You might have heard that Bitcoin is the new thing. That it is a licence to print money, the way to make your fortune and the investment of the future. But what is it really all about? Before you jump into the unknown and invest in this craze, it is important to understand what it is all about. So here are a few things that you need to know about Bitcoin.
What is Bitcoin?
Firstly, you should know what it is. Bitcoin is a digital currency that is not controlled by a central authority like a bank or a government. The currency is created by ‘miners’ who use specialist technology to process transactions, secure the network of the currency and collect Bitcoins in exchange.
Due to the recording of transactions in a public ledger, it is said to be a more secure way of conducting transactions over the internet. At 8 and a half years old, Bitcoin is the oldest and most highly valued cryptocurrency on the market.
How Does It Work?
A cryptocurrency is an evolved form of money. You can spend it, earn it, exchange it, or give it away. You can even use it to make purchases from online retailers. It appreciates in value and it gets traded on international markets like any other currency.
It gains value through its own scarcity. People want to get their hands on it, so they are willing to pay top dollar. People that have invested want to sell their investment for more than they paid. Hence the cycle of appreciation goes round and around. But, it also means that when the currency is less desired, the value can drop. So like any investment there is a risk involved.
Like any currency, there is a finite amount of Bitcoin. But instead of a central authority deciding when to add new coins to circulation, it is down to the users. Users can work at ‘mining’ coins and the harder you work, the higher chance there is that you will create coins.
The Benefits Of Bitcoin
There are numerous benefits to using a cryptocurrency like Bitcoin. The biggest is the fact that there are no fees involved. Then there is the instant transactions, no merchant chargebacks, no account freezes, no minimum or maximum account balances, no international wire transfer fees, worldwide access and it is always open. It is also very easy to set up and maintain your funds through an encrypted wallet function.
A global network of computers uses blockchain technology to ensure the safety of all transactions. Because the transactions are managed from a decentralised place, the network can operate on a peer to peer basis. There is no way to fraud the system as every time a transaction is made, it is compared to ledgers on thousands of computers. Anything that doesn’t match these ledgers is rejected.
Effectively Bitcoin works like any other currency, it is just a bit more complicated on how you obtain and spend it. You can’t yet go down to the supermarket and buy your groceries with Bitcoin. But it will be interesting to see how the cryptocurrency evolves and what it will be used for in the future.