Understanding Bitcoin

Bitcoin is hailed by some as the future of money and dismissed by some as a ponzi scheme. Why is it in the news these days? How does it work? Is it something new? This article tries to answer these questions.

What is Bitcoin?

  • It is digital currency or electronic currency. You can’t go to an ATM and take out a Bitcoin, or put one in a cash register. Bitcoins live in online wallets, which are accessed via a computer.
  • It’s the first decentralized electronic currency i.e it not controlled or regulated by a single organization or government.
  • It is not backed by any commodity such as gold or silver nor is it pegged to any currency.
  • It is based on a concept called Cryptography the science of writing in secret code. Cryptography  protects information by transforming it (encrypting it) into an unreadable format, called cipher text. Only those who possess a secret key can decipher (or decrypt) the message into plain text.In data and telecommunications, cryptography is necessary when communicating over any untrusted medium, which includes just about any network, particularly the Internet.
  • It is completely distributed. The network,called as Peer to Peer (P2P), is made up of users no bank or payment processor is required between users. As each system interact directly with the others and there is no hierarchy or controlling network.

Website for bitcoin is  bitcoin.org/en. Our article Currency covers  World currency,  Indian Rupee,History of money, Kinds of Money etc.

What makes one bitcoin?

BTC is the common unit of Bitcoin currency like  USD for US dollar($). One bitcoin is subdivided into 100 million smaller units called satoshis, defined by eight decimal points. Products or services that accept bitcoins as payment may accept .025 BTC, .00000643 BTC.  Name of some of the fractions are :

  • 0.01 BTC = 1 cBTC = 1 centibitcoin (also referred to as bitcent)
  • 0.001 BTC = 1 mBTC = 1 millibitcoin (also referred to as mbit (pronounced em-bit) or millibit or even bitmill)
  • 0.000 001 BTC = 1 μBTC = 1 microbitcoin (also referred to as ubit (pronounced yu-bit) or microbit)

In pictures bitcoins is shown as  B with two vertical lines like in US dollar for example :

Bitcoin Bitcoin

How is Bitcoin used?

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