What Is Bitcoin, & How Does It Work?

Bitcoin is a form of digital currency that has been in the market since the concept began in 2008. There are multiple darknet markets and other online vendors that accept the currency that is entirely digital and not controlled by any government or fiscal authority. This article contains valuable information to help you understand what bitcoin is and how it works. We will also look at some of the future implications and economic impacts of bitcoin on the international market. 

Editor’s Recommendation: This article is in NO WAY meant to persuade you to use or invest in Bitcoin in any way because its worth varies dramatically from time to time. This potentially means that you can stand to lose large amounts of money very quickly without any form of compensation for your financial losses. 

What Is Bitcoin?

Bitcoin is a form of digital currency, sometimes also referred to as a cryptocurrency, that was introduced globally on Oct 31, 2008, by a person with the pseudonym of Satoshi Nakamoto. The value of bitcoin is one of the most difficult things to understand for people new to the concept of Bitcoin. Bitcoin is decentralized and it is not regulated by any government or administrative financial authority. To make matters even more complex is the fact that there is no physical legal tender in the form of currency or coins for bitcoin and its value can appreciate or depreciate freely based on market conditions. 

Bitcoin is a collection of secure and unique programming data that cannot be replicated just like money. The way to transfer bitcoin from one owner to the next, or to make a transaction, requires a programming algorithm. “Miners” are users that share their electronic resources to ensure that the transaction is conducted securely and their contributions are compensated with new Bitcoins. The Bitcoins that are transferred as the transaction is complete and the new owners of the Bitcoins can make another transaction to let the process start all over again. 

How Are Bitcoins Stored?

Bitcoin is not a physical form of currency and it can be frustrating to understand how to store and retrieve Bitcoins. Bitcoins are not stored in a special file on any dedicated computer because they are a form of cryptocurrency. Advanced cryptography programming is a part of the advanced network that is used to store Bitcoins. These cryptographic forms of programming are a part of the “blockchain” and bitcoins are stored on this blockchain. 

Bitcoins can be stored in hot wallets and cold wallets. A hot wallet can generate or provide its users with private keys to access the stored Bitcoins because it is always connected to the internet. There are potential security threats to a hot wallet since it is always online. A cold wallet utilizes a user’s address or information that is not connected to the internet to produce a private key that only the user knows. 

The Fluctuating Values Of Bitcoin

Most people become interested in Bitcoin because they learn of Bitcoin’s value from a colleague, friend, or family member. One of the basic properties of Bitcoin is that its value is constantly changing because the currency is not regulated by any government or financial institution. This means that the value of Bitcoin can fluctuate from sudden highs to extreme lows or the other way around. This leaves the average investor in Bitcoin wondering what affects the value of Bitcoin?

Some investors in Bitcoin have made a considerable fortune by investing in Bitcoins while others have suffered great losses. The problem with Bitcoin is that its value cannot be predicted by any financial institution or governmental agency because it is tied down to market conditions. Market conditions can be affected by several different factors all at once. A word of advice for the Bitcoin investor, Bitcoin might not be the answer if you are looking to invest your life savings into a stable currency for the long run. 

The value of a Bitcoin, in 2010 was less than a quarter of a US dollar. The year 2011 was when a single Bitcoin was worth more than 1 USD and April 2013 saw Bitcoin’s value increase up to almost $200 for a Bitcoin. November 2013 the price of Bitcoin went up to a little over $1,000. In the last quarter of the year 2017, a single Bitcoin was evaluated at a little over $11,000. But before the new year of 2018, the value of Bitcoin went back down to $9,000.  

Advantages & Disadvantages Of Bitcoin

One of the biggest advantages of Bitcoin is that it is possible to send and receive Bitcoin all over the world regardless of any bank holidays, currency limitations, or any red tape. A Bitcoin transaction will always be irreversible, secure, and it will never contain its owner’s personal information. Bitcoin owners are not entitled to pay any kind of taxes or administrative fees since their investment is safeguarded with a high level of encryption. The information related to the Bitcoin blockchain is always available online for the whole world to see and verify at any time. 

One of the main disadvantages of Bitcoin is that it is still not readily accepted all over the world as a form of payment and some countries have banned it entirely. Another concern for Bitcoin owners is the total number of Bitcoins available in the market and how this affects their share of their holdings. Since the form of currency is decentralized there is always much speculation about how certain economic or international events can affect the currency’s worth. Another problem is that even the advantages of the Bitcoin system can be viewed as a disadvantage because they can easily be linked to global criminal activity. 

Owners of Bitcoins who forget their private keys or become wary of using them altogether become lost links in the blockchain. Those Bitcoins cannot be retrieved at all which means that there will be fewer Bitcoins in circulation. With fewer Bitcoins in circulation, each Bitcoin has a higher value.

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