Note: This is the first article in a four-part series covering some of the ambiguous topics related to Bitcoin (BTC).
Source: The Joy of Tech
Ever since the barter system was originally introduced by the Mesopotamia tribes around 6000 BC, we have witnessed different types of goods/currency exchange.
Paper cash quickly came into place at the onset of the 18th century.
With the commencement of the Internet age, various efforts have been made to take the currency exchange into a digital form. It has to be said that those efforts have been well converted and now over 95% of the entire cash in the world is digital, leaving only physical cash to be a mere 5% of the entire money in the world!
Although there have been many companies to have tried their hand at developing a new source of the digital currency exchange system, it is fair to say that PayPal holds a major share in this regards.
One of the fairly recent additions to these networks in digital currency exchange is Bitcoin. A lot has been said and written on the Internet about Bitcoins and it is still one of the most mysterious types of currency exchange, which people have a tough time holding a grasp of. Hence, our topic of interest and let’s dive deep right into the nuances of Bitcoin and clear some of the benefits and uses of this new digital form of currency exchange.
What is a Bitcoin?
Even though we have claimed Bitcoin to be a fairly new form of digital currency exchange, it has been in operations since 2009.
Invented originally by someone under the alias of Satoshi Nakamoto, it is still unclear who is the exact founder of Bitcoin. Various news outlets including The New York Times, Newsweek, Forbes, and Gizmodo have made different headlines claiming distinct people as being the founder of Bitcoin. Now that we understand that the origins of the creator of Bitcoin are pretty bleak, what exactly does a Bitcoin do and how is it different from other forms of digital online currency exchange services?
To begin with, if you have ever made use of digital online currency exchange, you must be aware of the transaction fees charged by these middlemen.
One of the distinctive features of digital currency exchange services is their transaction fees and other charges. The most important aspect of Bitcoins that differentiates it from other digital currency exchange services is that it does not charge any kind of transaction fees.
Bitcoin is an open-source Peer-to-Peer payment service that has done away with any kinds of middlemen transaction fees. You can make use of these Bitcoins to buy anything online and many merchants are beginning to accept this new form of digital currency. Many networks like Amazon (Amazon Gift Cards), eBay, Zappos, Microsoft, Dell, Shopify and more already accept Bitcoins as a form of payment.
Another most important factor of the Bitcoin system is that using Bitcoin allows payment allows users to handle their payments completely anonymously.
How Exactly does Bitcoin Currency exchange work?
While Bitcoin seems an amazing form of digital currency with its startling strengths, how does it exactly work?
Bitcoin is a form of decentralized form of currency, as deemed by the U.S. Treasury. Bitcoin does not base upon a central authority or a bank and instead is carried out by the network of its entire community.
Considering Bitcoins as a form of digital currency, these could be bought at different Bitcoin currency exchange networks. These networks allow users to buy and sell Bitcoins from their chosen form of currency including USD, Euros and more.
These newly bought Bitcoins are now stored in your digital wallet, which could be accessed over mobile or desktop devices. You can also send or receive Bitcoins from other users with a simple tap of the button.
There is no fee charged for receiving or sending these Bitcoins. The accrued Bitcoins could also be used to make purchases online at outlets which currently accept them. This is a simple explanation of how the Bitcoin works.
Now, how exactly are these Bitcoins generated and managed and issued if there is no involvement of a central agency or banks?
For the purpose of understanding how the Bitcoin network is managed, we now have to introduce a new sect of people known as ‘Miners’ on the network.
Miners are individual groups of people who lend their computing power and capacity to the community and to keep the integrity of transactions on the network in check. These Miners verify the transactions on the network and are rewarded with the newly generated Bitcoins for their efforts.
A transparent publicly maintained ledger is then updated with transactions on the Bitcoin network. Often known as a form of ‘cryptocurrency‘, Bitcoin is the largest form of digital currency of its kind.
Is Bitcoin Legal?
It is fair to say that Bitcoin operates off the physical grid and doesn’t involve any kind of central agency or the banks, is it still legal?
The answer would be, it depends on user location.
The legality of Bitcoin depends primarily on your location of interest and the purpose accordingly. Given that Bitcoin is a form of decentralized digital currency, it is illegal to use Bitcoins in many countries and some governments allow its use.
- The United States, for example, have now declared it as a commodity.
- Indian Deputy Governor of the Reserve Bank of India has stated that they have no plans to legalize Bitcoins in India.
- Bangladesh government has stated that “anybody caught using the virtual currency could be jailed under the country’s strict anti-money laundering laws”.
- Some other countries are particularly neutral about the usage of Bitcoins.
So, it makes sense that you double-check your local government laws pertaining to Bitcoins before making use of them.
How people are using Bitcoins across the Globe?
Now that you have a good understanding of what Bitcoin exactly is and how it works, how are people around the world making use of Bitcoins?
Well, one of the primary ways people are making use of Bitcoins is by exchanging them across different users. People are making use of Bitcoins to share and exchange money between friends, to avoid the transaction and credit card fees.
Some other Bitcoin users are making use of the currency exchange network to make purchases online, including to buy things like Pizzas, clothing, games, electronics, accessories and much more.
While there are individuals on one side making the most of the Bitcoin currency exchange system, there are also small businesses using the service. Again, for the same reasons of waived transaction fees and instant transfers, many small businesses are now making use of the Bitcoin currency exchange services.
Purse.io is a great peer-to-peer bitcoin exchange service that offers discounts for purchases using Bitcoins.
You can buy your first bitcoin from any of these popular two sites:
- Coinbase (You will also get additional $10 when you buy Bitcoin worth $100)
- Unocoin (Free bitcoin on signup & verification)
Expedia has also recently begun accepting Bitcoins as a form of payment for hotel and travel bookings.
Although there are many upsides to Bitcoin, there is also a dark side to it. Given the anonymity maintained through the Bitcoin service, it is also used across the Dark Web to buy illegal stuff on the market. Silk Road, one of the most famous marketplace on the TOR network made use of Bitcoin to sell various illegal products on the Dark Web.
Here are few hand-picked videos that would help first timers to understand more about Bitcoins without getting bored:
So, what do you make of this new form of Digital currency exchange without any intervention from a central system or banks? Feel free to shout out your thoughts and comments below. Stay tuned for more articles on Bitcoins, how to buy your first Bitcoins and how to secure your Bitcoins.