Unlike regular money, bitcoin is digital. It doesn’t exist physically but you can use it to make purchases or investments. Despite being a widely-accepted currency, it operates outside the control of the central government or even banks. Instead, it relies on blockchain technology wherein a secure, distrusted ledger records all bitcoin transactions—making them immutable and decentralized. Here are 6 things to know about the wonder currency what are bitcoins.
Bitcoin is a digital currency (or cryptocurrency
Yes, bitcoin is a cryptocurrency—it relies on cryptography or secure codes and requires a decryption key to be read. Bitcoins are securely held in digital wallets (similar to physical wallets that are used to store traditional currency)—and accessing bitcoins requires specific software and hardware tools.
Bitcoin is one among the 18,000+ cryptocurrencies in existence today—none as popular as bitcoin.
Blockchain is the foundation technology of bitcoin
Cryptocurrencies like bitcoin are dependent on the distributed, decentralized ledger technology that constitutes blockchains. It is a highly secure, immutable database that records transactions associated with digital currencies.
What this essentially means is that bitcoin transactions can never be lost or rewritten even though the database is publicly accessible. But it should be noted that bitcoins can be stolen.
Bitcoin production is determined by an algorithm
Unlike a fiat currency where the central government decides the amount of money that will be printed every year, bitcoin production is dependent on an algorithm set by its founders.
As a matter of fact, bitcoin production is expected to stop after 2140—making it an especially rare and volatile currency.
Bitcoin is not widely acceptable
Despite bitcoin’s global popularity, there are very few bitcoin-friendly businesses in existence today. It is yet to be recognized as a legally acceptable currency by the majority of countries—and so, if you are looking to spend bitcoins at an e-commerce site or offline store, it is best to enquire about their policies wrt to cryptocurrencies first.
Bitcoin transactions are significantly fast
No matter where the recipient is, a sender can dispatch bitcoins and it will be received within minutes. This is because there is no need for an intermediary bank or similar entity to facilitate the transaction. This doesn’t just make bitcoin incredibly fast but also eliminates the need of costly resources to transfer money.
Since bitcoins popularized the blockchain, it has been widely adopted across industries to prevent banking frauds, data breaches, and scams.
Bitcoins are an attractive investment
Like any other scarce entity, you can own bitcoins and treat it as an asset. There are trading platforms that help you buy bitcoins and hold them for long periods.
However, bitcoins are extremely volatile, plus the market is heavily unregulated (although steps are being taken to regulate it). Plus, the fact that bitcoins have been around for less than a decade now also plagues the currency’s future.
So, investors can hardly expect investments in bitcoins to be a smooth ride. Take into account the concomitant risk involved and even be ready to lose all your investment. It is a good idea to conduct a bit of research before you dive into it.
So, that was a quick booster on bitcoins to help you wrap your head around the popular digital currency.