What is Bitcoin – Virtual Currency or Digital revolution?

bitcoin

Bitcoin is a virtual payment unit and the mother of all digital currencies. The market capitalization of Bitcoin (BTC) is the highest of all cryptocurrencies. You can describe Bitcoin as many things: virtual money, virtual investment, speculation business, risk business, alternative means of payment, between others.

The currency is not based, like the euro, on physical coins or banknotes that have value. Bitcoins are a global decentralized means of payment that can only be traded online on the Internet (with some exceptions, which we will discuss later). In this context, decentralized means that the issuing and trading are not monitored and settled by states or banks, but rather by a central control element, namely the blockchain.

Why was Bitcoin invented?

Since the Internet in the 1990’s, access to this medium has seen incredible growth. The door to the virtual world and global trade are open. But global trade with different currencies makes payment transactions more difficult, since high fees and long processing times of several days are more common than not

With Bitcoin, these worries are a thing of the past. With the virtual currency, it is possible to make a transaction from the US to Japan within a few minutes at an incredibly low cost. And it does not require intermediaries such as banks or the state, but can be sent directly from one wallet (“virtual wallet”) to another persons’ wallet.

The disadvantage of course is that an Internet connection must be present, regardless of whether this is on a laptop, tablet or mobile phone. Furthermore, cryptocurrencies are a popular target for hackers. We all read the headlines of large sums that have been stolen at big crypto exchanges such as Coinbase or Poloniex. Due to this, it is all the more important to own a hardware wallet. This means that you carry your current account balance on a USB stick or other storage device, including your passwords.

How does the Bitcoin technology work?

To put it simply, the core of Bitcoin consists of a payment system and a monetary unit, which is not centrally managed as in our banking system, but distributed in a computer network using its own software. This system is based on a decentralized database managed by the participants. Here, all transactions are stored and tracked on the so-called Blockchain.

The only condition for participating in the blockchain is a Bitcoin client, which is either stored on the local hard drive or provided by an online service provider. The bitcoin system is therefore subject to no geographic restrictions and can be used on the entire planet. The only requirement is the presence of a stable Internet connection.

The peer-to-peer structure of this system leads to a complete decentralization of the Bitcoin ecosystem. Similarly, the provider bit-torrent may be cited using this logic as well.

Is Bitcoin real money?

It is not possible to answer this question with a clear “yes” or “no”. There are just as many advocates as critics and institutions, all pursuing different interests in order to defend their position. Bitcoin is considered to be the means of payment of the future, a virtual currency that is not subject to any centralized control and is therefore free from the influence of governments and other forces.

The European Central Bank (ECB) defines Bitcoin as follows:

Virtual currencies like Bitcoin are neither real money as it is defined in economics, nor are they money or a currency from a legal perspective.

This does not mean that the ECB does not accept Bitcoin units as money. Nevertheless, Bitcoin units can be exchanged for a variety of services or goods, and the number of business that do accept Bitcoin is steadily increasing. For example in Japan, Bitcoin is already recognized as a legitimate means of payment.

The biggest difference between a real state monetary currency is the legal obligation of all operators to pay the national currency in order to settle any debts.

Our step-by-step guide explains how to buy Bitcoin.

Fees and Expenses of a Bitcoin Transaction

Local proximity does not influence the amount of transaction fees. There is only a fee for sending Bitcoin and/or a Miner fee in the Bitcoin network. The Miner Fee is given to the first person to confirm and process the transaction. Who processes the transaction can not be determined in advance. The fee is an expense allowance for the hardware, electricity and other fees incurred by the miner.

However, the transaction fees only represent a small part of the actual costs of the transaction. The miners receive a fixed reward in the form of newly created Bitcoin units. This process leads to an expansion of the money supply and to additional costs that are passed on by inflationary forces to all market participants (people who are in possession of Bitcoin).

Everyone can determine how much he is willing to pay for the transaction. However, the lower the value, the longer it will take until the Bitcoin arrive from the sender to the destination.

The prevailing minimum charge for a transaction is approximately 0.5 cents. However, the recommended minimum charge is much higher and is about 5 cents. Of course, these values ​​vary and are by no means considered fixed. This fee is also preset on most wallets. This can be a transaction confirmation, depending on the load of the block chain within minutes. A bank transfer usually takes at least one day, and international transfers may incur high fees.

Is Bitcoin anonymous?

Since Bitcoin can be traded anywhere online, this makes it already an indirect answer to this question. Although there is some anonymity, we leave digital fingerprints wherever we are online. Even if we use the safest and most encrypted method (encrypted Tor browser, or software that obfuscates our IP), IT professionals are likely to be able to track any transactions in the event of an emergency.

Nevertheless, there is a certain anonymity. The data along the blockchain is passed through a coded private key. Therefore, it is difficult for private individuals and companies in particular to carry out transactions without further ado for further information about the Bitcoin sender and the recipient, as well as the amount of the transaction.

However, it should be kept in mind that this anonymity has limits. All transactions between two subscribers are logged in a public booking system (the blockchain) and are thus permanently stored in the entire network. No private data is publicly disposed, but it is possible to see the addresses that did handle the business. As a result, the respective sender or recipient can be determined specifically for sovereign demand.

Bitcoin is more traceable than, for example, the exchange of cash between people or companies. Operators of Bitcoin exchanges that allow the exchange into other currencies are subject to strict legal provisions to safeguard the fight against money laundering.

Is Bitcoin safe?

The complete ecosystem of the Bitcoin network is very complex and can not be outlined in one sentence. Security can only be guaranteed if all relevant parameters and elements communicate with each other smoothly. There are more and more digital providers that accept Bitcoin as a means of payment.

Of course, hackers are exploring all possibilities along the consumer chain in order to uncover any weak points to steal money. As already mentioned, some large file sharing sites were the target of major hacker attacks.

As a rule, the websites are attacked with so-called DDos attacks. This is also the reason why you get a message on Poloniex or if you access Anycoin.eu that says it is checking for a DDos attack.

Such an attack is a kind of overload attack on a single website. In the process, a large number of queries are made to the server where the website is located. This leads to an overload of the website. Now the hacker can enter the computer network and access stored data.

So there is no 100 percent security guarantee when using the Bitcoin network or when exchanging on online exchanges. In any case, it is highly recommended to use a hardware wallet. This way you can protect yourself, and it’s definitely safer than if you use online wallets from previously mentioned file sharing sites.

Is Bitcoin worth an investment?

This question is also difficult to answer. The price of all cryptocurrencies is very volatile (can fluctuate widely) and is therefore not very stable in value, such as the price of gold (though admittedly subject to volatility). Fluctuations in Bitcoin of several hundred dollars are not uncommon.

So if you are dealing with Bitcoin or you want to invest in BTC, you should only spend money that you can lose in an emergency or suffer personal financial loss from it. There are always success stories and the cryptocurrency has already given birth to a few millionaires. You can check the current Bitcoin price here.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.