If you’ve turned on your TV or gone online, it’s almost impossible to ignore the buzz about Bitcoin. Talk about the cryptocurrency has been cropping up everywhere – from major news portals to popular TV shows. Despite the rising popularity of bitcoins, many still do not understand what it is or how it works. Here’s a rundown on Bitcoin, and whether it’s a passing fad or genuine opportunity.
What Is Bitcoin?
First, it is important to make a distinction between Bitcoin and bitcoin. Bitcoin, with a capital B, refers to the technology and network of the peer-to-peer payment system and digital currency involved in processing bitcoins. The currency itself, bitcoin, is a cryptocurrency, which is a currency that uses cryptography for its creation and transfer. Bitcoin is unique because the entire system is powered by the peer-to-peer network of Bitcoin enthusiasts themselves, with no regulating central authority or government involved.
How Bitcoin Works
Bitcoin works by providing a personal wallet from which a user can send or receive bitcoins. This software generates and stores public and private keys, which act as both identifiers and safeguards for the bitcoins. The Bitcoin network is made up of a ledger called the “block chain,” which contains all the transactions ever processed.
The first Bitcoin specification was published by someone named Satoshi Nakamoto in 2009. Although Nakamoto left the project in 2010, other developers stayed on to continue working on the project. Bitcoin is open source, meaning that anyone can make changes to the Bitcoin protocol. However, the protocol will only work when users have the same compatible version, providing a strong incentive to keep a consensus on Bitcoin protocol.
How You Get Bitcoins
There are different methods of acquiring bitcoins. These include:
- Bitcoin exchanges: You can buy bitcoins on various exchanges, which serve as a platform for persons to transfer bitcoins from one wallet to another.
- Bitcoin mining: People can use their computers in order to perform complex mathematical tasks that verify the blockchain of transactions and ensure that it is correct. As a reward, these miners are rewarded with bitcoins.
- Payment: You can receive bitcoins as payment for goods and services, just as you would with traditional currency.
- Exchange: You can also have people give you bitcoins.
Advantages of Using Bitcoin
There are a number of reasons why people use Bitcoin. These include:
- Anonymity/untraceability: The only identifying information used in bitcoin transactions is the wallet ID. This allows users to make transactions without ever releasing their identity.
- Little to no fees: People who send and receive bitcoins don’t pay fees, unless one party decides to charge fees. This makes Bitcoin a great way to send and receive money without having to pay onerous transfer or transaction fees that may be charged with traditional currencies.
- Increasing value: The value of bitcoins has shot up recently, with a 1000 per cent increase in value within the last year and a half. As a result, Bitcoin has become a profitable currency to hold for many investors.
Disadvantages of Using Bitcoin
- Anonymous/untraceable: The anonymity and untraceable nature of Bitcoin has also proven to be a major disadvantage. If, for example, there is ever an issue regarding services or goods that haven’t been delivered as promised, it will be nearly impossible to trace the user and dispute the transaction.
- Adoption rate: Even though bitcoins are gaining in popularity, they are still only accepted by a small number of online merchants. As a result, even if you have bitcoins, you may have problems finding vendors who accept them for items that you would like to purchase.
- Volatility: Bitcoins are still a volatile currency. Because of the large fluctuations in value of a bitcoin, it’s very difficult for people who offer products or services that allow for payment with bitcoins to properly price their goods.
- Bitcoin security: Despite the extensive measures taken to ensure Bitcoin security, there is still a major issue surrounding the security of bitcoins, with several major exchanges such as Mt. Gox being the subject of major security lapses, resulting in the loss of millions of dollars’ worth in bitcoins.
- Government limitations: At the moment, many governments such as Iceland and China have either highly restricted or outright banned the use of bitcoins in their country. This is due in large part to the difficulty in regulating and taxing bitcoins.
All things considered, Bitcoin has a promising, if not totally predictable, future. However, with a number of factors working against Bitcoin, it’s probably advisable to hold off on major investment of bitcoins until the currency has stabilised and has achieved a larger following.
Meanwhile, Australians can now run to the Bitcoin ATM. Australian Bitcoin and Krypto Currency Solutions were among the entities that installed Bitcoin ATMs in late March, with one machine installed in Sydney’s Pitt Street Mall.