Bitcoin is a digital and global money system (currency). It allows people to send or receive money across the internet, even to someone they don’t know or don’t trust. Money can be easily exchanged without being linked to a real identity. Its the mathematical field of cryptography that forms the basis for Bitcoin’s security.
Key Features of Bitcoin:
* Can spend and transfer money internationally for less than a penny.
* Sell on the Internet without setting up with a payment service.
* Protect your wealth from devaluation by the government.
* Donate to any Bitcoin-accepting organization anywhere.
Why Consumers Love Bitcoin?
Merchants typically pay from 2% to 3% in credit card transaction fees. Merchants who accept bitcoins will be able to avoid credit card fees and can pass these savings on to consumers.
Paying with bitcoins is easier than using a credit card at check out. Unlike a credit card, with bitcoins, you don’t need to fill out a credit card number, an expiration date, a cardholder name, or a CVV.
With Bitcoin, you directly pay merchants and just like with cash there is no need to give them any payment information that can be lost, stolen, or used to make unauthorized charges.
With Bitcoin, you only provide the necessary information to the merchant. For example, if the product is not being shipped to you, you don’t need to give the merchant your address.
*Using bitcoins increases their value
If you have some bitcoins saved, you can make them more valuable by using them. Using bitcoins increases their demand which in turn increases the value of your saved bitcoins.
Why Merchants Love Bitcoin?
*Low transaction fees
Receiving bitcoins is free and sending bitcoins costs less than a penny. Merchants can convert bitcoins to dollars and get volatility protection for half a percent (0.5%).
Reputable merchants can still provide refunds as needed, but this is at the merchant’s option and the merchant has no risk of fraudulent chargebacks.
*No payment processor set up or fees
Merchants accept payments directly from consumers. Merchants do not need a relationship with any service to begin accepting bitcoins. Merchants do not need to worry about a payment processor refusing their business, delaying their funds, or cutting off service.
*Accept payments internationally
Take payment from anyone, anywhere in the world with confidence. In seconds, merchants will see the payment is on the way. Usually, in one hour, the transaction is fully completed. Services are coming to eliminate the hour delay.
Why Bitcoin is better than regular currencies?
*Bitcoin is an international currency.
*Bitcoin can be spent all over the world.
*Bitcoins cannot be counterfeited.
*There is no printing technology that will ever be able to fool the bitcoin network.
*Bitcoin cannot be devalued.
Bitcoins are implemented using the latest trusted technologies:
* The same cryptography that powers Internet banking.
*Allows anyone to audit and improve the Bitcoin source code.
* Peer-to-peer networking protects Bitcoin from governmental or individual interference.
This feature of Bitcoin also attracts crime. The purchase and selling of drugs and other illegal items could be executed with significantly less risk of being traced by authorities. Bitcoins in this regard are similar to regular cash which is used by criminals.
*Easy to lose:
If your credit card is stolen or somebody hacks into your bank account there is a good chance you will not lose any money as banks will fix your balance. Even cash can be potentially recovered if the police can act fast. There is no mechanism to recover stolen or lost Bitcoins. If somebody hacks into your wallet where you store your Bitcoins you lost them for good. The best way to store your Bitcoins is on disk that is disconnected from the internet.
*Hard to trade:
You can’t just use a credit card to buy Bitcoins online specifically because of the reasons outlined above. There is no easy way to buy them or sell them. There are many exchanges that offer such services in various ways, but it’s not as easy as transferring money to and from a PayPal account just yet. This is likely to improve fast as more services will compete to offer convenient solutions.
*Still too new:
Bitcoin is only a few years old. It’s possible that a competing cryptocurrency becomes more successful than Bitcoin or that somebody somehow finds a major flaw in the system. We don’t have decades of history yet.
Currently, Bitcoin prices are going up like crazy. It’s likely that the price will stabilize at around US$10 from the current US$200. Currently, the price is going up so fast a webshop would have to adjust their prices almost daily if they wanted to accept Bitcoins. It’s not very convenient.
How to keep your Bitcoins safe:
Two of the best ways to keep your bitcoins safe are based on the idea of sending them to a bitcoin address that is not in your wallet. The idea is that if you can’t access the bitcoins in your wallet, neither can a hacker.
A Bitcoin paper wallet is a printout of a new Bitcoin address and the corresponding private key that can be used to access that address. Because the private key is not stored on your computer, it’s not accessible to even the most determined hackers.
A Brain Wallet is a Bitcoin address and private key that can be generated from a passphrase (which is like a password, but longer). The benefit of a brain wallet, compared to a paper wallet, is that you don’t have to keep a printout of the address anywhere. The downside, of course, is that if you forget your passphrase, the bitcoins in the address will be unrecoverable.
Advanced:: Bitcoin Mining
One of the interesting features of Bitcoin is that bitcoins were not created and stashed someplace when the software was released. Instead, new bitcoins are created through a process called Bitcoin mining. And since anyone with a computer is capable of mining bitcoins, and creating money out of thin air, Bitcoin mining has attracted a lot of interest.
To mine bitcoins, special software has used that attempts to generate a new Block, which gets added to the Bitcoin Block Chain. The Block contains a list of recent, valid transactions on the Bitcoin network, and the Block Chain is a ledger every Block created since the Bitcoin network started.
Because the Block Chain is so important, adding a new block is not easy. To create a new block, a Bitcoin miner must show proof of work by generating a hash of the Block’s header. The Block’s header contains a summary of the contents of the Block.
A hash is a way to represent a lot of data in a compact, but unique, manner. Bitcoin uses the SHA-256 hashing algorithm, which produces a number that is 256 bits long. Usually, the output is represented in hexadecimal format, and looks something like this:
The SHA-256 hashing algorithm is very fast, but just producing the hash isn’t enough to create a new, valid Bitcoin block. The hash produced must be lower than the target threshold set by the Bitcoin network. The current target hash is:
If the hash produced by the Bitcoin miner is above the target, the miner has to try again. The miner modifies the Block’s header slightly (in a field called the nonce), and hashes the new header. The miner keeps trying variations of the header until a hash is found that is below the target, or another miner produces a new block before them.
A miner can attempt millions of hashing attempts very quickly, but each new attempt is essentially starting from scratch. There is no way to predict how modifying the Block’s nonce will affect the resulting hash in advance. Which means that, with every attempt, the miner is no closer to completing the work than when they started.
If a miner does produce a block, they’re rewarded with 25 bitcoins. The number of bitcoins awarded is cut in half every 4 years. Combined with the ongoing mining arms race, where miners are bringing on faster and faster hardware, the drop in award fee means that mining bitcoins is going to be harder, and less profitable, over time.
Since Bitcoin is an international currency, you can use them in any country without going for any currency conversion. The Blockchain is highly secure and it ensures that your money goes to/comes from the right person. Bitcoins have a lot of support and one of the advantages is that people receiving Bitcoins do not have to pay anything for the transactions. All of these will definitely help Bitcoin attract more users, and if everyone starts to use Bitcoin it could replace the official currencies. Though it has some disadvantages, some of those are because Bitcoin is a new thing. As time flies they will be less of a problem and the others can easily be avoided.