How Does Bitcoin Work – User Advantages & Security Risks?
Bitcoin is a decentralized peer-to-peer form of digital currency. Satoshi Nakamoto invented it in 2009. The value of this digital currency is not regulated by any central body, but rather, by the users themselves. But how did bitcoin come into existence? How and when can you use it? The article offers a brief introduction into what bitcoin is, and how it works.
Bitcoin came to the public limelight in 2009. It’s only recently that it has received huge attention from investors and the media. The value of bitcoins has tremendously increased from the few cents it was worth in 2009 to the value of about $8,000 in November 2017. Just like paper currencies, it has experienced both highs and lows over the 8 years.
How Bitcoin Works
Bitcoin is a completely digital currency. Encryption keys are used to control its mining and distribution. There are different ways in which an individual can obtain this cryptocurrency. The easiest way is by purchasing it on an exchange. There are very many online exchange platforms that one can buy from such as Bitfinex, Coinbase and Bitstamp. You need actual paper currency to be able to buy the digital currency.
The amount of bitcoins will depend on their value at that specific day when you are buying them. The value of bitcoins value keeps changing all the time. The other alternative is by transferring bitcoins between users. Cryptocurrencies are stored in ‘’wallets’’ that are installed in computers or mobile phones as applications.
It is through these wallet applications that the sending and the receiving of bitcoins occur. Mining is the hardest and the most complicated way of obtaining bitcoins. It is only a reserve for programming experts. All transactions are stored in a public ledger where everyone can see how the bitcoins were exchanged. This helps prevent fraud.
Are Bitcoins Acceptable?
There has been growth in bitcoin acceptance round the world. Initially, bitcoins were associated to crimes and underworld payments. But with time, big reputable institutions such as banks and regulators have realized that it is genuine. In 2014, bitcoins were added by Microsoft as an acceptable method of making payments. Other retailers such as Overstock, Dish Network and Dell have also not been left behind.
The Japanese government has fully legalized the use of bitcoins in settling debts in Japan. Other countries such as Philippines and India are in the final stages of structuring a way of regulating the use of bitcoins in their respective countries. Bitcoins are becoming acceptable by more countries and retailers because they are cheap and convenient to trade in as compared to the ordinary currency.
How Safe Are Bitcoins?
The bitcoin network is generally secure despite being a peer-to-peer network. Once in a while, security issues occur. However, they are usually as a result of errors from the user’s end. The network can rarely be compromised. Whenever a security issue arises, though it rarely does, the matter is usually sorted immediately.
Advantages of Bitcoins
Transacting in bitcoins offers the users so many advantages. For instance, effecting and completing a transaction takes a few minutes, unlike in normal currencies where transactions take longer to be completed. Since no third party is involved, bitcoin transactions remain anonymous. No other person can know the balance in a specific wallet, except for the owner of that wallet.
Another advantage of bitcoin transactions is that they are irreversible. This means that chances of fraudulent practices are very minimal. There has never been a single case of identity theft with this digital currency. This makes it more secure than even credit cards. The fee charged for transacting in bitcoin is usually very little. As compared to other currencies, this is the cheapest currency for transacting.
