Cryptocurrency: what is Bitcoin?

From time to time I receive questions of the same type in the mail: “What is a Cryptocurrency?”, “What is Bitcoin?”, “How does Bitcoin work?”.

Just like Europe has the euro, the United States has the dollar, China has the yuan, and the Russian Federation has the ruble, now the Internet has its own currency, the cryptocurrency Bitcoin.

If in real life, we have to use one or another currency, depending on the country of residence, then no one forced the users of the Internet to pay Bitcoin, and certainly not forced it. Cryptocurrency is a free choice of free people.

Interest in cryptocurrency is also fueling investment opportunities. For example, Bitcoin cryptocurrency in 2013 for 1 month increased in price from $ 200 to $ 1,000 for 1 Bitcoin coin!

And now let's find out all about Bitcoins: general technical properties of cryptocurrency, advantages, disadvantages, as well as investment potential.

What is Bitcoin cryptocurrency?

Bitcoin, what is it? Bitcoin Virtual Money is the first cryptocurrency, the electronic means that an unknown programmer (or a group of programmers) created under the pseudonym Satos Nakamoto. It happened in 2009. The term "Bitcoin" and the specifics (the algorithm of Bitcoin operation) was coined by him.

No one knows where this person comes from or what his name is in the real world. He created not only a program, but also a special application - a wallet on your PC, containing Bitcoin cryptocurrency.

Bitcoin cryptocurrency has the basic functions and properties of ordinary money in different countries:

• Medium of exchange;
• Savings facility;
• Calculation unit.

However, Bitcoin remains cryptocurrency.

Cryptocurrencies and Bitcoin Wikipedia describes as follows: cryptocurrency is a type of digital currency. Its emission and accounting are based on different cryptographic methods. And the operation is decentralized, in a distributed computer network.

It is worth a glimpse at least of the second most popular cryptocurrency - Lightcoin. This is the same cryptocurrency, only the transaction algorithm of this cryptocurrency works a little faster. Bitcoin and Lightcoin can be compared to gold and silver. To date, there are already a dozen more or less large cryptocurrencies.

Let's also see why Bitcoin is not a financial pyramid. Cryptocurrency is a real software product, the growth rate of which depends only on supply and demand, and not on subsequent contributors.

How cryptocurrencies work (for example, Bitcoin)

Each network member can perform instant cryptocurrency operations without intermediaries. That is, the buyer transfers the money directly to the seller. You do not need to go to the bank or make money on Qiwi Wallet, you simply send Bitcoins to a person. The coins in the system are cryptographic (mathematical) hash codes. Each of them is absolutely unique and cannot be used twice.

Like any currency, Bitcoin has its course. Check the current rate of cryptocurrency on the website blockchain.info.

Bitcoin mining what is it? New Bitcoins or any other cryptocurrency are created through a process called mining.

The essence of bitcoin mining comes down to solving some complex crypto-problem, which is solved by a full brute force method. Therefore, a normal computer to perform these tasks will not work. Usually miners cryptocurrency use superproductive PCs or powerful servers.

But since the Bitcoin network is growing at an unprecedented pace, mining has become a technologically complex process.

Alternative ways to get Bitcoin cryptocurrency:

• As payment for the services and goods provided;
• Buy Bitcoin cryptocurrency;
• Bitcoin exchange between individuals.

I described the whole process of buying and selling Bitcoin or any other cryptocurrency in the article: "Where and how to buy Bitcoin and Lightcoin (Bitcoin and Litecoin)". I can only single out 2 of the most appropriate Bitcoin cryptocurrency purchase options: for the Russian Federation, this is the Matbi exchanger, and for the rest of the CIS countries - to buy Bitcoin through the WebMoney exchange.

Benefits of Bitcoin cryptocurrency over ordinary money

1. Open cryptocurrency code.
Cryptocurrency source code and Bitcoin theory are open. In Bitcoin, the same algorithms that are used in Internet banking work. The only difference with Internet banking is the disclosure of information about the end user. On the Bitcoin network, all transaction information is publicly available (how much, when), but there is no data about the recipient or the sender of the coins (there is no access to the personal information of the wallet owners).

