Bitcoin (BTC) is a new kind of electronic currency-with cryptographic keys-that is decentralized to a network of computers used by users and miners around the world and it is not controlled by a single business or government. It is the first electronic cryptocurrency that has gained the public’s attention and is accepted by a developing number of merchants. Like other foreign currencies, users can use the digital foreign currency to buy goods and services online as well as in some physical stores that accept this as a form of payment. Currency investors can also trade Bitcoins in Bitcoin exchanges.
There are several major differences in between Bitcoin and traditional currencies (e. g. U. S. dollar):
Bitcoin does not have a centralized authority or even clearing house (e. g. govt, central bank, MasterCard or Australian visa network). The peer-to-peer payment system is managed by users and miners around the world. The currency is anonymously transferred directly between customers through the internet without going through a clearing house. This means that transaction charges are much lower.
Bitcoin is created by way of a process called “Bitcoin mining”. Miners around the world use mining software and computers to solve complex bitcoin algorithms and to approve Bitcoin transactions. They are awarded with transaction fees plus new Bitcoins generated from resolving Bitcoin algorithms.
There is a limited amount of Bitcoins in circulation. According to Blockchain, there were about 12. 1 million in circulation as of Dec. 20, 2013. The difficulty to mine Bitcoins (solve algorithms) becomes harder as more Bitcoins are generated, and the optimum amount in circulation is assigned at 21 million. The limit will not be reached until approximately the entire year 2140. This makes Bitcoins more valuable as more people use them.
The public ledger called ‘Blockchain’ records all Bitcoin transactions and shows each Bitcoin owner’s respective holdings. Anyone can access the public ledger to verify transactions. This the actual digital currency more transparent and predictable. More importantly, the transparency helps prevent fraud and double spending from the same Bitcoins.
The digital foreign currency can be acquired through Bitcoin mining or even Bitcoin exchanges.
The digital foreign currency is accepted by a limited amount of merchants on the web and in some brick-and-mortar retailers.
Bitcoin wallets (similar to PayPal accounts) are used for storing Bitcoins, private keys and public contact information as well as for anonymously transferring Bitcoins among users.
Bitcoins are not insured and are not protected by government companies. Hence, they cannot be recovered if the secret keys are stolen by a hacker or lost to an unsuccessful hard drive, or due to the closure of a Bitcoin exchange. If the secret tips are lost, the associated Bitcoins cannot be recovered and would be away from circulation. Visit this link to have an FAQ on Bitcoins.
I believe that will Bitcoin will gain more acceptance from the public because users can remain anonymous while buying services and goods online, transactions fees are much less than credit card payment networks; the public journal is accessible by anyone, which can be used to prevent fraud; the currency provide is capped at 21 mil, and the payment network is operated simply by users and miners instead of a main authority.
However , I do not believe that it is a great investment vehicle because it is extremely volatile and is not very steady.
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For example , the bitcoin price increased from around $14 to a peak of $1, 200 USD this season before dropping to $632 per BTC at the time of writing.
Bitcoin surged this year because investors speculated the currency would gain wider acceptance and that it would increase in price. The currency plunged 50% in December mainly because BTC China (China’s largest Bitcoin operator) announced that it could no longer take new deposits due to government rules. And according to Bloomberg, the Chinese central bank barred financial institutions and payment companies from handling bitcoin transactions.
Bitcoin will likely gain a lot more public acceptance over time, but its cost is extremely volatile and very sensitive in order to news-such as government regulations plus restrictions-that could negatively impact the currency.
Therefore , I do not suggest investors to invest in Bitcoins unless these were purchased at a less than $10 USD per BTC because this would allow for a much larger margin of safety.