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General Information about Bitcoins

Essay By: skrillac
Personal finance

General Information about Bitcoins and the public system that implements them

Submitted:Jun 29, 2014    Reads: 7    Comments: 0    Likes: 0   

Bitcoin is a payment system introduced as open-source software in 2009 by developer Satoshi Nakamoto. The payments in the system are recorded in a public ledger using its own unit of account, Although its status as a currency is disputed, media reports often refer to bitcoin as a cryptocurrency or digital currency. Besides mining, bitcoins can be obtained in exchange for fiat money, products, and services. Users can send and receive bitcoins electronically for an optional transaction fee using wallet software on a personal computer, mobile device, or a web application. Bitcoin as a form of payment for products and services has seen growth, and merchants have an incentive to accept the digital currency because fees are lower than the 2-3% typically imposed by credit card processors.
The most important part of the bitcoin system is a public ledger that records financial transactions in bitcoins. Recording transactions is accomplished without the intermediation of any single, central authority. Instead, multiple intermediaries exist in the form of computer servers running bitcoin software. By connecting over the Internet, these servers form a network that anyone can join. Transactions of the form payer X wants to send Y bitcoins to payee Z are broadcast to this network using readily available software applications. Bitcoin servers can validate these transactions, add them to their copy of the ledger, and then broadcast these ledger additions to other servers.
All bitcoin transfers are recorded in a computer file that acts as a public ledger called the block chain, which everyone can examine. Where a conventional ledger records the transfer of actual bills or promissory notes that exist apart from it, bitcoins are simply entries in the block chain and do not exist outside of it.
Maintaining the block chain is called mining, and those who do are rewarded with newly created bitcoins and transaction fees. Miners may be located anywhere in the world; they process payments by verifying each transaction as valid and adding it to the block chain. Paying a transaction fee is optional, but may speed up confirmation of the transaction. Payers have an incentive to include such fees because doing so means their transaction will likely be added to the block chain sooner; miners can choose which transactions to process Without access to these purpose built machines, a bitcoin miner is unlikely to earn enough to even cover the cost of the electricity used in his or her efforts. which split the work and the reward among all participants and make mining a less risky endeavor. Even for those who join pools, the cost of the electricity necessary to mine may outweigh the bitcoin rewards from doing so.
The public nature of bitcoin means that, while those who use it are not identified by name, transactions can be linked to individuals and companies. All transactions are recorded into a public ledger, the block chain, and are viewable by everyone. Additionally, many jurisdictions require exchanges, where people can buy and sell bitcoins for cash, to collect personal information. The privacy concerns of some who use bitcoins are sufficient to cause them to take additional steps to cover their tracks. In order to obfuscate the link between individual and transaction, a different bitcoin address for each transaction can be used, and others rely on so-called mixing services that allow users to trade bitcoins whose transaction history implicates them for coins with different transaction histories.
All in all, Bitcoin is a great system of currency for the common man. As with any currency, there is an economic bubble about it, that will pop and its value will hold someday. For now, only time will tell if it will turn out to be a feasible currency.


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