2. Lack of inflation.
The number of coins in this system is growing at a certain rate, laid down in such a way that it coincides with the rate of gold mining on the planet. The maximum possible number of coins is strictly limited to 21 million Bitcoins. Since there are neither political forces, nor corporations capable of changing this order, there is no possibility for inflation in the system.

Due to this, the cryptocurrency is even safer than gold. Unprincipled mathematical calculation guarantees the shortage of Bitcoins in the near future. Today, each of us can become the owner of a cryptocurrency, which will never depreciate, and will only go up. And this is not an empty promise, it is a mathematical rule that is incorporated in every wallet program. Of course, it can be changed, but on condition that 99% of wallet owners agree with the new changes. That's where the real democracy is.

3. Peer Cryptocurrency Network.
In such networks there is no main server responsible for all operations. Protocols work as a peer-to-peer network, like torrents. The exchange of information (in our case, money) takes place between 2-3 or more client programs. All user-installed wallets are part of the Bitcoin network.

Each client keeps a record of all committed transactions and the number of Bitcoins on each wallet. Transactions are made by hundreds of distributed servers, also called "getters."

Neither banks, nor tax, nor the state can control the exchange of money between users' wallets.

4. Unlimited transaction opportunities.
Each of the holders of the wallet can pay anyone, anywhere and for anything. Transactions can not be monitored or banned, so you can make transfers to anywhere in the world where there is no other user with a Bitcoin wallet.

Cryptocurrency Bitcoin works as a live cash, combining the functions of e-commerce. No need to pay commissions and fees to banks and other organizations. The third party here is mathematics, which does not need your money. Commissions in this system are lower than in any other. They constitute 0.1% of the transaction amount. Percentages go into the wallets of the "bitters" Bitcoins.

5. The boundaries are erased.
Bitcoin has no limits. Payments made in this system cannot be canceled. The coins themselves cannot be faked, copied or spent twice. Such capabilities are guaranteed by the integrity of the entire system. Every month the number of online stores, resources and companies that accept Bitcoins for payment is growing.

Disadvantages of Bitcoin cryptocurrency

The main and only drawback of Bitcoin, I think is still a strong influence of news on cryptocurrency. Almost all the ups and downs of Bitcoin depended directly on the announced statements of the governments of different countries. The high volatility of the course creates problems in the short term. For example, you bought Bitcoin, and within a month it fell by 10%. It can also happen with the exact opposite.

But, on the other hand, if the course of Bitcoin more or less stabilizes and becomes less volatile, then the investment potential of cryptocurrency will greatly decrease.

Bitcoin cryptocurrency: how can it be used?

Cryptocurrency as a common currency

Bitcoin can be used to purchase goods and services online anonymously. In addition, making international payments is easy and cheap, because Bitcoin is not tied to a specific country.

There are several options for storing Bitcoins:

• Offline wallet

It is installed and created on your PC. It is usually encrypted to avoid hacking.
However, there are some drawbacks here, if you forget the password to enter the wallet or a hard drive flies away on your computer, you will lose access to your funds forever.

• Online wallet

Online Bitcoin wallet has its advantages over the offline version. You can access it using not only a PC, but also a tablet or phone. The specifics are similar to ordinary Qiwi wallets, WebMoney or Internet banking.

One of the main problems of these wallets is that all data is stored on the server. If the server is hacked, then all the information is hacked.

Cryptocurrency Bitcoin and Lightcoin as an investment

According to the graph of the course of Bitcoin cryptocurrency, we can trace a certain regularity.

The growth rate of Bitcoin in some periods has an exponential growth, and in simple language: from time to time a “bubble” is inflated, on which you can earn good money.

Investors began to take cryptocurrencies seriously just after the first such bubble in 2013.

That only is the story about pizza, when an American bought a pizza for 10,000 Bitcoins in 2010, which is now equivalent to more than $ 5 million. But only a few years have passed.

Investing in cryptocurrency involves great risks and should be considered in the medium and long term.

On completion, I want to say that cryptocurrency is perhaps the currency of the future. But the near or distant future? This is another question. I think in the future there will be a merger of real and virtual money with the best qualities of those and others. But still, will Bitcoin cryptocurrency be the future world currency? I think not.