You may have heard of the latest buzz in the world of trading, and that is bitcoins. But what is it? What makes it so special? What does it do?
First, we need to know a little history on this digital currency. The original bitcoin is a form of electronic cash that was created using a peer-to-peer technology called the PGP (pgP) system. This process requires a public key that is sent to every computer that is involved in the transaction. Because of the way this process works, bitcoins are considered to be digital currency since they are intrinsically backed by real goods and services and are transferred without the need for third party intervention.
But what makes bitcoins so special is that it is the first time that a decentralized digital currency has been released. Unlike traditional currencies, there is no central bank that printing money like it does with gold or silver. The entire process is handled instead through a network of computers. But because of the unique features of this new kind of currency, some have compared it to the Internet’s trailblazers – PayPal and BitStocks.
But the differences between traditional currencies and bitcoins aren’t limited to their lack of a printing press. While it is true that there are no central institutions that back bitcoins, the lack of a physical commodity that can be printed limits the amount and type of money that can be used in transactions. In fact, the only thing that a trader can use in the exchange of bitcoins is the actual bitcoins themselves. While it may seem like a restriction on your freedom of action, this aspect of the protocol is actually an advantage. The limitations of the currency to provide a level of volatility that was missing from previous forms of virtual money.
Vatility in this case refers to the rate of change of the value of the currency you are trading. When you trade an item that is valued in dollars, the value of that item can rapidly change in relation to other items being purchased and sold at the same time. The concept of volatility helps to keep the long-term value of your investment in mind, and to keep you from over-leveraging your funds when you aren’t prepared for a large change in the market. With a system like bitcoins, you have the ability to trade without having to worry about these fluctuations.
Another characteristic that makes bitcoins stand out as a unique form of currency is the method by which they are mined. Unlike gold, silver, and other precious metals, a finite amount of bitcoins can be created. By securing a certain number of these bitcoins in the form of a secure wallet, you can prevent others from having the ability to create new bitcoins out of thin air. In this way, theblockchain becomes a way of moving money that is practically guaranteed to be safe and secure.
Unlike gold or any other precious metal, the difficulty of the bitcoin mining process is based solely on the computing power of the person doing the mining. Unlike the mining process used in gold and other minerals, the mining of bitcoins is done by a complex mathematical algorithm. This makes the mining of bitcoins one of the most accurate and secure methods available. This algorithm is what determines how quickly the new bitcoins are created. Because there is no physical location where the process occurs, it is important that all computers that help with the mining process transact securely over a network.
Transactions using bitcoins require quite a bit of computing power. This is why new bitcoins are so valuable. Since the transaction costs involved are much lower than they would be with traditional transactions, you are able to get bitcoins at a bargain price when you purchase something using this medium of exchange. You can then use the newly acquired bitcoins to purchase goods or services that you want to make the most of. This makes the purchase of goods and services with a more personal experience than would otherwise be possible.