Bitcoin, the virtual crypto-currency that’s somewhat mysterious and extremely volatile, is a decentralized virtual currency that relies on cryptographic mathematics to determine its creation and trade. If you’re not confused yet, wait, it gets better.
Bitcoin (BTC) is a digital currency first described in a 2008 paper by a pseudonymous developer or group named Satoshi Nakamoto, who called it a peer-to-peer, electronic cash system. The creation and transfer of Bitcoin are based on an open-source cryptographic process and are not maintained by any critical authority. Each bitcoin is subdivided right down to eight decimal places, forming 100 million smaller units called satoshis. Bitcoins could be transferred through a computer or smartphone lacking any intermediate financial institution, which claims to be anonymous and untraceable to any individual.
A bitcoin is just an SHA-256 hash in hexadecimal format. A person’s bitcoins are stored in a particular file called a wallet, which also holds each address the consumer sends and receives bitcoins from along with a password/private key known only to the consumer, required before the bitcoins could be spent.
What’s the Value of a Bitcoin?
Bitcoin is considered as both a currency and a commodity. Speculators have sent bitcoin value soaring and crashing. As the marketplace valuation of bitcoins’ total stock approached USD 1 billion, some commentators called bitcoin prices a bubble. In early April 2013, the price per bitcoin dropped from $266 to around $50 and then rose to stabilize around $100. By the date of this article, May 24, 2013, a bitcoin’s worth is roughly $131.
Q: Where do you get Bitcoins?
Any computer can run a free application called a Bitcoin miner that performs the mandatory calculations to produce the coin, storing bitcoins in an open, open-source digital wallet of one’s choice.
Below is a rough summary of the procedure to mine bitcoins:
- New transactions are broadcast to all nodes.
- Each miner node collects new transactions into a block.
- Each miner node works on finding a difficult proof-of-work for the block.
- When a node finds a proof-of-work, it broadcasts the block to all nodes.
- New bitcoins are successfully collected or “mined” by the receiving node, which found the proof-of-work.
- Nodes accept the block as long as all transactions inside it are valid and not already spent.
- Nodes express their acceptance of the block by focusing on creating the following block in the chain, utilizing the hash of the accepted block as the last hash.
The first transaction in a block is a particular transaction that produces new bitcoins owned by the block’s creator by convention. This adds an incentive for nodes to guide the network and provides a way to initially distribute coins into circulation since there is no central authority to issue them, nor are they backed by any government or entity.
Why Use or Accept Bitcoin as a Payment Option?
Bitcoin charges no transaction fees for consumers. For merchants, bitcoin offers lower transaction fees, roughly 1%, and protection against almost any chargeback causes it to be attractive. Bitcoin also opens up the business to customers in countries unsupported by PayPal and other credit issuers, along with minors. Unlike bank transfers through PayPal, payment clears instantly, good results for both business and customer. So, will it sound right for Email Answers to accept bitcoin as a payment method? Maybe not (yet).
Where do we go from here?
There’s no doubt that bitcoin is risky. Digital currency is susceptible to lack of public interest, hacking or the bitcoin bubble bursting. You can find way too many unknown variables helping to make bitcoin a proof concept model at best. There’s no doubt that bitcoin is a fascinating concept that has gathered some interest. For bitcoin to become genuinely disruptive requires a vital mass of trusted users. Stay tuned.