Bitcoin
Bitcoin is a digital currency created in 2009. It follows the ideas set out in a white paper by the mysterious Satoshi Nakamoto in 2008, whose true identity has yet to be verified. Bitcoin offers the promise of lower transaction fees than traditional online payment mechanisms and is operated by a decentralized authority, unlike government-issued currencies.
Bitcoin uses peer-to-peer technology to operate without a central authority or banking institution; managing transactions and issuing new BTC, also known as mining, is carried out collectively by the network. Bitcoin has many unique characteristics compared to traditional credit cards such as international payments, low transaction fees, irreversible transactions for merchants, and security through encryption.
Bitcoins are only created as a reward for proof of work involving cryptographic hashes called mining. Users offer their computing power to verify and record payments in to a public ledger, known as the blockchain. Bitcoin that is already mined is in circulation and can be exchanged for goods and services. There will only ever be 21 million bitcoins in existence, with the final fractions of bitcoin being redeemed by miners in the year 2140.
BTC miners are supported exclusively by numerous small transaction fees – which are required to let your transactions be included swiftly into the blockchain. However, these coins can be divisible into smaller units, unlike regular currencies bitcoins are divisible by up to 10^8, which means that over time people will have the ability to use tiny little fractions of bitcoin to buy things. The smallest divisible unit of a bitcoin is aptly named a ‘Satoshi’.
The price of bitcoin is determined by its supply and demand. When demand for bitcoin increases, the price increases, and when demand falls, the price falls. There is only a limited number of BTC in circulation and new bitcoins are created at a predictably diminished rate. Demand must follow this level of inflation to keep the price stable.
Unlike centralized fiat payment systems, Bitcoin is fully open-source and decentralized. Transactions can be verified independently at any time. Bitcoin payments can be made instantly and directly without an intermediary. The whole system is protected by a combination of elliptic curve cryptography and hashing on the sha256 curve. Together these mechanisms sufficiently provide large enough random key-space that cannot be attacked by hackers or gamed through mathematics.
No organization or individual wields total control of the entire network. The Bitcoin network has no dependence on a central authority nor single administrator. Managing transactions and issuing new bitcoins are carried out collectively on the above mentioned blockchain. The Bitcoin protocol itself cannot be modified without the cooperation of nearly all its users agree to run software updated.
You can choose your own fees while spending your bitcoin. Paying high transaction fees can encourage very fast conformation on the bitcoin network. However, Fees are unrelated to the amount transferred, so it’s possible to send 10,000 BTC with no fee, and just wait a bit longer for them to be confirmed (Up to three days.)
Bitcoin transactions are secure, irreversible, and do not contain customers’ sensitive or personal information. This offers strong protection against identity theft compared to checks or credit cards.