Virtual currencies, or digital cash, are gaining popularity as a new way to purchase goods or services. They are not regulated or issued by a central bank. The most popular virtual currency is Bitcoin, which soared above $1,000 for the first time on Wednesday.
Things You need to know about Bitcoins
- What is Bitcoin? It is a digital currency that is created and exchanged independently of any government or bank. The currency is generated through a computer program and can be converted into cash after being deposited into virtual wallets.
- When Bitcoin was launched? In 2008, a programmer known as Satoshi Nakamoto – a name believed to be an alias – posted a paper outlining Bitcoin’s design and later in 2009 released software that can be used to exchange Bitcoins using the scheme. That software is now maintained by an open-source community coordinated by developers.
- How does Bitcoin work? It exists through an open-source software program and its supply is controlled by a computer algorithm. Once you download and run the Bitcoin client software, it connects over the Internet to the decentralized network of all Bitcoin users and also generates a pair of unique, mathematically linked keys, which you’ll need to exchange Bitcoins with any other client. One key is private and kept hidden on your computer. The other is public and a version of it dubbed a Bitcoin address is given to other people so they can send you Bitcoins.
- How Bitcoins are generated? The process of generating Bitcoins is quite complicated and involves solving complex algorithms and sharing the solution with the entire network. The “mining” is very computationally intensive and requires powerful computers.
- How to transfer Bitcoins: When you perform a transaction, your Bitcoin software performs a mathematical operation to combine the other party’s public key and your own private key with the amount of Bitcoins that you want to transfer. The result of that operation is then sent out across the distributed Bitcoin network so the transaction can be verified by Bitcoin software clients not involved in the transfer.
- How to trade Bitcoins: Exchanges like Mt. Gox provide a place for people to trade Bitcoins for other types of currency. Payments to a merchant who accepts Bitcoins are made from the wallet application, either on your computer or smartphone, by entering the recipient’s address, the payment amount.
- Who controls the Bitcoin network: It is controlled by all Bitcoin users around the world. While developers improve the software, they can’t force a change in the Bitcoin protocol because the virtual currency can only work correctly only if there is a consensus among all users.
- Bitcoin transactions: At the end of August 2013, the value of all Bitcoins in circulation exceeded $1.5 billion with millions of dollars worth of Bitcoins exchanged daily, according to Bitcoin website.