What is Bitcoin and how does it work? (Bitcoin FAQ)

What Is Bitcoin and how Does it work?

What Is Bitcoin (Cryptocurrency)?

Welcome to our What is Bitcoin and how does it work? Blog. Bitcoins are a digital currency, also known as ‘cryptocurrency’.  Bitcoin is a form of digital valuta that is created by complicated calculations, and acquired by millions of computer users that are also called ‘miners’.

Bitcoins are long strings of code that have money value, just like the code on your dollar bill.

How Do Bitcoins Work?

Bitcoins are digital coins that are designed to be ‘self-contained’ for their value, this way there is no need for banks to move and store the money. This also means that you are niot paying for the bonus of the bank manager, the big bank building and all the staff that the bank needs.

Once you own your first bitcoins, they behave like physical gold coins: they have value and trade just as if they were nuggets of gold.  You can use your bitcoins to purchase goods and services online, or you can keep them and hope that their value will increase over the years.

Why Are Bitcoins So discussed?

Various reasons have emerged within the last few years to make Bitcoin a real media sensation.

Between 2011-2013, Criminals made bitcoins famous by buying millions of dollars of bitcoin so they could launder money outside of the sight of law enforcements. As a affect the value of bitcoins skyrocketed to over $1000 per coin in 2013.

Ultimately, though, bitcoins are highly discussed because they take the power of making money away from the federal reserve banks, and give it to the public.  Bitcoin accounts cannot be examined or terminated by tax men.

Is It True that Bitcoins Cannot Be Counterfeited?

As a matter of fact , yes, bitcoins can not be counterfeited.  It is so intensive to create a bitcoin that it isn’t worthed it for counterfeiters to manipulate the system.

 How Much Are Bitcoins Worth?

One bitcoin is currently worth around $1028 US dollars. The price almost doubled last year!

Bitcoins will stop being created when the total number reaches 21 billion coins, which will be sometime around the year 2040-2050. Approximately half of those bitcoins have currently been created.

What Is Bitcoin and how Does it work? Price chart

Who Regulates Bitcoin?

Bitcoin currency is completely decentralized. There is no national bank  and there is no depositor insurance coverage. The currency itself is self-contained, meaning that there is no precious metal behind the bitcoins; the value of each bitcoin resides within each bitcoin itself.

Bitcoins are stewarded by ‘miners’, who contribute with their personal computers to the bitcoin network.

Miners are paid for their work by earning new bitcoins for each week they contribute to the network.

What Is a Bitcoin Made of?

A bitcoin is a very simple data ledger file called a ‘blockchain‘. A blockchain file is quite small, very similar to the size of a long text message on your cellphone.

Each bitcoin blockchain consists of three parts:: its identifying address, and the history of who has bought and sold it (the ledger).What Is Bitcoin and how Does it work - what is bitcoin made of

The third and complex part of the bitcoin is: the private key header log.  This header is where a digital signature is captured to confirm each transaction for that particular bitcoin file. Each digital signature is unique to each
individual user and his/her personal bitcoin wallet.

Every single trade of bitcoins is tracked and publicly disclosed, with each participant’s d
igital signature attached to the bitcoin blockchain as a ‘confirmation’. These digital signatures are given several seconds to confirm their transactions across the network. This prevents transactions from being duplicated and people from forging bitcoins.

What is Bitcoin and how does it work?
– Can People See My History of Bitcoin Trading?

While people cannot see your personal identity, people can see the history of your personal bitcoin wallet. This is a good thing, as a public history adds transparency and security to the system.,

See bitcoin transactions at blockchain.info. These are public ledgers of all the bitcoin wallets out there without sharing any personal information.

Are There Any Fees to Use Bitcoins?

Yes, there are small fees to use bitcoins.

There are no banking fees with bitcoin and other cryptocurrencies. Instead, you will pay small fees to three groups of bitcoin services: the servers who support the network of miners, the online exchanges that convert your bitcoins into dollars, and the mining pools you can join.

The owners of some server nodes will charge one-time transaction fees of a few cents every time you send money across their servers/nodes. Online exchanges can charge you when you cash your bitcoins in for dollars, euros or other valutas and cryptocurrencies. Additionally, some mining pools will either charge a small 1% support fee or ask for a small donation from the people who participate in their mining pools.

In the end, while there small percentage costs to use Bitcoin, the transaction fees and mining pool donations are much cheaper than the classic bank wire transfer fees.

Who Makes Bitcoins?

What Is Bitcoin and how Does it work - minersBitcoins can be mined by anyone who has a good computer. Only 21 million total bitcoins will ever be allowed to exist, with approximately 16 million of those Bitcoins already mined.

Bitcoin mining involves commanding your home computer to work around the clock to solve complicated math problems. Each bitcoin math problem has a set of possible 64-digit solutions. Your desktop computer, if it works nonstop, might be able to solve one bitcoin problem in a minimum of two to three days.

For a single personal computer mining bitcoins, you may earn perhaps 50 cents to 75 cents USD per day, minus your electricity costs. This makes it less interesting for the average at-home miner. i=Ff you are a small miner with a single computer, you will likely spend more in electricity that you will earn mining bitcoins.

What is Bitcoin and how does it work? – Conclusion

1) Bitcoins are not created by a central bank or regulated by any government.
There are no banks tracking your money movement and government tax agencies and police departments cannot track your money.  This will probably change in the next two years as unregulated money is a big threat to the government and taxation.

2) Bitcoins completely bypass banks. Bitcoins are transferred via peer-to-peer networks between the users, with no middleman bank to take a piece of your money.

Bitcoin wallets cannot be seized or frozen or audited by banks and law enforcements.  Bitcoin wallets cannot have buying and withdrawal limits on them.  Nobody but the owner of the bitcoin wallet decides how their money will be used.

3) Bitcoins are changing how we store and spend our personal money.  Since the invention of printed money, the world has given the power of currency to various banks. These banks print our money, store our  money, move our money, and charge us big-time for their services.  If the banks need more money, they simply print more.   This system is abused by the banks because paper money is just a paper cheques with a promise of value. There is no physical gold behind the scenes to back this up.

4) Bitcoin transactions are irreversible.  Every time bitcoins change hands and change wallets, the result is final.  Simultaneously, there is no insurance protection of your bitcoin wallet: if you lose your wallet’s hard drive data, or even your wallet password, then your wallet is gone forever.

If you are interested in buying bitcoins make sure you check out:
How To Buy Your First Bitcoins

We hope you liked our blog: What is Bitcoin and how does it work?
Feel free to share your thoughts, questions or testimonial below! 

What is Bitcoin and how does it work? (FAQ)



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