Over the past few months there been a lot of news about Bitcoins and the whole new concept of crypto currency. Bitcoin is now touted as the future of currency and many celebrities like Bill Gates have called it as “Bitcoin is a techno tour de force”. All these things have created a lot of curiosity but when one tries to understand what Bitcoin is then we get a lot of complex answers. “Satoshi Nakamoto” is presumed as the one who introduced this whole concept of Crypto Currency when he published this concept paper.
Let’s try to simplify what a Bitcoin is and this whole concept of crypto currency.
Traditionally when we need to buy a product or service we use our currency to purchase it. This currency is different for each country and is centralized based on specific economic policies of any particular country. In simple words the money of a respective country is managed by their Central Banks which does a close watch on the currency and based on that the interest rates, cash reserve ratios are calculated.
Bitcoin works in a different manner, It’s a digital currency stored in a web wallet and can be transferred in a peer to peer basis. This means Bitcoins can be used for transactions across the world and does not need a bank to verify it.
Consider a person having a single dollar bill, in traditional currency he can do a transaction for a product or a service. Let’s see how the same transaction happens in Bitcoins, instead of a physical dollar bill the person will have a digital currency which he can trade. Now the problem is, how will we check the legitimacy of the digital currency? Whenever a transaction happens in Bitcoins, an encrypted code is generated and the transaction is sent across Bitcoin miners across the world, who can verify the legitimacy of the transaction and store the details of the transaction anonymously in the Bitcoin network across the world.
Now who are these Bit Coin miners? The whole software of Bitcoin is open source anyone with specific hardware mentioned by Bitcoin can become a Bitcoin miner.
And what does the miner get in return? Pretty simple more Bitcoins, This is how the Bitcoin is generated into the system.
Also the maximum number of Bitcoins that can be generated is set as 21 million and as of now 12 million Bitcoins have already been mined. Maintaining a controlled amount of bitcoins helps to maintain the currency value.
Now how do I get Bitcoins?
Some common methodologies to get Bitcoins are
- Buying through Bitcoin exchanges like CoinBase or BitStamp
- Accept Bitcoins as a payment for goods or services
- Become a Bitcoin Miner
If there are no banks where do I store my Bitcoins?
- Web Wallets like Blockchain, Coinbase
- Software Wallets like Armory and Multibit
- Mobile Wallets like Coinjar and Blockchain
The following video from Bitcoin explains things in an even simpler manner
The most persistent problem in Bitcoin is hacking, Mt.Gox one of the famous Bitcoin exchanges was hacked and majority of the Bitcoins were stolen. Since there’s no centralized watchdog for Bitcoins the currency is now used for illegal activities in the deep web.
Though these issues have tarnished the image of Bitcoins, the major belief is that concept Crypto currency is here to stay. Many experts believe that the concept is still evolving and is in its very nascent stage and even if Bitcoin falls, its fall would sow in seeds for a very rigid concept of crypto currency. A centralized currency devoid of all the political, economical, geographical barriers bestows upon the world.