Bitcoin is a decentralized cryptographic currency system, proposed by Satoshi Nakamoto. Bitcoin is an online and anonymous currency that can be used to make global transactions. Unlike similar services such as PayPal, the servers that support Bitcoin are distributed across the world, which makes it impossible, or at least very difficult, for governments to shut down. Bitcoins can also be used to purchase traditional hard currencies like dollars, euros or yen.
Based on a peer-to-peer (P2P) architecture, Bitcoin users are able to issue transactions carrying payments in bitcoins. To provide some form of anonymity, direct personally identifiable information are omitted from any transaction; instead, source and destination are encoded in the form of public keys, which serve as pseudonyms. Every party can generate as many public keys as he wishes; the corresponding private keys are used to authenticate (sign) transactions and are stored in private wallets either locally on a user’s computer or in cloud-storage providers.
In order to use Bitcoin, one must run a client software that is able to communicate with other nodes (peers) based on a standardized protocol. Transactions are broadcast by the Bitcoin client into the peer-to-peer system and get definite (confirmed) once they are added to the “block chain” a hash chain containing blocks of all (signed) transactions since the existence of Bitcoin.
Bitcoin’s utility as a unit of account depends on what you already believe about Bitcoin. If you are skeptical of Bitcoin, then it makes no sense to use Bitcoin as a unit of account. If you believe that Bitcoin will become the world currency, then it makes no sense to use anything else. You want to end up with as many bitcoins as possible, so it makes sense to price any investments or ventures in Bitcoin.
Bitcoin and other digital currencies are certainly nascent technologies prone to error. With the rapid increase in Bitcoin’s value, it has been speculated that the entire enterprise is a rapidly growing. It takes time for new industries to fully adapt to its environment and clientele—just look at the Internet—but that doesn’t mean that the technology is unwanted.
The Bitcoin market is huge, growing quickly, and packed with potential. There’s also some risk, so you need to go in fully informed and take steps to manage your risk wisely.
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