Bitcoin is a digital currency that was launched in 2009. This is commonly abbreviated as “BTC”. Each Bitcoin is basically a computer file which is stored in a ‘digital wallet’ app on a smartphone or computer. You can send Bitcoins to other people or receive Bitcoins from others to your digital wallet. Every single transaction is recorded in a decentralized ledger system called the blockchain. Bitcoins does not have physical balances, the balances are kept on a public ledger that everyone has transparent access to.
The bitcoin system is a collection of computers that all run bitcoin’s code and store its blockchain. A blockchain is simply a collection of blocks. In each block, there is a collection of transactions. Information are recorded in a system using Blockchain, in a way that makes it difficult or impossible to change, modify, hack, or cheat the system. No one can cheat this system, because all the computers running the blockchain has the same list of blocks and transactions, and can transparently see these new blocks being filled with new bitcoin transactions.
History of Bitcoin
Bitcoin is a decentralized Digital Currency that serves as a medium of exchange without the intervention of any other central authorities. Being decentralized means there is no single administrator, but there is a public ledger of transactions that anyone can store on their computer. They can be sent from user to user on the peer-to-peer Bitcoin network without the need for intermediaries.
The idea behind Bitcoin was introduced to the world by 2008 by a pseudonymous person called Satoshi Nakamoto. The identity of the person or persons who created the technology is still a mystery. Rather the real founder of Bitcoin is still unknown. Over a number of years, Bitcoin has undergone rapid growth to become a significant currency both online and offline. During the latter part of 2008, the blockchain was launched when the first block, called the genesis block, was mined. After about one week later, the first test transaction took place. Some businesses began accepting Bitcoin in addition to traditional currencies from later 2010.
Why is Bitcoin popular?
People use Bitcoin to pay for goods and services or hold on to them to sell for a huge margin of profit. It also can be exchanged such as traditional currency via digital wallets.
Most consumers prefers to use Bitcoin due to its high convenience and ease of use and the ultimate security Blockchain technology offers. The users can have security and control over their money. The transactions are protected by military-grade encryption therefore no one can charge or make payments in their name without the permission of the owner. Cryptocurrencies like bitcoin are gaining huge popularity become a plethora of customers are accepting bitcoins in their businesses.
Other advantages of using Bitcoin
- Greater Liquidity Relative to Other Cryptocurrencies
Bitcoin has far greater liquidity than other Digital currencies. This allows users to retain most of its inherent value when converting to fiat currencies, such as the U.S. dollar and euro. By contrast, most other crypto currencies either can’t be exchanged directly for fiat currencies or lose substantial value during such exchanges.
- Widely Accepted Payment Method
Majority of the merchants accept Bitcoin payments due to its ease of use and high security. If you’re serious about reducing your exposure to fiat currencies, Bitcoin’s growing mainstream acceptance is likely to be a big help.
- International Transactions Easier Than Regular Currencies.
Unlike credit card payments, ATM cash withdrawals and international money transfers, Bitcoin transactions does not have any international transaction fee or red tape to navigate. International credit card and ATM fees can range up to 3% of transaction value, and sometimes higher, while money transfer fees can be as high as 15%.
While most other crypto currencies lack international red tape, cross-border Bitcoin transactions are easier simply because Bitcoin is more popular around the world.
- Generally Lower Transaction Fees.
The transaction fee related to Bitcoin is comparatively lower to other digital payment methods such as credit cards and PayPal. Though such fees are variable, it’s rare for a Bitcoin transaction to cost more than 1% of its value. Compare that to 2% to 3% for most other digital payments.
- Anonymity and Privacy Relative to Traditional Currencies.
Unlike other fiat currencies and digital currencies, Bitcoin’s built-in privacy protections allow users to completely separate their Bitcoin accounts from their public personas, if they so choose. While it’s possible to track Bitcoin flows between users, it’s very difficult to figure out who those users really are.
- Independence From Political Agents and Creators
Since Bitcoin isn’t created or controlled by any state entity, it cannot be influenced by any public institution. It’s also much harder for governments to freeze or seize Bitcoin units. Due to its completely decentralized nature, popularity, and liquidity, Bitcoin is also beholden to its creators
The Bitcoin network processes payments almost instantly. It normally takes just a few minutes for someone to send or receive money from any corner of the world, while normal bank transfers can take several days.
- Non repudiable
Once you send your Bitcoins to someone, there is no way of getting them back, unless the recipient would want to send them back to you. This ensures the reception of a payment, meaning that whoever you’re trading with can’t scam you by claiming that they never got the money.
Disadvantages of using Bitcoin
- Legal questions
Bitcoin’s legal status varies drastically from country to country. In some countries the use and trade of BTC is encouraged, while in others it is banned and outlawed.
- Level of recognition
Bitcoin is recognised and is legal in a lot of countries, however some of the world’s governments still don’t have any regulations regarding BTC, while others have outright banned it. The majority of businesses, no matter how big or small, are still completely oblivious to it. It is nearly impossible to abandon all other currencies and start using BTC exclusively.
- Lost keys
A key is a unique alphanumeric password necessary to access a Bitcoin wallet. Losing that key essentially means losing your wallet. However, most current wallets have backup and restore mechanisms, but obviously the user needs to set them up before being able to use them.
The price of Bitcoins has had its ups and downs. Its value is unpredictable, it changes rapidly and drastically, which can cause significant financial damage to an imprudent investor.
- Wallets can be lost.
When a hard drive crashes, or a virus corrupts data, the wallet file can be corrupted leading to lose Bitcoins. There is nothing that can done to recover it. These coins will be forever orphaned in the system. This can bankrupt a wealthy Bitcoin investor within seconds with no way form of recovery. The coins the investor owned will also be permanently orphaned.
- No valuation guarantee
Since there is no central authority governing Bitcoins, no one can guarantee its minimum valuation. If a large group of merchants decide to “dump” Bitcoins and leave the system, its valuation will decrease greatly which will immensely hurt users who have a large amount of wealth invested in Bitcoins. The decentralized nature of bitcoin is both a curse and blessing.