Bitcoin is a modern form of money – digital money. The bitcoin infrastructure is maintained by an open network of ‘miners’ located all over the world. No single organisation or group of people control’s bitcoin. It is truly ‘private money’. Bitcoin is the pioneering technology that has forged the way for blockchain to improve our lives in many ways.
In traditional monetary systems, the payment infrastructure and maintaining of information (such as credit and debit balances) is done primarily by banks, and overseen by government agencies. With Bitcoin and other decentralized currencies, the task of maintaining information is carried out by a diverse set of interests who contribute their computing power to ensure that the information is updated in a secure and timely manner. To make this possible, information about bitcoin balances and transactions is stored in what we call a blockchain.
The current state of the network, which is essentially the balances of who owns which Bitcoins is stored on the blockchain. Roughly every 10 minutes, a new block is produced which publishes some or all of the pending transactions on the blockchain, and mints new Bitcoins to the miner that found the block. Bitcoin miners that provide their computing power are competing to produce the next block to receive a reward in the form of bitcoins. Here is a brief video about where bitcoin miners fit into the network:
How safe is Bitcoin?
Bitcoin is an open source network: anyone can see the transaction history of every account, anyone can contribute their computing power to maintain the network, and the state of the Bitcoin ‘blockchain’ is maintained by a diverse set of people and organisations all over the world. Bitcoin is democratic – any proposed change to the state of the blockchain must be agreed upon by consensus.
Many hackers have attempted to breach the security of bitcoin, but during the past 9 years, Bitcoin has remained secure. To access the Bitcoin contained within your wallet, you need to provide a public key (similar to a username or bank account number), and a private key (this is your password). As long as your private key is secure, you are the only one who can access your bitcoins.
What is the value of a Bitcoin?
The value of bitcoin is determined by what the market is willing to pay for it. It is not tied to any other currency or asset, but rather valued based on supply and demand. Over the long run, the value of Bitcoin should theoretically be correlated to the costs of mining bitcoin and validating the network. However, Bitcoin is still an emerging technology, and it tends to exhibit quite a lot of volatility.
Why would I use Bitcoin?
With Bitcoin, you can almost instantly send money anywhere in the world without the reliance on trusted third parties such and banking and remittance services. Bitcoin gives you the freedom to be in control of your own money. As an investment, the popularity of bitcoin as a hedge is growing due to the fact that it’s price is not correlated to traditional asset classes such as stocks, bonds and real estate.
Where can I spend Bitcoin?
A large number of online businesses accept bitcoin. For example, you can buy goods and services at Overstock, Expedia and dell. You can send money using PayPal and read paid news and entertainment from Bloomberg and Reddit. You can donate to Wikipedia and many other charities, and interact with a rapidly growing number of businesses. For merchants, the benefits of accepting bitcoin are numerous: lower fees, certainty that money has been received and earning income in an appreciating asset.