It's not an actual coin, it's "cryptocurrency," an electronic form of payment that's produced ("mined") by lots of people worldwide. It allows peer-to-peer transactions instantly, worldwide, for free or at suprisingly low cost.
Bitcoin was invented after decades of research into cryptography by software developer, Satoshi Nakamoto (thought to be a pseudonym), who designed the algorithm and introduced it in '09 2009. His true identity remains a mystery.
This currency is not backed by way of a tangible commodity (such as gold or silver); bitcoins are traded online making them a commodity in themselves.
Bitcoin is an open-source product, accessible by anyone who is a user. All you have to is an email address, Internet access, and money to get started.
Where does it come from?
Bitcoin is mined on a distributed computer network of users running specialized software; the network solves certain mathematical proofs, and searches for a particular data sequence ("block") that produces a specific pattern once the BTC algorithm is put on it. A match produces a bitcoin. It's complex and time- and energy-consuming.
Only 21 million bitcoins are ever to be mined (about 11 million are in circulation). The math problems the network computers solve get progressively more difficult to keep the mining operations and offer in check.
This network also validates all the transactions through cryptography.
How does Bitcoin work?
Internet users transfer digital assets (bits) to one another on a network. There is absolutely no online bank; rather, Bitcoin has been described as an Internet-wide distributed ledger. Users buy Bitcoin with cash or by selling a product or service for Bitcoin. Bitcoin wallets store and use this digital currency. Users may sell out of this virtual ledger by trading their Bitcoin to someone else who wants in. Anyone can perform this, all over the world.
There are smartphone apps for conducting mobile Bitcoin transactions and Bitcoin exchanges are populating the Internet.
How is Bitcoin valued?
Bitcoin isn't held or controlled by a financial institution; it really is completely decentralized. Unlike real-world money it can't be devalued by governments or banks.
Instead, Bitcoin's value lies simply in its acceptance between users as a form of payment and because its supply is finite. Its global currency values fluctuate in accordance with supply and demand and market speculation; as more people create wallets and hold and spend bitcoins, and more businesses accept it, Bitcoin's value will rise. Banks are actually trying to value Bitcoin and some investment websites predict the cost of a bitcoin will be thousands of dollars in 2014.
What are its benefits?
There are advantages to consumers and merchants that want to utilize this payment option.
1. Fast transactions - Bitcoin is transferred instantly online.
2. No fees/low fees -- Unlike bank cards, Bitcoin can be used free of charge or very low fees. Minus the centralized institution as middle man, you can find no authorizations (and fees) required. This improves profit margins sales.
3. Eliminates fraud risk -Only the Bitcoin owner can send payment to the intended recipient, who's the only one who can receive it. The network knows the transfer has occurred and transactions are validated; they can not be challenged or taken back. That is big for online merchants that are often subject to credit card processors' assessments of whether or not a transaction is fraudulent, or businesses that pay the high price of charge card chargebacks.
4. Data is secure -- Once we have seen with recent hacks on national retailers' payment processing systems, the web isn't always a secure place for private data. With Bitcoin, users usually do not give up private information.
a. They have two keys - a public key that serves as the bitcoin address and an exclusive key with personal data.
b. Transactions are "signed" digitally by combining the general public and private keys; a mathematical function is applied and a certificate is generated proving an individual initiated the transaction. Digital signatures are unique to each transaction and cannot be re-used.
c. The merchant/recipient never sees your secret information (name, number, physical address) so it is somewhat anonymous but it is traceable (to the bitcoin address on the public key).
5. Convenient payment system -- Merchants may use Bitcoin entirely as a payment system; they do not need to hold any Bitcoin currency since Bitcoin can be changed into dollars. Consumers or merchants can trade in and out of Bitcoin along with other currencies at any time.
6. International payments - Bitcoin is used all over the world; e-commerce merchants and service providers can simply accept international payments, which start new potential marketplaces for them.
7. An easy task to track -- The network tracks and permanently logs every transaction in the Bitcoin block chain (the database). In the case of possible wrongdoing, it really is easier for law enforcement officials to trace these transactions.
8. Micropayments are possible - Bitcoins can be divided down to one one-hundred-millionth, so running small payments of a dollar or less becomes a free or near-free transaction. This may be a real boon for convenience stores, coffee shops, and subscription-based websites (videos, publications). wallet paper bitcoin
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