What is Bitcoin?
Bitcoin is a revolutionary currency created in 2008 by a developer under the pseudonym Satoshi Nakamoto. A “decentralized” digital currency with no central bank or controller, Bitcoin’s circulation is provided by a network of its users, who have a financial incentive to make sure transactions are fulfilled, recorded and secured.
Its backbone is the blockchain; a publicly visible ledger which allows anyone to verify a Bitcoin transaction – from those made minutes ago back to the very first one ever made.
As time went by, Bitcoin gained recognition beyond a computer geek community. In the spring of 2013, Bitcoin’s value more than doubled in the wake of the Cyprus Banking Crisis. People began to worry that their money would not be safe in banks, and they began converting their bucks into Bitcoin. As investors from China and elsewhere began to realize the potential of the currency, its value went from just over US$100 per Bitcoin to a peak of over $1,200.
A person that creates units of convertible virtual currency and sells those units to another person for real currency or its equivalent is engaged in transmission to another location and is a money transmitter.
Bitcoin is Decentralized
No central authority controls Bitcoin or its network of transactions. A community of Bitcoin miners make up the network, processing the transactions. If any changes are made to Bitcoin by a developer or developers using GitHub, a 51% majority of the miners hashing power must agree upon it. This insures that, in theory, no individual can steal your bitcoins or print (create) more.
How Can One Change Bitcoin and Bitcoin’s code?
Everyone can contribute to and edit the Bitcoin source code since the Bitcoin protocol is open source. The Bitcoin protocol is viewable for all making it easier to spot weaknesses and provide suggestions for improvement. However, if a developer edit the Bitcoin code, that edit has to be accepted by more than 51% or more of the Bitcoin miners that runs the Bitcoin network. Bitcoin can be seen as a democratic currency where the majority always decide what will happen next with the Bitcoin source code.
Bitcoin Wallet and Transactions
Though each Bitcoin transaction is recorded in a public log called the block chain, names of buyers and sellers are never revealed – only their Bitcoin wallet addresses. Each wallet address is unique and can’t be linked to anyone unless the creator of that specific bitcoin address reveals himself.
1L3t6Qo8rpCWQrxAuoZg1LJAuQtP3W9uV2 is an example of a unique bitcoin address used for receiving and sending bitcoins.
To send, receive and create Bitcoin addresses you must have a Bitcoin wallet (Learn how to chose the correct Bitcoin wallet here). A Bitcoin wallet is a software that’s essentially your bank account for bitcoins. Your wallet can hold as many bitcoins and Bitcoin addresses you’d like, and you can own as many wallets you want.
While bitcoin can be anonymous, that doesn’t mean it is. If you purchase your bitcoins on a Bitcoin trading platform or exchange that has your information, the bitcoins you buy can be tied back to you.
Bitcoin is Transparent
Every Bitcoin transaction that has ever happened is stored in detail in the public ledger known as the block chain. By using the block chain, anyone can see how many bitcoins are stored on a particular address, and they can see the deposits and withdrawals to that address, but they will be unable to know who owns the address.
Bitcoin Transactions Can not be Reversed
When you send bitcoins to a Bitcoin address, you can not reverse the transaction. Unlike credit cards where transaction can be disputed or reversed, bitcoins are nonrefundable. Bitcoin can not be replaced either. If your wallet is stored on your hard drive and not in a “cloud”, you could lose your bitcoins if you are hacked, get a virus or if your computer dies.
These lost bitcoins can never be retrieved. That’s why it is so important to take regular backups and implement measures for Bitcoin wallet security.