The Genesis of Bitcoin
The beginning or Genesis of Bitcoin dates back to October of 2008. This was when the developer, Satoshi Nakamoto wrote the code for Bitcoin. Actually, the true identity is not known, as the name, Satoshi is just a pseudonym.
The actual operation of this software was started on January 3, 2009. It was developed as a free project on Source Forge. Since this time the number of units of Bitcoin in circulation has reached approximately 11 million.
There is a cap on the number of Bitcoins that will be made available. This number is 21 million and the way the code was written, it will take until the year 2040 to reach this number.
Bitcoins can be divided into units and each smaller unit is known as a Satoshi.
How Our Banking System Works Today
In order to truly understand the Bitcoin currency, it is important to know how our current banking system works today.
All currencies around the world are issued by a central bank or government, depending upon the country. This central agency has control over how much currency is in circulation at any one time.
A currency has different versions, paper and metal based units of each currency. These units represent different amounts of the currency.
Let’s look at an example:
The US currency has paper bills that represent 1 dollar, 5 dollars, 25 dollars, 100 dollars. They then have coins – metal units – that represent 1 cent, 5 cents, 10 cents, 25 cents and 1 dollar.
If these coins or paper bills get damaged they are simply removed from circulation and new ones are issued. This is all taken care of by the central bank. In the US this central bank is the Federal Reserve Bank.
This bank can decide when to introduce more money and they can decide how the economy affects the value of the money. This is an extremely complicated topic but we are sure you know about inflation and recession.
The Bitcoin Currency
When it comes to the Bitcoin currency there is no central bank or reserve. So no one entity is controlling the mining, circulation, and transactions of the Bitcoin currency. Instead, this type of system is based on a cryptography system. This is where keys – a code made up of numbers and letters – is used by both end users to fulfill and complete a transaction.
All Bitcoin transactions require the use of two keys, one is a public key and the other a private or secret key. This method uses encrypted code to send the Bitcoin to another user. Only the person with the private key can unlock and receive the Bitcoin.
This encrypted system is extremely secure and transactions are only verified if the sender has the correct amount of Bitcoin available. Once verified it is sent to the receiver, who unlocks and deposits it into their account – the wallet.
This process is simple enough and eliminates the need for any public bank to be involved. This is one reason why people love using Bitcoins, as the banks have no control over its value.
The Popularity of Bitcoins
Trying to come up with alternative currencies is not a new concept at all. Many countries and people have tried but none have gained the popularity that Bitcoin has.
The Bitcoin genesis began back in 2009 and by the middle of 2013, it was estimated that the value of bitcoins in existence was 400 Million USD. The exchange rate of the Bitcoin fluctuates and has seen huge extremes. This makes it a good or bad investment for some people. If you purchased Bitcoin early you will have likely seen a huge return on your initial investment.
As of January 2014, numerous merchants and retailers are now accepting Bitcoin as a payment method. Namecheap made the news earlier in 2013 when they first started to accept this digital currency. This was due to the increasing number of requests from their customers.
Bitcoin has no borders, which is also part of its appeal. You do not have to pay those high conversion fees as you would with a regular bank. Plus a Bitcoin transaction is not reversible, this is due to the verification process. This helps prevent fraud and un-necessary returns on purchases.
It is possible to exchange Bitcoin into your local currency whenever you wish.
Bitcoins are so popular that dedicated websites are being set up that allows you to purchase in Bitcoin. One of these websites caters to high-end luxury products.
What Does the Future Hold?
Of course, there are those people who are just waiting for the Bitcoin bubble to burst. People are wondering if there is a weakness in the system that will cause it to eventually crumble. Or can it be hacked or corrupted by dishonest users?
The biggest issue with the Bitcoin system would be keeping the private keys a secret. People have accidentally lost their private keys or leave them displayed on their home computers, without thinking.
While users are advised to protect and encrypt their wallets, they do not always do so. Some users suggest splitting your private keys into shorter sections and storing them on different devices.
One good way to help protect the privacy of your keys is to back them up to an offline website such as Dropbox or onto a USB device.
While there is a cap set on the number of Bitcoins that can be mined. There are no set rules on how each bitcoin can be broken down. The possibility of new units appearing is real. Currently, each Bitcoin is broken down into 100 million units.
If you have paid any attention to the exchange rate of the bitcoin you will see that it is very volatile. Rates can increase and decrease by as much as 50% in one day. This can certainly discourage some people from using Bitcoins altogether.
The general way of thinking is that as more people accept Bitcoins and start using them, the rates will start to stabilize more.
Understanding Bitcoin Transactions
In this article, we will discuss the complex issue of a Bitcoin transaction. Bitcoins are exchanged and transferred digitally through a computer-generated code. To ensure that these transactions are completed safely and securely users use keys.
Two keys are always required for any transaction:
- Public Key
- Private Key
The public key is the one that is used for the actual transfer of the Bitcoin. Because this key is public it allows anyone to verify the transaction. Before the transfer can take place the sender’s account is verified, this ensures that they have enough Bitcoins in their account to cover the transaction. Once this first verification is done the transaction enters into the Block Chain. Think of this as the public ledger displayed in a transparent glass layer. People can see but they can’t touch it!
This first verification step prevents anyone from trying to send the same transaction to two different people at the same time. If anyone attempts this type of process it is referred to as double spending. Having the two different keys prevents this from happening.
