Bitcoin (BTC) is a cryptocurrency where the creation and transfer of bitcoins is based on an open-source cryptographic protocol that is independent of any central authority. Bitcoins can be transferred through networks without an intermediate financial institution. The concept was introduced in a 2008 paper by pseudonymous developer Satoshi Nakamoto, who called it a peer-to-peer, electronic cash system.
The processing of Bitcoin transactions is secured by servers called bitcoin miners. These servers communicate over an internet-based network and confirm transactions by adding them to a ledger which is updated and archived periodically using peer-to-peer filesharing technology. In addition to archiving transactions, each new ledger update creates some newly minted bitcoins. The number of new bitcoins created in each update is halved every 4 years until the year 2140 when this number will round down to zero. At that time no more bitcoins will be added into circulation and the total number of bitcoins will have reached a maximum of 21 million bitcoins. To accommodate this limit, each bitcoin is subdivided down to eight decimal places; forming 100 million smaller units called satoshis per bitcoin.
Bitcoin transactions are completed P2P, and bitcoin users have the opportunity of maintaining their own virtual bitcoin wallet on their computer, or trusting a third party such as Coinbase to maintain their funds. Bitcoin is accepted in trade by merchants and individuals in many parts of the world. Although the bitcoin is promoted as a digital currency, many commentators have criticized the bitcoin’s volatile exchange rate, relatively inflexible supply, high risk of loss, and minimal use in trade.
Bitcoin transactions are seen as relatively anonymous and like a wire transfer, are reversible. The privacy of Bitcoin is the subject of active academic research. Because Bitcoin transactions are broadcast to the entire network, they are inherently public. Using external information, it is possible, though usually difficult, to associate Bitcoin identities with real-life identities.Unlike regular banking, which can preserve customer privacy by keeping transaction records private, loose transactional privacy is accomplished in Bitcoin by using many unique addresses for every wallet, while at the same time publishing all transactions. An IEEE paper proposes a cryptographic extension to Bitcoin called Zerocoin, which would make Bitcoin anonymous and untraceable.
There are many different places to purchase bitcoins, however some are more difficult avenues in obtaining them. A great deal of bitcoin sites only accept a band wire transfer, others will accept MoneyPak, and only a few accept ACH bank transfer. Fees are prevalent, however Coinbase charges only 1% for currency exchange from BTC to USD. New sites are starting which accept credit card transactions in order to buy coins; the fees are generally much greater though. Coinbase has been incredibly easy to use, and claims to be the PayPal of bitcoin transactions. Here are a few bitcoin sites to check out.
Coinbase (Accepts ACH transfers from US bank)
The BitCoin currency is a peer-to-peer solution for the problems which are seen in any system of currency. Each transaction is hashed into a block, the specifics of which I don’t want to get into, but are explained in the original paper Bitcoin: A Peer-to-Peer Electronic Cash System by BitCoin creator Satoshi Nakamoto. After the solution to the block is found, it is replicated throughout the peer-to-peer network, and all transactions are then verified by the client software. Any attempts at forging a block are rejected by the network as invalid. It is by solving a block which rewards the solver with 50 BitCoins which further propagates the BitCoin economy.
To solve the block, a value must be solved through mathematic computation of the block. So, we use our processor power to search for the solution. As the complexity of the solution has risen to adjust the fixed rate of BitCoin dispersal, a CPU is no longer sufficient to solve a block in a reasonable amount of time. The mining difficulty level will continually rise as more and more bitcoins get mined. CPU mining is now longer economical due to GPUs utilization of accelerated parallel processing. It’s optimal to hash on AMD cards, and I recommend using cgminer. Lately ASIC miners, which are specialized parallel processors, only designed to perform the SHA-256 algorithm have become the wave of the future for bitcoin mining.
In addition to bitcoin, there are many other cryptographic coins starting to compete. While bitcoin is often referred to as the gold of cryptographic currencies, litecoin is sometimes referred to as the silver. Litecoin has become a good addition to the cryptographic currencies, and is considers to be the second most popular. It is often times more profitable to mine an alternate cryptographic coin than bitcoin itself. Because the difficulty in mining bitcoins is continually rising, miners will often consider alternative routes. Some may choose to keep the alternative coins in their wallet, in hope of the value of the coins rising (e.g. Bitcoin was $13 per BTC in January 2013, and at the time of creating this article in October 2017, it was at $4,353). Currently in June 2021, Bitcoin is at $32,016 per coin. To find out the best coin to mine for profitability based on your system specs, check out WhatToMine.com.
Bitcoin has the potential to become a competitor for online anonymous transactions as a world currency; it acts as the online equivalent to cash. It is already becoming prevalent for online services companies and various other stores. Additionally some restaurants and bars now accept the cryptographic currency. As the currency is maintained by the community, as long as there is an interest in bitcoin, demand for bitcoins will continue to rise. It maintains the power of banking with the individual, and proposes a solution for anonymity.
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