BitCoin ''What You Need To Know"

What is BitCoin?
The word “Bitcoin” in the English language has been formed by joining “bit” (minimum data unit) and “coin” (a metal coin used as money). The most widespread abbreviation of Bitcoin — BTC — is usually used in exchange trading and financial articles.

Bitcoin is a decentralized digital currency created and operating in the Internet only. No one controls it; the currency is issued through operation of millions of PC's all around the world using a math algorithm calculation software. This is exactly what bitcoin is about.

This is the first and the most well-known cryptocurrency of all, a symbol and flagship of the cryptocurrency world, and a currency unit of the same name that circulates within the system.

Cryptocurrencies in real life

In the English language, cryptocurrency is a virtual currency protected by cryptographic methods. Cryptocurrency is, above all, a fast and reliable system of payment and cash transfers based on the most advanced technologies and independent of any government.

Initially, bitcoin was only relevant for mathematicians, cryptographers and people passionate about computer and network technologies. Bitcoin was then just a proof of the ability of electronic money to exist with no guaranteed backing. It could rather be seen as an electronic equivalent of gold — just like gold, bitcoin is hard to mine, its amount is limited, and mining it requires more and more effort over time. In the fall of 2009, BTC 1 could already be bought for 0.8 cents. It was the start of exchange trading that has seen many ups and downs, high-profile bankruptcies and successful projects. Bitcoin transactions were initially rare and infrequent. The first and most famous transaction involved buying two pizzas for BTC 10,000 — it happened in May 2010 (it equaled $ 25 at the time). Since then the exchange rate has gone over $ 1,000 and back down to $ 150, but that's another story to tell…

Bitcoin exchange rate chart

At the early stage of Bitcoin development, it was made popular by the Japanese exchange, MtGox, and the illegal online market, Silk Road. Now, Bitcoin is independent of any exchange or pool, while illegal activities with cryptocurrencies are now dealt with by law enforcement, just like any other financial crime.

Today, Bitcoin is a modern digital currency that is ideal for payments on the Internet. More and more stores accept Bitcoin as one of payment options. Ease and convenience of bitcoin account creation attract more and more people from emerging economies to this currency. In many states of Asia and Africa, the Bitcoin network is a replacement for expensive and hard-to-access banking services. Developed countries actively use POS terminals for bitcoin payments in stores, ATM's for cryptocurrencies, hardware wallets for Bitcoin. There's been a real boom of startups that use Bitcoin. As it turns out, the block chain technology is also good for distributed storage of data on various assets, not only financial transactions. Several thousand other cryptocurrencies have been created, based on Bitcoin or from scratch.

More interesting videos about Bitcoin:

https://www.youtube.com/watch?v=2QLYkkSLUu0

https://www.youtube.com/watch?v=gKGgrvTZ80Y

How does BitCoin works?

Read on to learn how cryptocurrency, with Bitcoin as an example, works.

What is the most important feature of Bitcoin in economic terms? It's a digital commodity of limited supply; its algorithm is specifically designed to only allow 21 mln units max in the system, each of them also known as a bitcoin. The issue timetable is defined in the code and predefined. After the last coins have been generated, the number of units stop changing. The Bitcoin economy is based on a deflation model that raises fear among many economists. However, these fears have no practical basis.

In reality, this relatively small number of coins is quite sufficient for everyday payments as 1 bitcoin is divided into 100,000,000 units, or “satoshis”, named after the system's founder. Sometimes, millibitcoin (mBTC, one thousandth) and microbitcoin (uBTC, one millionth) are also used.

Bitcoin issue timetable

You can also use bitcoin to buy anything online, just like you do with dollars, euros or rubles, and bitcoin is traded in the exchange market like these currencies. But the most important difference between bitcoin and all other forms of money is the decentralization. Bitcoin is beyond control of any authority in the world. Some are baffled by this fact as it means that no bank can control your money.

Who created BitCoin?

Bitcoin started from a concept — a document published on 31 October 2008 by a mysterious person going under a nickname of Satoshi Nakamoto. Despite numerous journalistic investigations, no one knows who the real developer of bitcoin is or whether it's a person or a group of people. On 3 January 2009, this concept was implemented in code in real life. 06:45 PM GMT, 03 January 2009 is the moment the first block in the system — the so-called genesis block — was generated. This day is celebrated as the Bitcoin birthday by the community all over the world.