The end user then uses their private key to unlock the transaction, once it has been verified. The Bitcoin then gets deposited into their Wallet. A wallet is simply an online bank account.
Because the system uses two keys all activity in the network can be easily traced. The process of verification often occurs multiple times before the receiver deposits the Bitcoin.
All of these transactions are available in the Block Chain, every transaction ever made is accounted for here. Plus anyone can view it if they wish to.
How the Blockchain is Created
Let’s look at how the blockchain is created. As we described above it takes several verifications for each transaction to proceed. At this time the current number of verifications required is six.
Before a transaction enters into the Blockchain a new block is formed first. The first step in this process is to verify that the person sending the Bitcoin has the currency available in their wallet.
Now, this is where it can get complicated, but we will try to keep it as simple as possible for you.
To create a block, a process known as hash creation has to occur. Think of this as small nodes that are attached to a block each time it is verified. So what happens is that the original block gets a little longer.
As this is all done on via a mathematical software program zeros are added at the beginning of the block. As each new block, verification is completed more zeros are added on. The largest block is always taken to be the authenticated block. Once this verification process has occurred six times this block enters into the BlockChain. As it enters a timestamp is associated with it. This is how you can easily see all the transactions that have ever occurred. No records are ever removed from the Blockchain and it will continue to grow in size
Are There Any Real Threats to Bitcoin?
For those of you who keep track of the value of Bitcoin, you no doubt see all the fluctuations that are connected to this digital currency. Some people wonder if this means that there is a threat to the entire Bitcoin currency or not?
Right now experts agree that these fluctuations are based on users confidence levels or lack of. As more people and retailers start to use Bitcoin it is thought that the value will become more stable.
In the past year, the popularity of Bitcoin has increased. The number of online and offline retailers accepting Bitcoin has grown substantially.
One huge attraction of Bitcoin is that it has very low transactions fees associated with it. This is because no bank or government has control over this digital currency.
Because Bitcoin is basically a code could a group of users get together and try to gain control? This is thought to be highly unlikely due to the verification process of each transaction.
Any issues that have been bought up actually apply to anything or anyone who is online today. This includes being vulnerable to malware attacks, hackers, losing keys and passwords and requiring that you back up your information to another device.
As the history of Bitcoin only dates back to 2009 it is still very early in the evolution of this currency. It is difficult to predict the future and what will happen.
As Bitcoin stands today it has no country boundaries and this is one aspect that people love. All transactions are done via keys with no names or identities attached to them.
Young people are becoming passionate about Bitcoin due to the lack of government involvement. They love that the banks can’t dictate the value of this currency or assign transaction or exchange fees to it.
For a threat to be real to Bitcoin it would need to involve massive amounts of computer power and technology. If any one person or group would be willing to go this far, only time will tell.
If you are considering entering the Bitcoin bubble, most experts suggest the now rather than later approach. Any type of digital currency or stock market trading can be volatile. You just need to be aware of the risks and you must be willing to accept them.
As far as fluctuations go these should begin to ease off and stabilize as more people use this currency.
Should You Invest in Bitcoins?
There is a lot of noise in the marketplace these days about the digital currency Bitcoin. This is a relatively new type of currency that can be thought of as a code. It is mined on computers by users called Bitcoin Miners around the world. One of the most loved aspects of this currency is that it is not owned by any one bank or government.
Bitcoin is the first digital cryptocurrency that is gaining a ton of attention and acceptance by the public and my retailers alike. Bitcoins can be used just like other currencies and can be used as a form of payment.
While not all merchants currently accept Bitcoins, the numbers for those who do is rising regularly. It is also possible to trade Bitcoins on a Bitcoin Exchange.
Before you can decide if you should invest in Bitcoins there are a few things you need to understand and consider.
Bitcoin is totally different to a central bank and even to the MasterCard or Visa Network, there is no central authority running it. Transfers and exchanges of Bitcoin are done directly by users and miners – peer to peer system. This results in much lower transaction fees.
Bitcoins are created by using a software and computers and this process involves complicated algorithms. Miners are those people who actually create the Bitcoin and they are rewarded for their efforts.
There will be a cap on the number of Bitcoins which are mined. This number will stop at 21 million and it is expected that this number will not be reached until 2140. This means that the value of the Bitcoin will only increase from here on out.
All Bitcoin transactions are recorded in a public ledger known as a Blockchain. Any user can see this record in order to verify transactions and this availability or access to the ledger is what helps keep this currency safe.
In order to obtain Bitcoin, you need to mine for it or buy it through an exchange. Many websites have been set up which help you locate local people willing to buy or sell Bitcoin to you.
You need to store your Bitcoin in a Wallet. Instead of an email address, your key to your wallet is a long string of letters and numbers. You use this key to send or receive Bitcoin into your wallet.
Once a Bitcoin transaction is verified it cannot be stopped or refunded. Plus if you lose your access to your wallet, your funds will be lost. This is why it is important to protect your wallet or backup it up to another device.
The biggest downside to investing in Bitcoin could be its volatility. The value of Bitcoin fluctuates like crazy on some days, depending on when you invested this could be a good or bad thing. Last year the price quickly went from around $14 to $1,200 USD, but it then dropped again to $632.
Investing in Bitcoin could be extremely worthwhile but you will have to determine if you are willing to take risks or not.