What is bitcoin - Essay Example

Sur Supervisor BITCOIN Bitcoin is a currency not controlled by any central banks as normally found in the case of traditional currency of any country. It is a digital currency that exists on electronic network. Its creation is controlled by cryptography and can be used as payments while buying any goods or services. The inventor of Bitcoin is said to be one called Satoshi Nakamoto from Japan. After coming into existence in 2009, total number of Bitcoin units stands at almost 12 million. Only a small number of units are being used for commercial transactions; majority transactions are done for investment or speculative purposes.

It may be interesting to note that the University of Nicosia in Cyprus has now decided to accept the digital currency to pay for tuition or other fees (Liljas). Bitcoin Divisibility It is symbolized as BTC that means 1BTC = 1 bitcoin; however, it can be expressed in smaller denominations up to 8 decimal points. This means smallest amount is 0.00000001 BTC. However, when protocol and software permits, it can be further modified to a smaller amount. Various smaller units can be described as per the following.

1 BTC = 1 Bitcoin 0.01 BTC = 1 cBTC = 1 bitcent or centibitcoin 0.001 BTC = 1 mBTC = 1 millibitcoin 0.000 001 BTC = 1 ?BTC = 1 microbitcoin and 0.000 000 01 BTC = 1 satoshi bitcoin. Mining New Bitcoins are created through a process called mining. Mining is linked to finding the solution to a mathematical problem. As an open source product, complex computer software is used to mine Bitcoin through available solutions on the network. The process is extremely complex and only powerful computers can mine Bitcoins.

Finding a solution means creating a new block with a certain difficulty that depends upon the strength of the network. Mining is basically a process of creating fresh blocks in the entire chain. The hash of the previous block along with the details about all the transactions across the entire Bitcoin network is available. All information from the previous blocks can be made use of for guessing or generating sequences of characters called hashes to discover a new block. For this purpose, specialized mining software needs to be downloaded by users.

Computer processor is deployed for this purpose to find new strings taking clue from the previous block. Finding the right string means creating a new block and the discoverer is entitled for Bitcoins as rewards. Source: https://en.bitcoin.it/wiki/File:Total_bitcoins_over_time_graph.png As such, 10,500,000 Bitcoins were created in the first four years of period between 2009 and 2012. The program is so adjusted that in the slot of next 4 years only half of the quantity will be created. That means between 2013 and 2016 only 5,250,000 Bitcoins will be created; and then 2,625,000 Bitcoins will be created during years 2017 to 2020 and so on.

This implies that total number of Bitcoins will never exceed 21,000,000. Acquiring Bitcoins and Making Payments Bitcoins can be acquired in several ways. For the goods and services sold, one can receive payments in bitcoins. One can do transaction in Bitcoin exchanges in lieu of other currencies. One can create a new block to yield 25 bitcoins. Bitcoin value depends upon how widely they are recognized and accepted. They are also susceptible to economic bubbles as applicable in other commodities such as gold, silver, real estate.

Each payment transaction is made known to the network members. Bitcoin Network As such in Bitcoin network, no user names or passwords are required to set up accounts or addresses. Each balance belongs to those who possess public-private key-pair. That means Bitcoins belong to those who has the private key to sign transactions. Transacting parties do not know each other in the same way as any online store owner is interested in the money and not in the name of buyer. Each Bitcoin address represents one public key and that may appear like 1PC9aYC4hMX2rmmrs7uHTfXAS3hTbph4UP.

Each person can have many such addresses. Bitcoin is a protocol as well as a currency. Bitcoin Economy & Its Security Demand and supply as the basic principle of economics, decides about Bitcoin valuation. With the demand going up, Bitcoin valuation also goes up. It is important to note that like other major currencies such as dollar and pound, Bitcoin is not backed by gold. Cryptography provides robust security to Bitcoins as that is its integral part. There is not a single entity that keeps track of it; instead, it is the entire network that does the job.

Bitcoins are mined regularly by many different users so single person cannot inflate or deflate its value. Moreover, it is inflation-proof too. So far and so long users keep their keys safe, it cannot be stolen. Cryptography prevents finding or deducing someone's private keys from the public one. Thus, it appears that Bitcoins as digital currency is likely to flourish in the world with more and more individuals and institutions will accept Bitcoins for commercial transactions. Works-Cited Bitcoin.

“Bitcoin Community”. Web. 2013. Dec.9 2013. Liljas, Per. “University in Cyprus Becomes First to Accept Bitcoin Payments”. Web. 2013. 9 Dec. 2013.