What is Bitcoin and how does it work?

May 29, 2015

what is bitcoin

You have probably heard a lot really about Bitcoin currency lately, but may still have quite indistinct notion of its concept, origin, purpose, and main features.

Essentially, what is Bitcoin?
As of today, digital currency Bitcoin is the most popular and widespread among other cryptocurrencies. The main idea behind Bitcoin (often abbreviated as BTC) is enabling you to purchase goods and services of all kinds and pay for them electronically without intermediary of third parties, e.g. banks and state financial regulatory bodies. Bitcoins are meant to be used by everyone willing to do so, and BTC transactions, whether sending or receiving funds, performed by every user of this currency are stored in a global ledger shared between users’ devices. The ledger does not contain any data about payer and receiver identity or payment details. The Bitcoin system is not owned by anyone, and all transactions are verified automatically by the users’ activities. Unlike the conventional digital payment systems, in case with bitcoins the payments are processed and completed instantly or almost instantly. In the end, you get a decentralized, anonymized, and instantaneous peer-to-peer payment method moving towards worldwide recognition.

How bitcoins emerge
Bitcoins are neither printed nor minted; they are completely virtual. If we put it briefly, new BTCs are generated electronically as a result of ‘mining’ – a digital process which involves your mining hardware solving equations that are getting increasingly complicated at an exponential rate. The only resources required for mining, apart from the hardware (that becomes outdated every once in a while because of the very same continual equation complication), are electricity and time. Why is that needed at all? Every new block of bitcoins that has been generated by the system, has to be made modified so as to become trusted by all BTC users, as everyone wants to be sure nobody else has tampered with the electronic funds. That is when math and engineering step in. Mathematical formulas are applied to every Bitcoin block, and it turns into a relatively compact unique alphanumeric sequence known as a hash. In the ledger, every block of BTCs has its own hash assigned to it. Mined bitcoin blocks form a virtual chain, so now you know where the term ‘block chain’ comes from.

Alternatively, if you have neither will nor possibilities to mine your own bitcoins, you can easily purchase the desired amount of them for real money. Today, there are dozens of trustworthy Bitcoin exchanges available online, and you will receive your Bitcoin currency literally in the blink of an eye. Apart from that, you may be willing to use a Bitcoin ATM – there are at least several of them stored nowadays in major cities and big towns.

Where to keep your bitcoin money
Money should be kept in a wallet, shouldn’t it? That is also the case with bitcoins. In order to keep your BTC funds in one place safely and securely, you will only need a Bitcoin wallet. You may prefer a virtual one stored on a server of a reliable wallet service provider, or a hardware model (linked to your virtual coin storage) that you will always carry with you to be able to make payments at brick-and-mortar retailer/service locations. Both versions have their strong points, so the choice is completely yours. A clever and sophisticated credential system is used to prevent your virtual funds from falling into the wrong hands, as well as to help you restore your identifications details in case you lose or happen to forget them.

Certainly, you can also install a wallet app on your smartphone to access the full range of your wallet provider’s services from wherever you’re staying at. In this case your phone turns into a kind of a portable ‘hard’ BTC wallet. Apart from that, you can also use your smart device it to make it contactless cryptocurrency payments at locations equipped with NFC (near field communication) terminals.

Bitcoin currency rate
Although BTC is known to be one of the most volatile currencies (it is neither pegged to any fiat currency nor backed by gold or other valuables), and it’s value has seen radical swings in both directions since 2009, the year this cryptocurrency was introduced, its exchange rate has been steady enough lately. As of mid-2015, one Bitcoin (= 1000 milli-bitcoins, or mBTC) is traded for about $237, or €217, but you can easily find the current rate online by simply googling it. Certain fluctuations still take place from time to time, but these are not as dramatic as they used to be before. Bitcoin currency value seems to settling down gradually, and this is definitely great news.

How you can use Bitcoin virtual currency
Now that you have more or less comprehensive idea of what bitcoins are, you may be curious about the ways to put them to practical use. Today, the possibilities for you to make use of your BTC funds are more than just multiple, as there are literally hundreds of websites and retailers accepting Bitcoin currency: from service providers of all kinds to major companies like Dell and Microsoft. With bitcoins, you can book hotels, pay for plane tickets, give and receive tips, and do a whole lot of other great things a way more quickly and efficiently you used to do before using traditional payment methods. And yes, because of the instantaneous decentralized payments that Bitcoin users can enjoy while staying absolutely anonymous, Bitcoin is also the perfect currency for online gambling. As of now, there are dozens and dozens worthy virtual casino gaming portals there for you accepting BTC either as the only available or supplementary payment method, and offering a wide variety of colorful and highly enjoyable virtual slot machines, online versions of classical casino and table games, sports bets, and other entertaining wagering activities.

 

NEW TO BITCOINS? YOU MAY ALSO BE INTERESTED IN:
Step 1    What is Bitcoin and how does it work? <<<
Step 2    How to create a secure Bitcoin wallet
Step 3    Where to create a secure Bitcoin wallet
Step 4    How to buy Bitcoins
Step 5    How to deposit Bitcoins?
Step 6    How to withdraw Bitcoins?
Step 7    How to store bitcoins
Step 8    How to use Bitcoins
Step 9    How a bitcoin transaction works
Step 10    What is responsible gambling?
Step 11    Is it legal to gamble with Bitcoin?
Step 12    Is Bitcoin the future of online gambling?