Bitcoin digital currency is a new form of payment system. It is a virtual currency meaning unlike bank notes there is no bitcoin in reality. It is a complex concept that needs to be explain in simple terms.
What is bitcoin digital currency?
So first we need to understand what is bitcoin indeed. In a simple term bitcoin is a is a digital currency created in 2009. Transaction process of bitcoin requires no middle man. Users of bitcoin can transfer money anywhere in the world without using a centralized service a like bank or paypal. Transaction fees of bitcoin is less than traditional online money transfer.
Who created bitcoin?
It is still a mysterious fact who created bitcoin. Because bitcoin creator kept himself anonymous. An unknown individual under the pseudonym Satoshi Nakamoto first published bitcoin specification and proof of concept in 2009. He left the project in late 2010 only revealing his date of birth 5 april 1975 and no other information.
How bitcoins work?
Bitcoins are completely virtual coins with self contained value. This virtual currency does not requires any bank to store or move. Once you own bitcoins, they will act like physical gold coins.
You can trade with this currency like normal paper notes. You can buy goods and services online using bitcoin. Bitcoins can also gather with hope that their value will increase in future time.
Why do bitcoins have monetary value?
As mentioned earlier bitcoins are not physical commodity like gold. They are not widely accepted as legal tender like dollars. They have monetary value for the following reasons:
- People accept and trade in bitcoins because other people accept and trade in bitcoins.
- Many business accept bitcoin as currency.
- You can purchase goods and services online while being anonymous.
- Bitcoin is decentralized and no bank is needed to store it. This is a major benefits for bitcoin users. Because governments cannot trace and tax on bitcoin digital currency.
- Bitcoin is a social network and acts like other online social network.
Bitcoin creation process
Generation of new bitcoins are called mining and people involved in bitcoin mining process is called miner.Bitcoin mining involves solving computationally intensive math problem to discover a new block. The newly discovered block then added to the blockchain. The successful miner who discovered new block gets reward in the form of receiving a few bitcoins.
In 2009, block reward was 50 new bitcoins.It decreases every four years. In 2014, for example, block reward was 25. The difficulty of the mining process increases with the creation of more and more bitcoins. Here mining process means the amount of computing power involved to solve math problem. back in 2009, the mining difficulty was 1.0. At the end of that year it was 1.18. In april 2017, the mining difficulty reaches over 4.24. Once an ordinary computer was enough for mining process. But now miners must use faster hardware like Application-Specific Integrated Circuits (ASIC), more advanced processing units like Graphic Processing Units (GPUs), etc.
What is block(bitcoin block)?
Blocks are files that permanently stored data related to bitcoin network. Block records all or recent bitcoin transactions. It is permanent store of records that once written cannot be altered or removed.
What is blockchain?
A blockchain is like a public ledger where all cryptocurrency transactions have been recorded. A blockchain is like a record of bank transaction whereas a block is a single transaction confirmation. For example when you use a bank ATM machine, the machine print out a transaction slip confirming your single confirmation. Bitcoin block is like that ATM print out transaction slip.
Worth of bitcoin in terms of regular currency
One bitcoin is equivalent to $1,223. A significant increase from late 2016 when one bitcoin is worth of $770.
The price of bitcoin depends on the size of bitcoin network. Increase of bitcoin network means increase of competition producing new bitcoin. In other words, increase of amount of computing power and thus increase of production cost. So bitcoin price will also increase.
Controversy surrounding bitcoin digital currency
There are many controversy regrading bitcoins. Below 4 are most prominent.
- Governments , law enforcer agency, tax authority have no control over bitcoin transaction.
- Bitcoin completely by pass any middle service like banks
- Bitcoins hide the way we spend money. You can purchase goods and services online while keeping your identity secret.
- Bitcoin transaction cannot be reverted.