The developer of the software who named himself Satoshi Nakamoto proposed an electronic payment system based on mathematical calculations. The idea is exchanging coin with no central authority in place, electronically, more or less instantaneously, at minimum cost.

Who prints BitCoin?

NO ONE. This currency is not printed by a central bank and does not follow the rules. Banks may print any amount of money to cover a state debt, thus depreciating their own currency.

In contrast, bitcoins can only be issued digitally, and anyone can start producing or, as they say, mining bitcoins at any time. Bitcoin mining is performed by using computational capabilities of a computer in a distributed network. When bitcoins are transferred, the transaction is processed in the same network, thus turning bitcoin into an independent digital payment system.

Can a billion bitcoins be mined?

No. The Bitcoin code contains a limit that set the maximum number of mined bitcoins at 21 million. However, bitcoin can be endlessly divided into smaller units — it's a digital currency after all! 1 satoshi is BTC 0.00000001 (name after the system founder)

What is bitcoin's backing?

National currencies used to be backed by gold or silver; now they are backed by GDP. Theoretically, you could walk into any bank in your country and exchange your paper money for its gold equivalent, or vice versa. Bitcoin is not backed by anything; it's pure mathematics.

Any person from anywhere on the globe may run the bitcoin mining script from their computer and feel like a central bank in miniature. The source code of the script is openly published, and anyone may see how it works.

Differences between bitcoins and conventional electronic currencies

Below is a list of features that make bitcoin stand out among electronic and paper currencies:

• Decentralization and availability
  The Bitcoin network is a combination of all client programs (wallets) and a distributed database, or block chain that is stored on each computer with a full client installed. The block chain is a fully open register of all transactions in the system. Anyone may connect to this register via their personal wallet or a web-interface of special monitoring services from anywhere in the world, with no passwords or any other authorization requirements. There is no central body that would control the network which is distributed among all members, with each computer mining bitcoins being a part of the system. It means that no central body is in a position to dictate rules to bitcoin owners as happened, for instance, in early 2013 in Cyprus. Even if a part of the system goes offline, the payment system will remain sustainable.
• Anonymous payment opportunities
  Bitcoin is a convenient and optionally anonymous method of payment where an address (account number in the system) is not related to its owner and requires no ID to be created. It's a string of about 34 Latin alpha-numeric characters long in various registers. For instance, an address might look as follows: 1BQ9qza7fn9snSCyJQB3ZcN46biBtkt4ee. It may be converted into a QR-code or any other 2D code to facilitate payment, or it may be transferred in its initial form. Yes, that's right. It's totally anonymous and absolutely transparent at the same time. You can create an infinite number of bitcoin addresses with no reference to your name, address or any other data.
• Complete payment transparency
  The history of any payment may (theoretically) be traced down to the moment of coin generation, and this payment will never be removed from the database. Knowing a Bitcoin address only, you may view all transactions accepted by this address or submitted from it at any time. The Bitcoin network stores the entire history of transactions that have ever taken place; it's called a series of blocks or block chain. A block chain is a public shared register that represents a basis of the entire Bitcoin network. All confirmed transactions are included in the block chain. Based on this information, bitcoin wallets may calculate your balance and verify that bitcoin owners actually spend bitcoins in new transactions. The integrity and chronological sequence of a block chain are based on secure cryptography. The block chain knows it all. Therefore, if you have a publicly used bitcoin address, anyone may see how many bitcoins you own; however, if you do not specify it's your address, no one will ever know it belongs to you. To ensure complete anonymity, one Bitcoin address is generally used for a single transaction.
• Near-zero fees Your bank may charge you a $ 50 fee for an international funds transfer in cold blood. Bitcoin will never do that. There are small fees that are totally insignificant and do not depend on the transfer amount.
• Speed of transfer
  You can transfer money to anyone anywhere; it will be delivered in a matter of minutes after the Bitcoin network processes the payment.
• Irrevocable transactions
  After bitcoin is transferred to the recipient, it's impossible to get it back. Unless the recipient is willing to do it themselves.
• No network control
  Since a block chain is a distributed database based on peers, the Bitcoin network has no controlling central body that can suspend an account, change the amount of currency units in the system, lock or cancel a payment. Transactions within the system are irrevocable, just like transactions with cash
• Unequalled security
  Each new block adds to the requirements to computational capabilities miners need to calculate the block chain from zero; the longer the chain, the harder it is to hack the network. Today, Bitcoin is a decentralized computational network that has a performance 8 times higher (in terms of SHA-256 hash calculation rate) than the total performance if all super-computers in the world. To capture control over it, even partially, vast resources and hundred-million-dollar expenses are required.
• Network support award
  New bitcoins are issued as an award for those who perform computation providing for transaction transfer. Computation has been dubbed mining, from the English word “mining” meaning extraction of minerals. Those who engage in computation activities are called miners. Their task is writing all transactions that took place from the moment the last block was issued (10 minutes on average) into a single block and “seal” it with a complex cryptographic signature. The next block is calculated based on the signature of the preceding block that ensures irrevocability of transactions and prevents counterfeit currency units from getting into the system. This way, the blocks are connected together, forming a block chain. These rules prevent making changes to the previous block as this would invalidate all subsequent blocks. Additionally, mining creates a lottery-like process where no user can simply add blocks into the chain. Thus, no one can control the block chain or replace its parts to roll back their transactions.
• Ease of use
  You would have to go through seven levels of hell to open an account for a company in a bank; you might also be banished with no explanation. It's not a problem in the Bitcoin network — you'll need 5 minutes to create a bitcoin wallet and start using it. No questions, no fees.
• Free choice of participation level
  You can install an official Bitcoin Core client that stores the entire history of transactions. If you do not need offline operation and block chain analysis features, you can install one of the lite or mobile wallets that require a lot less resources. If you only intend to pay for small purchases while travelling or to just try out the technology, a mobile or online wallet would be enough. Maximum safety is ensured by hardware wallets with additional protection.

