What Is Bitcoin?Bitcoin is a digital currency and form of decentralized electronic money which was developed in 2008 by a developer known as Santoshi Nakamoto (believed to be an alias or pseudonym). When Santoshi Nakamoto released a paper detailing bitcoin's design a number of developers took notice. Later in 2009, the developer released a software that could be used to digitally send receive and store bitcoins. The project is now maintained by a community of developers and is available as an open-source software. Bitcoins are represented by the symbols BTC or XBT. Bitcoin is referred to as Open source P2P money.
Bitcoins can be sent and received through the Internet using computers or smartphones similar to sending cash digitally. The currency is exchanged through direct peer-to peer transactions without going through an external bank, financial institution or government. Bitcoins are saved in digital wallets and transactions are verified by a decentralized network of computer users from across the globe. Bitcoin is also referred to as cryptocurrency since it uses cryptography to verify secure transactions made through it.
The first bitcoin dispensing ATM was installed at Waves Coffee House in Vancouver, Canada in October 2013. The user's identity is verified by scanning their palm print. Customers can feed cash into the machine to deposit as Bitcoins, or withdraw Bitcoins from their electronic wallet and get physical cash. At present there is a $ 3,000 per day limit on withdrawing bitcoins from a user's account through such an ATM kiosk.
Know More About Bitcoins Major Currencies Used to Purchase Bitcoins ARS - Argentina Peso / Argentina AUD - Australian Dollar / Australia BRL - Real / Brazil CAD - Dollar / Canada CHF - Franc / Switzerland CNY - Renminbi / China CZK - Koruna / Czech Republic DKK - Krone / Denmark EUR - Euro / Euro Member Countries: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Republic of Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain GBP - Pound / UK HKD - Dollar / Hong Kong ILS - Shekel / Israel INR - Rupee / India JPY - Yen / Japan MXN - Peso / Mexico NOK - Krone/ Norway NZD - Dollar / New Zealand PLN - Zloty / Poland RUB - Ruble / Russia SEK - Krona / Sweden SGD - Dollar / Singapore SLL - Leone / Sierra Leone THB - Baht / Thailand USD - Dollar / US ZAR – Rand / South Africa
Bitcoin Mining: Bitcoin miners are free applications run across the Internet used for the generation of the currency. Miners compete with each other to solve mathematics puzzles and are gifted bitcoins as rewards. The generation of bitcoins is adjusted to a predictable rate by the network. There are about 25 bitcoins generated every 10 minutes.
Numbers in circulation: A number of electronic marketplaces called “Bitcoin exchanges” allow for the purchase or sale of bitcoins using different currencies. Bitcoins are traded like other currencies and the price can vary with supply and demand. Mt. Gox is the largest bitcoin exchange. As of early December 2013 there were about 12,000,000 Bitcoins in circulation. Their market capitalization was US $13 billion. The rate of Bitcoin generation will be halved after four years till there are about 21 million Bitcoins in the market.
Storing Bitcoins: The “digital wallets” in which bitcoins are stored are saved either on a user’s computer or in cloud locations. These wallets are virtual bank accounts or storage locations. Unlike bank accounts, however, bitcoin wallets are not insured by the US FDIC (the Federal Deposit Insurance Corporation).
Fluctuation and exchange: Bitcoins are traded across the web or the Internet on an honor-based system. Since they are not traded through any banking or governmental intermediary, bitcoins are not stored as reserves; since it is a completely digital currency, there is no underground gold vault exchange. Its value is determined by the number of bitcoins in circulation.
Bitcoin rates fluctuate with market factors: 29 Nov, 2013 = $1,242.00 5 Dec, 2013 = $ 870 9 Dec, 2013 = $ 898.15
Bitcoin Pizza Index 21 May, 2010: Laszlo Hanyecz of Jacksonville purchased a pizza for 10,000 BTC. He sent the Bitcoins to a volunteer in England who ordered Hanyecz a Papa John's pizza worth $25. As of April 2013 the pizza cost $750,000! The Bitcoin Pizza Index continuously updates the current value of the pizza in US Dollars based on the changing exchange value of Bitcoins.
