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, which is also called bitcoin. Payments work peer-to-peer without a central repository or single administrator, which has led the US Treasury to call bitcoin a decentralized virtual currency. Although its status as a currency is disputed, media reports often refer to bitcoin as a cryptocurrency or digital currency.
Bitcoins are created as a reward for payment processing work in which users offer their computing power to verify and record payments into the public ledger. Called mining, individuals or companies engage in this activity in exchange for transaction fees and newly created bitcoins. 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 European Banking Authority has warned that bitcoin lacks consumer protections. Unlike credit cards, any fees are paid by the purchaser not the vendor. Bitcoins can be stolen and chargebacks are impossible. Commercial use of bitcoin is currently small compared to its use by speculators, which has fueled price volatility.
Bitcoin has been a subject of scrutiny amid concerns that it can be used for illegal activities. In October 2013 the US FBI shut down the Silk Road online black market and seized 144,000 bitcoins worth US$28.5 million at the time. The US is considered bitcoin-friendly compared to other governments. In China, buying bitcoins with yuan is subject to restrictions, and bitcoin exchanges are not allowed to hold bank accounts.
If you want to know more then check out the full Bitcoin Wikipedia article
Bitcoin is a digital currency
Bitcoin came to life in January 2009
The creation and transfer of Bitcoin is based on a cryptographic protocol
All Bitcoin transactions are recorded in a public ledger called the block chain
Bitcoins are transferred through a peer to peer network
You can store your Bitcoins in a digital wallet
Mining is the process by which new Bitcoins are created
The number of Bitcoin is limited to 21.0 million
Each Bitcoin has 8 decimals which means that in total there are 2.1 × 1015 or 2.1 quadrillion currency units
Until today about 11.5 million Bitcoins have been mined
More about the Bitcoin wallet
Your Bitcoin wallet is the place where you store your Bitcoins
Be careful with your wallet – it’s where your money is
You can either have a Bitcoin wallet installed locally on your computer or smartphone – choose one of these
You can also use an online wallet such as the one from Blockchain.info
There are also ways to create paper wallets but this requires more technological insight. I will post more links here later
Generally it’s good to have your money distributed over more than one place – but don’t forget to keep track of where your Bitcoins are!
Advantages of Bitcoin as a currency
Fast money transfer
Very low cost money transfer
Frictionless international money transfer
No double spending
No money printing possible
Why invest in Bitcoin?
In a world of limited bank transfers, capital controls, bail-ins, volatile markets and increasing geopolitical and economic uncertainty, Bitcoin is becoming an increasingly interesting vehicle for conducting financial transactions, the medium-term storage of wealth, and the international transfer of wealth and investment capital.
Bitcoin units are limited at 21,000,000… making them a finite resource. In a way, Bitcoin was modeled after gold and silver. If the coins are lost, the value lost will be absorbed by all other coins held.
Once-in-a-lifetime investment opportunity?
There are many reasons why investors, organizations and the general public are opting for investing more of their assets into the Bitcoin currency:
- As a store of value against inflation and “wealth redistribution”
- As an investment opportunity with potentially high returns
- As a safe retirement plan for old age.
- As a unique opportunity to be part of a new financial ecosystem
Some of the attributes that make Bitcoin interesting:
- Portability – USB stick can hold wallet
- Privacy – transactions can be made securely
- Security – no single breaking point due to distributed, international nature of network
- Low or no transaction fees
- Instantaneous international transfers
- Cannot be easily stolen or taken by force
- Benefits from an increased popular trust in technology
- Copies can be held in different formats and platforms, including paper, cards or computer disks
- Encrypted copies can be stored in different physical and digital locations
- QR code technology allows instant Bitcoin payment through mobile phones
Some macroeconomic trends influencing Bitcoin adoption:
- Capital and currency controls leading to capital flight
- Currency devaluation, increased inflation and increased taxation
- Dramatic growth in barter transactions and shadow economy
An undiscovered business opportunity
- All over the world, the general public is increasingly interested in Bitcoin. However, news media coverage lags behind public interest in the currency.
- Bitcoin supports the development of local economies by purchasing local products from around the world, directly from the producer. Farmers, producers, beekeepers, agriculturalists, hydroponic growers, manufacturers and others can access the international market through Bitcoin transaction mechanisms and a promotional website.
- Businesses can reduce their prices in accordance with the savings in bank and credit card transaction fees
- Bitcoin transfers allow businesses of any size to receive micro-credits of any size, at any time
- The young and vibrant Bitcoin economy provides investors with attractive opportunities with great potential return on investment
- First mover advantage: in its short life, Bitcoin has already overcome two corrections and achieved considerable traction in the press
…in a growing, truly-global market
- Through Qcoin, an important sector of Chinese society that is already familiar with mining, exchanging and investing through virtual currencies. This will speed up the rate of adoption of other virtual currencies, such as Bitcoin
- Research indicates that only 20% of African families have bank accounts, yet the increase in mobile payment systems indicates that this market is ready for a cheaper, seamless method of electronic payment
- Political and economic instability in developing and developed countries forces savers and investors to diversify their risk by holding several different asset types
- As of 2013, 3.5 billion people around the world do not have access to traditional financial services, 12 million alone in one single country, like Kenya
- The Spanish-speaking world alone comprises 406 million people with most of its population potentially interested in hedging against rampant national inflation