As a new user, you can start using bitcoin even if you don't know all technical details. As soon as you install a bitcoin wallet on your computer or mobile phone, it will generate your first bitcoin address; in the future you will be able to create as many addresses as you want. You can communicate your addresses to your friends who will be able to make payments to you or vice versa. In reality, it's very much like e-mail, except that a bitcoin address must only be used once.

A transaction is a transfer of funds between bitcoin wallets to be included in a block chain. Bitcoin wallets contain confidential information, the so-called secret code, that is used to sign transactions and provide a mathematical proof of the transaction having been approved by the wallet owner. This signature also prevents making changes to the transaction after it is submitted to the network. All transactions are broadcast to all users and confirmed by the network via mining, generally within 10 minutes.

Different states have very different attitudes towards cryptocurrencies. Some clearly encourage their use — in Australia, Germany, the Netherlands, New Zealand, Singapore, some US state, various offshore countries; others impose serious constraints that could be transformed into a total ban — in Indonesia, China, Russia, Ukraine. Total bans have so far been imposed by the hot Latin Americans in Bolivia and Ecuador.

Many governments have chosen to monitor the situation with careful optimism — most countries of the European Union, Great Britain and Switzerland, the US federal government, Canada, Japan and countries of South and East Asia. Most developed countries are adapting their financial legislation to be able to regulate cryptocurrencies and are about to resolve this issue.

LEGALITY OF BITCOIN

Bitcoins are legal if used for legal purposes. If you do not commit unlawful acts, your operations with Bitcoins cannot be suspicious.

The unique nature of Bitcoin does not allow the law to consider it as money. Also Bitcoin cannot be deemed as a product or service. The question of the legal regulation is still in its infancy, and governments of different countries look at each other carefully, hoping that one of them will prompt how, eventually, to treat the cryptocurrency.

As a whole, in relation to Bitcoin the countries can be divided into 3 camps:

1. The countries which understand that Bitcoin is a new and perspective technology which can bring many positive things.
2. The countries which have no common ground, and they have been studying Bitcoin so far -- without accepting it officially, or rejecting it.
3. Totalitarian states which are, literally, afraid of Bitcoin, as they got used to exercise full control over whole financial flow of funds.

Thus there is a question: can Bitcoin be prohibited or closed down?

Theoretically, such conditions can be created in which it will be very ifficult to use it, however, in real life it is practically impossible. Bitcoin is not owned by anybody, that is why there is no one to put pressure on that Bitcoin be closed down. Each user is a full-fledged part of a network, while there are millions of such users, and all of them are from different countries.

The only leverage on Bitcoin are exchange markets that convert fiat money to the cryptocurrency. In theory the government can deny banks to deal with such exchanges, but in practice there are many ways to circumvent the bun.

HOW TO GROW YOUR BITCOIN?

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