Bitcoin History – Timeline 18 August, 2008 – Domain name "bitcoin.org" registered. 9 January, 2009 – Bitcoin v0.1 released. 12 January, 2009 – First Bitcoin transaction from Satoshi to Hal Finney took place. 6 February 2010 – Bitcoin Market established. Trading began on this site. 21 May, 2010 – The first Bitcoin transaction to buy a physical product took place. Bitcoin user Laszlo Hanyecz buys a Papa John's pizza priced at $25 for 10,000 Bitcoins. 17 July, 2010 – MtGox, the most widely used Bitcoin currency exchange market, established. 6 November, 2010 – The Bitcoin economy passes US $1 million. 9 February, 2011 – Bitcoin value equals the US dollar, reaching $1 per BTC at MtGox. 20 August, 2011 – First Bitcoin Conference and World Expo held in NYC. 6 December, 2012 – First Bitcoin exchange licensed "as a bank" (Payment Service Provider) in Europe. 28 March, 2013 – Total Bitcoin market capitalization crosses $1 billion. 1 April, 2013 – Price of 1 Bitcoin crosses 100 USD on MtGox and other major Bitcoin exchanges. 5 December, 2013 – Chinese government restricted Chinese banks from carrying out Bitcoin transactions. 7 December, 2013 – Lamborghini dealership in Newport Beach, California,sold a Tesla Model S electric car to a buyer for about $103,000, who paid with 91.4 Bitcoins. The money was transferred into equivalent US Dollars before the dealer cleared the sale.
Bitcoin Transactions Bitcoin users are each provided an address – a 34-character combination of letters and numbers. To send a user a payment of Bitcoins this address is required. A record of each transaction is added to the log of each Bitcoin user across the globe. This ensures that there is no duplicate use of the same Bitcoins. Bitcoins saved up in wallets may be stored in cloud locations or in individual computers. While cloud locations and websites are susceptible to hacks and compromises, individual computers may also be open to crashes and viruses.
Bitcoin transactions can be completely anonymous. There are no rules or prerequisites to own Bitcoin accounts. This has led to a number of illegal businesses using Bitcoins as their currency of choice. In October 2013, the FBI cracked down on Silk Road, a website which sold cocaine, heroin, methamphetamines, and other drugs paid for by Bitcoins. According to the FBI, Silk Road has carried out over $1.2 billion worth of business between February 2011 and July 2013.
Trust And Acceptability In May 2013, the US firm On Device surveyed more than 22,000 American consumers ahead of a Bitcoin conference in London. According to the survey, about 25.3% of American consumers have heard about Bitcoin. 62% of these consumers who have heard about the currency seem to trust it. In a similar survey, 37.9% Britons seem to have heard about the currency while 69% of those aware trust the currency. About 37.9% of the respondents from Argentina showed an awareness of the existence of the currency and around 73% of Bitcoin-aware Argentinians said they trusted the currency. About 44% Argentine respondents also believe that the best thing about Bitcoin is “not having to deal with financial institutions” such as banks. 36% of Americans (aware of Bitcoin) think that the best thing about Bitcoin is that it is quick and easy to use. 43% Britons (aware of Bitcoin) agree. Among those aware of the currency 34% Argentines site "minimal use in trade" as the greatest drawback of Bitcoin. Volatility of exchange rates is Britain's complaint with about 30% of Bitcoin-aware respondents worrying that investor interest rather than demand and supply may rule exchange rates. 29% of Bitcoin-aware Americans said that apart from its "minimal use in trade, the lack of a physical currency was Bitcoin's greatest disadvantage.”
Fraud Is Quicker Than The Law “In the Murky World of Bitcoin, Fraud Is Quicker Than The Law”, says Nathaniel Popper in the New York Times (5 December, 2013).There have been a number of recent thefts involving Bitcoins over the past few months shaking investor confidence in the currency.
