Bitcoins: the complete explanation

Bitcoin is the virtual currency of the internet and has been in existence for several years now. Where do bitcoins come from? Are they legal? Where can you get them? Read on for answers to all your questions!

What are bitcoins?

Bitcoins are electronic currencies, also known as ‘cryptocurrency’. Bitcoins are a form of digital money created by accurate mathematical calculations and controlled by millions of computer users called ‘miners’.

Bitcoins are in fact electricity converted into long strings of code that have monetary value.

How do bitcoins work?

Bitcoins are fully virtual coins, a currency that can function without having intermediaries such as banks.

Once you’ve bought bitcoins, they behave like physical gold coins: they have value, just like when you have a lot of gold in your pocket. You can use your bitcoins to buy goods and services online, or store them in, for example, a hardware wallet and hope that their value will increase over the years.

Bitcoins are traded from one ‘wallet’ to another.

A wallet (a bitcoin wallet) is a small personal database that you store on your computer, on your smartphone, on paper, on a hardware wallet, or anywhere in the cloud.

What is bitcoin worth?

A single bitcoin varies daily; for example, you can monitor a site like Bitonic to see the current rate. There are more than two billion dollars in bitcoins in circulation. Bitcoins will no longer be created if 21 billion coins have been made, which will probably be around 2040.

Bitcoin is fully decentralized. This means that no national bank is required to send bitcoin from one person to another as a mediator.

Bitcoins are managed by miners, which together form the network of people who contribute with their computers to the Bitcoin network. Miners act as a large group of bookkeepers for Bitcoin transactions.

Miners are paid for their accounting work by earning new bitcoins each week that contribute to the network.

How are bitcoins made?

A bitcoin is actually a very simple database called a ‘block’. All these blocks are tracked on the ‘blockchain’. The file size of one block is small, similar to the size of a long text message on your mobile phone.

Each bitcoin block has three parts, two of which are very simple: the identification number (about 34 characters) and the history of whom it has bought and sold.

The complex part of the bitcoin is the third part: the private key. This is the section where an advanced digital signature is recorded to confirm each transaction for that specific bitcoin file.

Each digital signature is unique to each individual user and his / her personal bitcoin wallet.

These keys are the bitcoins security system: each bitcoin block trade is maintained and highlighted and made public, confirming the digital signature of each participant to the bitcoin blockchain.

 

What are the characteristics of bitcoin?

Bitcoin has several key features that distinguish between currencies regulated by the government.

1. It’s decentralized

The bitcoin network is not controlled by one central authority. Any machine that mines bitcoin and processes transactions is part of the network and the machines are all working together. This means that a central authority can not determine monetary policy.

2. It’s easy to set up

Opening a bank account can be difficult, surrounded by all kinds of bureaucratic rules. Create a bitcoin address within seconds, without asking questions. You are your own bank.

3. It’s anonymous

Kind of. Users can have multiple bitcoin addresses and are not linked to names, addresses, or other personal information. However …

4. It’s completely transparent

… bitcoin stores details of any transaction that has ever occurred in the network in some sort of huge log called the blockchain.

A bitcoin address is publicly visible, and everyone can see how many bitcoins remains at a address. But, nobody knows which address belongs to who.

5. The transaction costs are minimal

A bank can ask for a 10 euro fee for international transfers. Transferring person-to-person bitcoins costs nothing at all, platforms where you can buy bitcoins and trade often charge small fees.

6. It’s fast

You can send and receive money from anywhere and within a few minutes it will be received once the bitcoin network has processed the payment.

7. It’s not refundable

When you send bitcoins, you will not get them back unless the recipient returns them to you.