Bitcoins are trending and are all over the news today, but only few people truly understand them. Here are 7 of your biggest questions on Bitcoins answered:
1. What are bitcoins?
Bitcoin is a digital currency where your transactions take place over a digital platform without anybody owning it or overlooking the transactions. It allows people to send or receive money across the internet, even to someone they don’t know or trust. Money can be exchanged without being linked to a real identity. Bitcoins aren’t printed, like regular currencies instead they’re produced by people, businesses, and running computers all around the world, with a software that solves mathematical problems.
2. How are they different from regular currencies?
Unlike regular currency bitcoins are not a physical currency but a digital one. They are also not backed by any country or government and no single institution controls or owns bitcoins. No one can produce more bitcoins like countries produce currency, there are only limited number of bitcoins in the world.
3. How are they created?
Since no one prints bitcoins they are created digitally by a community of people that anyone can join. New bitcoins are generated by a competitive and decentralized process called “mining”.This is similar to Gold Mining here’s how:
1.) There is limited amount of gold in the world, similarly there are limited amount of Bitcoins- 21 million coins only.
2.) For people to create more bitcoins they have to ‘mine’ them: Here’s how: Miners need to use specialized hardware to process transactions and secure the bitcoin network, in exchange of which they receive bitcoins.
4. How do bitcoins work?
From a user’s point of view: Bitcoins are like a mobile app/computer program that gives you a personal Bitcoin wallet and allows you to send and receive bitcoins with them.
From a technical point of view: There is a public ledger shared among the Bitcoin network called the “block chain” which contains every transaction ever processed. This lets the user’s verify the validity of each transaction that he/she has made.
5. What is the value of Bitcoin?
The price of bitcoin is based on the law of demand and supply. Because there are just 21 million bitcoins to offer and with the increase in demand and popularity of if, the price of bitcoins is always fluctuating. At the start of 2011, the value of bitcoin was less than a USD and today it’s worth more than hundreds of USD.
6. How does one acquire bitcoins?
There are three ways one can aquire bitcoins:
- As payment for goods or services.
- Purchase bitcoins at a Bitcoin exchange.
- Exchange bitcoins with someone else.
- Earn bitcoins through competitive mining, explained above.
7. Are Bitcoins safe?
You might think bitcoins are safe because you can easily track your transactions through blockchain and everything is transparent. But on the contrary there is no authority controlling bitcoins, once your money is lost or stolen there is no regulator to help you get your money back. Apart from that bitcoins have been easily used for many illegal activities because people can create bitcoin accounts with fake names and addresses.
If you still have any questions on bitcoins, comment below and we will answer them for you!