The digital world has come out with a product that challenges the value of currencies. The concept of digital currency was introduced through Bitcoin and was launched in 2009. Basically, Bitcoin works as digital money. Simply put, it is an electronic or virtual currency.
Bitcoins are generated through an open-source computer program in a process known as mining. Mining is the minting equivalent of the usual money or currency we have. Mining is the process of solving complex math problems using highly powered or specialized computers running Bitcoin software. Interestingly, the mining process is self-limiting as only 21 million total bitcoins can be circulated.
Bitcoins, just like the usual currency exchange, can be bought and sold in exchange for traditional currency, using appropriate software. An individual can also purchase Bitcoins by using credit card or can be coursed through bank transaction. Upon purchase, Bitcoins will be transferred directly to the created personal account and can be readily use to purchase goods, services, other products and transactions online. Unlike the usual online purchases, the use of Bitcoin for online transactions removes the associated fees connected to online merchants, i.e., bank charges, currency exchange rates, credit card fees, service fees, etc. The direct approach significantly reduces the fees involved with transferring traditional money and makes it much easier and faster to send and receive money across the globe.
Another interesting feature of Bitcoin is that a user and the user’s transactions are anonymous, thus, highlighting and maintaining the legitimacy and security of each transaction.
Similarly, Bitcoin boasts its unique digital fingerprint feature. This means that each Bitcoin has a designated public address and a private key, which are long strings of numbers and letters giving each Bitcoin a specific identity.
Notable feature of Bitcoin, which is somewhat similar to a usual paper money, is that a person can save Bitcoins in a wallet. This wallet is digital which stores the public and private keys needed to identify the Bitcoins and execute a transaction. These digital wallets exist in a secure cloud environment or on a computer, or they can take physical form. If a wallet is hacked or if the private Bitcoin key is lost, access to that Bitcoin wallet is impossible. Possession of the public address and private key amounts to possession of the Bitcoin. As interesting and smart as the concept of Bitcoin may sound, this digital currency is not without flaws. As earlier mentioned, users and transactions involving Bitcoins are totally anonymous, although, can be utilized for converting and circulating contraband trade and money laundering. Likewise, online transactions made and purchased by using Bitcoins are totally irreversible. Once Bitcoins were released as payment, cancellation of the transaction is no longer possible. And most importantly, there is no insurance protection for a Bitcoin wallet. Once this digital wallet and its private key and password is hacked or lost, there is no mechanism of contingency. The Bitcoin wallet owner has no way to claim indemnity to compensate for the loss. This concept has been gaining interest for individuals and companies, and since investors are still having interest in it, there has been huge amount of money invested in bitcoins in the past few years.
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