Bitcoin’s are a peer-to-peer electronic currency.
Peer-to-peer means that no central authority issues new money or tracks transactions. These tasks are managed collectively by the network.
It is like how we reference a Dollar or a Euro, and like the different currencies in the world, the Bitcoin trades at different values based primarily on speculation, supply and demand.
A Bitcoin is the base currency of the Bitcoin market.
The way that they are entered into the market is a process called “Mining”. Basically, computers solve mathematical algorithms to earn the Bitcoins. They are very complex and take a lot of computing power to solve. The more computers trying to solve the equations, the harder the equations become to solve, the less you get for mining.
Bitcoins cannot be artificially inflated or deflated, by a government.
One of the most attractive features of Bitcoins is that they are not controlled by any government. A monetary authority like the FED cannot pump more of them into the market to boost the economy. Basically, there is a set amount going out over time and as time goes on the amount entering the market decreases.
WHAT IS A BITCOIN?
It’s a virtual currency that allows people to make financial transactions directly through electronic means.
We can define four key principles that govern this currency and that fundamentally distinguish it from other existing currencies:
It isn’t the incarnation of a country or a bank. Its value is determined solely by the usage given to it and by the exchange market. This considerably reduces service fees demanded by banks and other financial intermediaries.
2. The issuance of Bitcoins takes place through a free computer code (see “miners”) and the total number of bitcoins cannot exceed 21 million in the end, preventing any inflationary policy.
It doesn’t have a centralized infrastructure (such as banks or central banks) which normally hold the records of transactions made. Account records are still maintained but this role is assigned in a completely random fashion to a computer in the Bitcoin network.
Cryptography for payments between two parties makes it impossible to falsify IDs or the value of the stock held in wallets. Transfers can be made directly, peer-to-peer, without having to go through a trusted third party (such as PayPal).
Bitcoins can be exchanged for other, more conventional currencies (Euros, Dollars, etc.) BUT only on internet exchanges (such as MtGox). For the moment, you can’t purchase bitcoins by credit card or using a different centralized system (even PayPal if they think about it).
BTC can be broken into 8 decimal places. The smallest decimal is called Satoshi, after its inventor.
HISTORY OF BITCOIN
BITCOIN needs to be associated with the name of “Satoshi Nakamoto”, a person or a group of people who created Bitcoin and its hyper-sophisticated software between 2009 and 2010. With the global spread of the internet, several decentralized exchange systems appeared, with the best known revolving around films or music. The exchange of these files from one computer to another became possible and costs became much lower. The first concepts about currencies thus arose in 1999 from Wei Dai: b-money, which greatly inspired Bitcoin but with improvements in its security system and the legitimacy of users.
WHAT ARE THE STRENGTHS AND WEAKNESSES OF BITCOINS?
Instability : BTC currency is currently only a speculative currency. There are still not enough companies that offer purchases and sales of products in BTC.
Volatility : The security of transactions is certainly guaranteed but what would happen if your hard drive crashes or gets stolen? You lose your wallet; and it’s irreversible.
Money laundering : the lack of control from financial and border authorities opens the door to laundering dirty money and tax evasion.
Security : cryptographic rules prevent counterfeiting.
Neutrality : Bitcoin knows no borders, no politics, no influence whatsoever.
Protection : Le bitcoin est protégé de l’inflation. La quantité de bitcoins émises est contrôlée et limitée.
Savings : by eliminating all financial intermediaries (banks), service charges are also eliminated.
HOW TO ISSUE BITCOINS?
Bitcoins can only be issued by “miners” and through a mining operation. This means that certain computers in the Bitcoin network are used to regroup the operations of the previous 10 minutes in a new transaction block.
These computers are configured to perform very complex calculations of mathematical functions for cryptographic hashing in order to validate transactions.
To make it simple, the computer chosen to validate the transaction receives a bonus as a reward, paid in Bitcoins.
Thus, new Bitcoins are issued every 10 minutes. Moreover, the bonus has been set as follows:
For the first four years: 50 BTC are paid every 10 minutes.
Every four years, the bonus is divided by 2 (it already went down to 25 BTC on 28 November 2012).
And so on.
This limits the currency’s inflationary policy. This also means that the maximum number of Bitcoins issued will be reached in 2141, with 21 million bitcoins.
Anyone can become a miner or belong to a group of miners by installing the appropriate software but you still some technical knowledge, a bit of time and money.