Bitcoin (BTC) is a new type of digital currency – with key cryptography – which is decentralized to computer networks used by users and miners throughout the world and are not controlled by one organization or government. This is the first digital cryptocurrency that has received public attention and is accepted by more and more traders. Like other currencies, users can use the digital currency to buy goods and services online and in some physical stores that accept it as a form of payment. Currency traders can also trade Bitcoin on the Bitcoin exchange.
There are some main differences between Bitcoin and traditional currencies (eg dollars):
Bitcoin has no centralized authority or clearing house (eg government, central bank, mastercard or visa network). Peer-to-peer payment network is managed by users and miners throughout the world. The currency is transferred anonymously directly between users through the Internet without going through a clearing house. This means that the transaction costs are much lower.
Bitcoin is made through a process called “Bitcoin Mining”. Miners around the world use mining software and computers to complete a complex Bitcoin algorithm and to approve Bitcoin transactions. They are given with new transaction and Bitcoin costs resulting from solving the Bitcoin algorithm.
There are a number of Bitcoin which is limited in circulation. According to Blockchain, there are around 12.1 million circulating on December 20, 2013. The difficulty of mining Bitcoin (solving algorithms) becomes more difficult because more bitcoin is produced, and the maximum number of circulating is limited to 21 million. The limit will not be reached until around 2140. It makes Bitcoin more valuable because more people use it.
The public ledger called ‘Blockchain’ records all Bitcoin transactions and shows each ownership of each Bitcoin owner. Anyone can access public ledgers to verify transactions. This makes digital currency more transparent and predictable. More importantly, transparency prevents fraud and double expenses from the same bitcoin.
Digital currencies can be obtained through mining bitcoin or bitcoin exchanges.
Digital currencies are accepted by a number of traders on the web and in some brick and mortar retailers.
Bitcoin wallet (similar to a paypal account) is used to store Bitcoin, private key and public address and to transfer bitcoin anonymously among users.
Bitcoin is not insured and is not protected by government institutions. Therefore, they cannot be restored if the secret key is stolen by a hacker or lose to a failed hard drive, or because of the closure of Bitcoin exchange. If the secret key is lost, the related Bitcoin cannot be recovered and will come out of the circulation. Visit this link for the FAQ on Bitcoin.