Understanding Bitcoin and How it Works

If you find the concept of Bitcoin confusing, you are not alone. The virtual currency has been a constant source of controversy, but it is still not well understood.

Currently, the average price of one Bitcoin is about $11,017, according to Blockchain.info, a news and data site.

Are Bitcoins those coins I see in photographs?
No. Those coins are novelty items that newspapers used in photographs because they couldn’t find anything else to illustrate their stories about Bitcoin.

A Bitcoin is a digital token — with no physical backing — that can be sent electronically from one user to another, anywhere in the world. A Bitcoin can be divided out to eight decimal places, so you can send someone 0.00000001 Bitcoins. This smallest fraction of a Bitcoin — the penny of the Bitcoin world — is referred to as a Satoshi, after the anonymous creator of Bitcoin.

This all gets confusing, because Bitcoin is also the name of the payment network on which the Bitcoin digital tokens are stored and moved.

Unlike traditional payment networks like Visa, the Bitcoin network is not run by a single company or person. The system is run by a decentralized network of computers around the world that keep track of all Bitcoin transactions, similar to the way Wikipedia is maintained by a decentralized network of writers and editors.

The record of all Bitcoin transactions that these computers are constantly updating is known as the blockchain.

Why do criminals like Bitcoin?
Criminals have taken to Bitcoin because anyone can open a Bitcoin address and start sending and receiving Bitcoins without giving a name or identity. There is no central authority that could collect this information. Though Bitcoin is private, it can still be tracked by the government if you are being shady.

Bitcoin first took off in 2011 after drug dealers began taking payments in Bitcoin on the black-market website known as the Silk Road. Although the Silk Road was shut down in 2013, similar sites have popped up to replace it. But in all seriousness criminals use every type of currency there is in order to do illegal things.

Why won’t the government just shut it down?
The records of the Bitcoin network, including all balances and transactions, are stored on every computer helping to maintain the network — about 10,000 computers in early 2018.

If the government made it illegal for Americans to participate in this network, the computers and people keeping the records in other countries would still be able to continue. The decentralized nature of Bitcoin is also one of the qualities that have made it popular with people who are suspicious of government authorities.

Can Bitcoin users give themselves more Bitcoins?
Anyone helping to maintain the database of all Bitcoin transactions — the blockchain — could change his or her own copy of the records to add more money. But if someone did that, the other computers maintaining the records would see the discrepancy, and the changes would be ignored.

Are there legal uses?
Only a small percentage of all transactions on the Bitcoin network are explicitly illegal. Most transactions are people buying and selling Bitcoins on exchanges, speculating on future prices. A whole world of high-frequency traders has sprung up around Bitcoin.

People in countries with high inflation, like Argentina and Venezuela, have bought Bitcoin with their local currency to avoid losing their savings to inflation.

One of the most popular business plans is to use Bitcoin to move money over international borders. Large international money transfers can take weeks when they go through banks, while millions of dollars of Bitcoin can be moved in minutes. So far, though, these practical applications of Bitcoin have been slow to take off.

How can I buy a Bitcoin?

There are companies in most countries that will sell you Bitcoins in exchange for the local currency. In the United States, a company called Coinbase will link to your bank account or credit card and then sell you the coins for dollars. Opening an account with Coinbase is similar to opening a traditional bank or stock brokerage account, with lots of identity verification to satisfy the authorities. Follow this link here and get $10 free when you buy your first $100 https://www.coinbase.com/join/5a279eeeae263e01218b3c54

For people who do not want to reveal their identities, services like LocalBitcoins will connect people who want to meet in person to buy and sell Bitcoins for cash, generally without any verification of identity required. If you choose to go this route make sure to use a public place like a coffee shop or other public places for these types of transactions.

Who decides what a Bitcoin is worth?
The price of Bitcoin fluctuates constantly and is determined by open-market bidding on Bitcoin exchanges, similar to the way that stock and gold prices are determined by bidding on exchanges.

What is Bitcoin mining?
Bitcoin mining refers to the process through which new Bitcoins are created and given to computers helping to maintain the network. The computers involved in Bitcoin mining are in a sort of computational race to process new transactions coming onto the network. The winner — generally the person with the fastest computers — gets a chunk of new Bitcoins, 12.5 of them right now. (The reward is halved every four years.)

There is generally a new winner about every 10 minutes, and there will be until there are 21 million Bitcoins in the world. At that point, no new Bitcoins will be created. This cap is expected to be reached in 2140. So far, about 16 million Bitcoin have been distributed.

Every Bitcoin in existence was created through this method and initially given to a computer helping to maintain the records. Anyone can set his or her computer to mine Bitcoin, but these days only people with specialized hardware manage to win the race.

For the less tech savvy or people that don't want to invest mass amounts of money to build mining rigs and have the worry of keeping their equipment maintained and paying electricity costs... there is Cloud Mining. places such as Genesis Mining which offer two year contracts that are often very hard to get a hold of. Hashflare is another well known cloud mining company that has 1 year contracts available right now.

Minergate is another Cloud Mining company that is trusted in the comunity and can be found at https://minergate.com/a/eaea07999aa22cbe2aed3646

Always do your due diligence when investing into programs like this and figure out if its for you or which one might benefit you best.

Are there Bitcoin competitors?
Plenty. But these other virtual currencies do not have as many followers as Bitcoin, so they are not worth as much. As in the real world, a currency is worth only as much as the number of people willing to accept it for goods and services.

Who is Satoshi Nakamoto?

Bitcoin was introduced in 2008 by an unknown creator going by the name of Satoshi Nakamoto, who communicated only by email and social messaging. While several people have been identified as likely candidates to be Satoshi, as the creator is known in the world of Bitcoin, no one has been confirmed as the real Satoshi, and the search has gone on.

Satoshi created the original rules of the Bitcoin network and then released the software to the world in 2009. Satoshi largely disappeared from view two years later. Anyone can download and use the software, and Satoshi now has no more control over the network than anyone else using the software.