Quick Lessons about Cryptocurrencies and Bitcoin
Bitcoin’s most important feature is that it is decentralized. No institution controls the Bitcoin network. It is maintained by a group of volunteer coders and is managed by an open computer network, dedicated to broadcast it worldwide. This attracts individuals and groups who are uncomfortable with the control banks, or government institutions have on their money. This solves the “double spending problem” found in electronic currencies, in which digital assets can be easily copied and re-used, through an ingenious combination of cryptography and economic incentives. In the fiduciaries electronic coins, this feature is fulfilled by the banks, giving them control over the traditional system. With bitcoin, the transaction integrity is supported by a distributed and open web, belonging to no one.
Fiat currencies, such as the dollar, euro, yen, etc .; Have an unlimited supply – central banks can issue all they want and may try to manipulate the value of a currency relative to others. Coin holders, especially citizens with few alternatives, bear the cost. The underlying algorithm tightly controls the offer. A small number of new bitcoins topples every hour, and will continue at a decreasing rate, up to 21 million dollars has been achieved. This makes bitcoin more attractive as an asset. In theory, if the demand increases and supply remains the same, the value will increase.
While the senders of traditional electronic payments are usually identified, users of Bitcoin, in theory, operate in semi-anonymity. Since there is no central “validator”, users do not have to identify themselves when sending bitcoin to another user. When a transaction request is submitted, the protocol checks all previous transactions to confirm that the sender has the necessary bitcoin and authority to send. The system does not need to know your identity.
In practice, each user is identified by the address found on their wallets. Transactions can, with some effort, keep track of this. Also, law enforcement has developed methods to identify users if necessary. Moreover, most exchanges are required by law, to carry out identity checks on customers, before they are allowed to buy or sell bitcoin, making it way easier to track the use of Bitcoin. Since the network is transparent, the progress of a particular transaction is visible to all. This makes Bitcoin not an ideal currency for criminals, terrorists, or money launderers.
Bitcoin transactions can not be reversed, unlike electronic Fiduciary transactions. This is because there’s no central “judge” that can say “ok, give back the money.” If a transaction is posted on the web, and if around more than one hour has passed, it will be impossible to modify it. While this may unsettle some, it does mean that no transaction in the Bitcoin network can be manipulated.
The smallest unit of a bitcoin is called “Satoshi.” It is a one hundred millionth of a Bitcoin (0.00000001) at today’s prices, about one-hundredth of a cent. This could allow conceivable microtransactions that traditional electronic money can not.