In 2011, an investment scheme called Bitcoin Savings and Trust was launched online. The scheme announced returns on Bitcoin investments to the tune of about 1% daily interest. In 2012, the scheme shut down without returning investments of over 500,000 bitcoins, worth $5.6 million. This attracted an US Securities and Exchange Commission suit which alleged that the scheme “was a sham and a Ponzi scheme.”
In October 2013, over a million dollars worth of Bitcoins were stolen from Inputs.io, a website offering digital wallet services for Bitcoin owners. An Australian developer who uses the pseudonym TradeFortress revealed the theft of over 4,100 Bitcoins. According to TradeFortress, the hackers had used social engineering to manipulate “a chain of email accounts which eventually allowed the attacker to reset the password for the Linode server”.
In October 2013, $4.1 million worth of Bitcoins disappeared when a Chinese Bitcoin exchange GBL which opened up in May completely went off service. The website claimed to be based in Hong Kong.
BIPS, the Denmark-based Bitcoin payment processor hosts free cloud wallet services for Bitcoin-users. By late November 2013, BIPS reported a loss of 1,295 Bitcoins valued at over $1 million at current exchange rates. An initial distributed denial-of-service attack on November 15, was followed by another attack on November 17. This second attack managed to steal the Bitcoins.
Cautionary Tale James Howells, an IT professional from Newport, Wales, threw out a hard drive while cleaning his desk in summer. He later realized the hard drive had a digital wallet with 7,500 Bitcoins, which he had created in 2009. Their value now is more than GBP 4 million. The hard drive is buried somewhere in the Docksway landfill in Newport, Wales.
Though he's resigned to having lost the Bitcoins, Howell's still believes that Bitcoin is the future of money. "I still think it's going to go higher. I just think it's the next step of the internet, which is why I mined it in the first place. When I first came across it, I knew straight away. We had everything else at the time; Google, Facebook, they were already the market leaders in their areas. The only thing that was missing was an internet money."
Mixed Reactions In end-November 2013, Bitcoin was traded at over $1,200 – a record rate – at Mt. Gox, bringing the market value to about $2 billion. In the United States, Bitcoin is gaining popularity with many start-ups beginning to accept them in exchange for goods and services. In December 2013, Bank of America released a research report about Bitcoin and said that the currency could become “a major player in both e-commerce and money transfer.” “We believe Bitcoin can become a major means of payment for e-commerce and may emerge as a serious competitor to traditional money transfer providers...As a medium of exchange, Bitcoin has clear potential for growth, in our view.” – Bank of America report (December 2013).
On December 5, 2013, Bitcoin faced an unexpected setback as a currency with the Chinese government restricting Chinese banks from making Bitcoin transactions and declaring that it was not a valid currency. The same day, the Bank of France also warned users about the potential risks of using Bitcoins. Despite major risks and apprehensions, Bitcoins have attracted investors from Silicon Valley. Bitcoins can now be used to buy music, books, server space, online games, and a host of other products and services.
Currency Of The Future? Can Bitcoin be trusted? Will it gain global acceptance vis-a-vis other currencies? Will Bitcoin make banks redundant? While these are a few of the many questions that have been on the minds of investors, the question of awareness is itself a major one. With less than about 2.5 billion Internet users (June 2012) around the globe from a population of over 7 billion, the penetration of a purely digital currency could face a stiff challenge. Developed and technologically advanced nations may see quick growth in the use of Bitcoin. Regulation and legal acceptance, however, will still remain a major concern.
“It’s a bubble...It has to have intrinsic value. You have to really stretch your imagination to infer what the intrinsic value of Bitcoin is. I haven’t been able to do it. Maybe somebody else can.”Alan Greenspan, Former Chairman of the US Federal Reserve.
"Is Bitcoin a bubble?...Assuming Bitcoin becomes (1) a major player in both e-commerce and money transfer and (2) a significant store of value with a reputation close to silver, our fair value analysis implies a maximum market capitalization of Bitcoin of $15bn (1BTC = 1300 USD)." David Woo, FX and Rates Strategist at Bank of America/Merill Lynch.
For more information about currency view "Money Around the World".
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