wallet it touches and so it is completely anonymous. It has been told that the transaction history of the bitcoin wallet is maintained publicly to avoid using the bitcoin for illegal purpose.
How is it created?
Cryptocurrencies are just lines of computer code that hold monetary value. Those lines of code are created by electricity and high-performance computers. Bitcoin is created by mathematical computations and policed by millions of computer users called ‘miners’. People compete to ‘mine’ bitcoins using computers to solve math puzzles.
Miners keep the blockchain consistent, complete, and unalterable by repeatedly verifying and collecting newly broadcast transactions into a new group of transactions called a block . The successful miner finding the new block is rewarded with newly created bitcoins and transaction fees
Where to Buy?
Bitcoins can be bought in Exchanges. Many marketplaces called “bitcoin exchanges” allow people to buy or sell bitcoins using different currencies. Coinbase is a leading exchange, along with Bitstamp and Bitfinex. But security can be a concern: bitcoins worth tens of millions of dollars were stolen from Bitfinex when it was hacked in 2016.
There are no transaction fees like the ongoing banks. However you will pay small fees to three groups of bitcoin services: the servers (nodes) who support the network of miners, the online exchanges that convert your bitcoins into dollars, and the mining pools you join.
Bitcoins are self-limiting because only 21 million total bitcoins will ever be allowed to exist, with approximately 11 million of those Bitcoins already mined and in current circulation. Investors or traders of Bitcoin faced chaotic situation after Shanghai-based BTCChina, a major Chinese bitcoin exchange, said it would stop trading in the crypto-currency from September 30, citing tightening regulation, while smaller bitcoin exchanges ViaBTC, YoBTC and Yunbi announced similar closures. This sent negative signal to the world in relation to Bitcoin.
Indian government also is not looking happy with Bitcoin. The Reserve Bank of India official Sudarshan Sen on September 13 said that the central bank was uncomfortable with “non-fiat” cryptocurrencies like Bitcoin.
It has been told that Bitcoin accounts cannot be frozen or examined by tax men, and middleman banks are completely unnecessary for bitcoins to move. Law enforcement and bankers see bitcoins as ‘gold nuggets in the wild, wild west’, beyond the control of traditional police and financial institutions.