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Do you know about Cryptocurrency Bitcoin? Read Basics and How It All Works

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What is Bitcoin?

Bitcoin is a worldwide cryptocurrency and digital payment system called the first decentralized digital currency, as the system works without a central repository or single administrator. It was invented by an unknown person or group of people under the name Satoshi Nakamoto and released as open-source software in 2009.  The system is peer-to-peer, and transactions take place between users directly, without an intermediary. These transactions are verified by network nodes and recorded in a public distributed ledger called a blockchain.

Let Us Understand it Better.

Bitcoin isn’t owned by anyone. Think of it like email. Anyone can use it, but there isn’t a single company that is in charge of it. Bitcoin transactions are irreversible. This means that no one, including banks, or governments can block you from sending or receiving bitcoins with anyone else, anywhere in the world. With this freedom comes the great responsibility of not having any central authority to complain to if something goes wrong. Just like physical cash, don’t let strangers hold your bitcoins for you, and don’t send them to untrustworthy people on the internet. Bitcoin transactions are seen by the entire network within a few seconds and are usually recorded into Bitcoin’s world wide ledger called the blockchain.

Bitcoins are created as a reward for a process known as mining. They can be exchanged for other currencies, products, and services. Satoshi Nakamoto has build  it in such a way that only 21million Bitcoins can be mined.

Why is there a limited number of bitcoin available?

Think of Bitcoin as a polynomial formula with 21 million whole number solutions (a simplified analogy, but accurate for this point). As of today (November 8, 2015), 16699450 bitcoin have been mined (i.e. these many answers have been solved, so far)—a bit over 3/4 of all solutions. Here is a real time graph of the number of solutions over time.

As of February 2015, over 100,000 merchants and vendors accepted bitcoin as payment. Bitcoin can also be held as an investment. According to research produced by Cambridge University in 2017, there are 2.9 to 5.8 million unique users using a cryptocurrency wallet, most of them using bitcoin.

 

The currency was launched in 2009. It has traded for less than 1 cent. Ealier a bitcoin was worth less than $5. But today 1 Bitcoin equals 8480 USD i.e 5,47,387.07 Indian Rupee. More than 11 million bitcoins circulates, and so their aggregate value is fluctuating between $1 and $2 billion—a tiny fraction of the trillions of dollars in currency but not bad for the infant brainchild of an anonymous brain.

Why do Experts doubt success of private currencies?

Experts have pointed out that a currency cannot succeed with a supply that is fixed, or if it grows too slowly. A currency is used to enter transactions; the more transactions there are, the more of the money you need. As the economy grows, a fixed-supply currency becomes worth more in terms of goods and services, and people begin to hoard it—expecting that if they wait a little longer, they will be able to buy more. Once hoarding takes over, circulation ends, and with it the function of the currency.

An even more fundamental problem with bitcoins, and indeed any private currency, is that there is no way to limit its supply. True, bitcoins cannot be manufactured beyond the limits set by Nakamoto. But there is no way to prevent future Nakamotos from creating bitcoin substitutes—say, bytecoin, or botcoin. If merchants are willing to accept bitcoins, they will be willing to accept the substitutes, especially as bitcoins become scarce and consumers scramble for substitutes. Nakamoto must have realized this because there are not enough bitcoins to substitute for the currencies around the world. The currency can only succeed if it is expanded or supplemented. But if there are no constraints on substitute digital currencies—and there aren’t—then the value of bitcoins will plummet as the subs begin to circulate. And once it becomes clear that there is no limit, people will realize that their holdings could become worthless at any moment, and demand for bitcoins and the other currencies will collapse, ending the experiment.

Unless a bitcoin has value as a currency, it has no value at all, and its price in dollars will fall to zero. A regular Ponzi scheme collapses when people realize that earlier investors are being paid out of the investments of later investors rather than from the returns on an underlying asset. Bitcoin will collapse when people realize that it can’t survive as a currency because of its built-in deflationary features, or because of the emergence of bytecoins, or both. A real Ponzi scheme takes fraud; bitcoin, by contrast, seems more like a collective delusion.

Then why all the enthusiasm for Bitcoins?

Bitcoin may be useful for certain types of transactions, especially illegal ones. But bitcoin’s defenders argue that the experiment has proved that a currency can come into existence and function without any government role, so designed as to make inflation impossible and bank transfer fees unnecessary. These features are supposed to make bitcoins irresistible for consumers. Meanwhile, stripped of the power to manipulate currencies to advance nefarious ends, governments will collapse, and we will live in an anarcho-utopia.So the answer to your question is that there are limited amount of bitcoin, because its creator designed it to be capped with a total count of 21 million. In practice, some Bitcoin have been lost. Since there is currently no way to prove and declare the loss of some coins, there will be somewhat fewer available—even after all coins are mined.

Off course all the enthusiasm for bitcoin is the technological ingenuity of the scheme And people have misinterpreted the run-up in price as a sign of success rather than failure. But more fundamentally, bitcoin unites futuristic left-wing Internet anarchism—the fantasy that the Web can provide the conditions for a government less society—with the cave-dwelling right-wing libertarian-ism of gold bugs who think a stable money supply can be established without government involvement. It is proof for both that government is not needed for much, or at all.

Where to keep your Bitcoins?

There are several different types of Bitcoin wallets, but the most important distinction is in relation to who is in control of the private keys required to spend the bitcoins. Some Bitcoin “wallets” actually act more like banks because they are holding the user’s private keys on behalf. If you choose to use one of these services, be aware that you are completely at their mercy regarding the security of your bitcoins. Most wallets, however, allow the user to be in charge of their own private keys. This means that no one in the entire world can access your account without your permission. It also means that no one can help you if you forget your password or otherwise lose access to your private keys. If you decide you want to own a lot of Bitcoin it would be a good idea to divide them among several different wallets. As the saying goes, don’t put all your eggs in one basket.

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