All About Bitcoins...

Yay Bitcoins! So wait...what is a Bitcoin? If you are anything like I was, you might be totally unaware of what Bitcoins are (which seems exceptionally out of place now considering how groundbreaking they are). Anyway, if you don't know what they are, I'm about to unravel the mystery. This blog will explain: exactly what Bitcoins are, where they come from, what they can be priced, what something called Bitcoin mining is, why the government does not like them, and I'll finish up with some advantages and disadvantages of them.

So Bitcoin is a network. A network where peers act as suppliers and consumers of a product with no centralized middle man (like banks). It is the first spawn of the concept called "cryptocurrency," which I have found to mean digital form of exchange or payment --so internet cash, a pretty simple concept. It was introduced by a man named Satoshi Nakamoto in 2009. He did not stay with Bitcoin, and there is still not much known about him. Since then, it has become an open source network where other users collaborate to change it.

Satoshi Nakamoto, initial creator

So we know what Bitcoin is, but how does it work? If you don't want to know anything about how Bitcoin works but just want to use it, it's as simple as downloading an app and computer program that offers Bitcoins and you've created a "wallet."

Well, beyond that, the network is based on two keys (a private key and a public key, the public key being the Bitcoin address) and digital signatures to verify the transactions with Bitcoins. A Bitcoin transaction consists of the senders address, the receivers address, and then how many Bitcoins you possess. The sending party signs the transaction with its private key. The transaction is then broadcast to all nodes of the Bitcoin Network, which creates a "block chain."

Two illustrations of the Bitcoin block chain

So the block chain is a record of every transaction, which makes verifying the transactions much more accurate and prevents any occurrences of false transactions or double spending on something.

How do you get Bitcoins now that you know what they are and how they work? Much like regular money, you can get Bitcoins as payment, you can exchange Bitcoins, you can purchase Bitcoins, or you can "mine" for Bitcoins.

So, as of today, one Bitcoin costs $868.33 in US dollars. Below you will see the prices all over the world. 

Now, you have to understand that Bitcoin value fluctuates with supply and demand. When a lot of people use Bitcoins, the price increases and if they don't, the price decreases. They become highly valuable, but also completely worthless. This can be said about any currency, so Bitcoin isn't necessarily different in that case.

If you don't want to buy Bitcoins, there is the option to mine them. This means to earn them by processing transactions using special software. Mining software listens for transactions sent through the network to process and confirm said transactions. For new transactions to be confirmed, there are a lot of steps and calculations to be completed by miners. So, miners keep the network secure. It's not easy to do this and becomes harder as the task becomes more popular and competitive. 

You may be wondering where Bitcoins are even accepted. There are sites like this one that have a master list of websites that have users who accept Bitcoins for payment. Though Bitcoins are sparse, there are very many websites that actually accept them and are not hard to find.

With no middleman or businesses controlling the use of Bitcoins, can you see why the government may have an issue with Bitcoins? Just a few days ago actually, Bitcoins were in the news for this same reason...

Click here to read the full article

Citizens of China are still free to use Bitcoins, but the banks and organizations now are banned from using them. It's very shocking as Bitcoins were a hit there. In fact, they were largely responsible for the recent rise in price of a Bitcoin and their banning of the currency has brought it down to it's $800 price now.  The reason for the ban? The government does not believe Bitcoin has the same legal status as regular money?

There's no profit to be made for them, they can't control it...it's virtually anonymous and can allow for anyone to buy anything over the internet and money laundering (which means concealing sources of money). There are also concerns that Bitcoin is limited in design. It is feared among the Bitcoin community that the government will try to take control of Bitcoins here as well, but as of right now they are still completely legal.

I'll lay these out in the simplest way...

Pros

1. You can send and receive money at any time regardless of holidays.

2. You are in control of your own transactions.

3. No personal information on the transaction.

4. Peer-to-peer transactions so you don't have to bother with your bank.

5. Converts to other units in money exchange.

6. Not credit based.

Cons

1. Ongoing development, so it could use improvements.

2. Very expensive for one unit with it's popularity.

3. Never enough of it (chances of deflation).

4. Interest is not addressed.

In conclusion, I believe Bitcoins to be a needed breath of fresh air. With more development and perhaps with making them less scarce and thus less expensive, they could really change the way things work. Despite the recent ban in China, the future of Bitcoin is very bright. A recent convention is even bringing a little light to the subject and with more knowledge of it, I think it will become even more popular than it already is!

Categories: bitcoins, china, cryptocurrency, satoshi nakamoto