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i dont understand bitcoin


Unless you’ve been living under a financial rock for the last couple of years, chances are you’ve probably at least heard of Bitcoin, whether that’s as a news story that breaks into your dinner conversation or an annoying popup ad that keeps reappearing on your homepage. But if you’re like  most of us, after reading the news, you say to yourself, “I don’t understand bitcoin”. I was in the same boat until I did some research for this article. 


So, what is Bitcoin? Reports about the mysterious digital currency are almost legendary at this point, complete with a mysterious founder and digital treasure chests. Let’s get started! 



Understanding Bitcoin 


First things first. Bitcoin is part of a new industry called digital currency, which is similar to regular fiat currency in that you can use it to buy goods or services, but different in that is all based completely online. Transactions are made from one digital wallet to another, and every transaction is recorded by a simple note on a universal ledger called the blockchain. Bitcoins are “mined” by harnessing computer processor power to untangle a mathematical algorithm, which rewards the user with Bitcoin. The quantity is limited; only 21 million bitcoins will ever be mined and in circulation at any one time.


Confused? Let’s back up a little.



Mining Bitcoins


Just as gold-miners traveled out west in the mid-19th century to search for gold, so do Bitcoin-miners scour the network in search of coins. A user sets up a computer, taps into the Bitcoin network, and begins to solve mathematical equations that run on autopilot. The computer will guess numbers at random to solve the equation in the network, and if it succeeds, will be rewarded with a certain amount of Bitcoins.



Storing Bitcoins


Once you’ve successfully extracted a Bitcoin (or bought them in a transaction), they are stored in a digital wallet that is accessed by your computer. There are a lot of different ways to store that information so you don’t have to necessarily remember it. Your wallet has its own unique ID, like an e-mail address, that you will send and receive Bitcoins. 




Moving Bitcoins


Of all available digital currencies, Bitcoin is by far the most popular and trusted currency, which means many online businesses accept payment by Bitcoin right now. All you have to do is know the user or company’s Bitcoin wallet number, and you can send it from your wallet to theirs. Your transaction will then appear on the Bitcoin blockchain.



Recording Bitcoins


Blockchain technology is one of the various aspects of Bitcoin that people are most excited about. Despite the gravitas surrounding blockchain, it’s a relatively simple concept: every ten minutes, every transaction on the Bitcoin network is recorded in a single, universal ledger that is publicly viewable at any time. The transaction is noted as such: “User A sends ## of Bitcoins to User B.” That’s it. Simple, quick, and efficient.



What are the Advantages of Bitcoin?


using Bitcoin


Despite nearly every country having their own form of currency, there are certain advantages to having a digital currency that can be moved across the world.



  • Speed – Traditionally, people who want to move money internationally either have to resort to bank transfers, wire transfers, or an online systems like Paypal. Of the three, Paypal is the quickest way to send money, but it can still take a couple of days to move out of your Paypal account and into your bank. Wire transfers are quick too, but come with paperwork and the added travel of going to a kiosk to retrieve your money. With Bitcoin, you can move money from person to person in a matter of a few hours and have it ready to send instantly after that.



  • Anonymity – Before Bitcoin became the token of choice over the last couple of years, it was associated with the deep web. Thankfully, It has since shed that stigma, but the anonymity associated with Bitcoin still remains. People who want to make transactions in secret, for any number of reasons, can find a haven with Bitcoin.



  • Universality – Bitcoin prices are the same in the U.S. as they are in Uganda, which makes them one of the best ways to buy things internationally. Because of this, governments that have traditionally hated Bitcoin for the anonymity and deregulation that it employs have started to appreciate some of the finer aspects of using a cryptocurrency, primarily through the tax benefits that Blockchain technology provides. With a universal ledger, governments can easily track what money is in what user’s hands (even if they don’t know who that user is, specifically), and tax them accordingly. And since this is money that is flying all over the world at such a rapid speed, you can bet world governments will want to get their hands on some of it.



What are the Disadvantages of Bitcoin?


Bitcoin market value


Bitcoin definitely has some benefits, but do those perks outweigh the negatives? You decide.


Market Value

  • Market Value – Since it first came into the light, Bitcoin’s stock market value has gone through several ups and downs. 1 Bitcoin was worth 1,041.24 USD on March 20, 2017 and now one year later, as of March 20, 2018, 1 Bitcoin was worth 8, 915.90 USD. Although stocks are up, Bitcoin has taken a hit from it’s top value of 19, 343.04 USD on Dec 16, 2017. These constant fluctuations make it a difficult stock to put real trust in because it’s still relativity new and not predictable.



  • Refunds – Bitcoin made it’s claim to fame for being a secure cryptocurrency. But, sometimes a system’s greatest strengths can also be it’s biggest weakness. Bitcoin transactions are one-way and once a payment is sent, there’s no way to reverse it, unless the person willingly sends them back. This is problematic if Bitcoins are exchanged for a product or service that is then never provided or if an individual’s Bitcoin wallet is hacked and used. Bitcoin scams are easy to pull off because there’s no real way to verify the legitimacy of individuals or their claims.


Criminal Activity

  • Criminal Activity – Bitcoin is still shedding it’s deep web past as it’s gaining popularity with more well-know businesses. The FBI cleared Bitcoin as a legitimate digital currency, but it can be and is still used in criminal activity online. If Bitcoin continues to be used in illegal activities, the government and law enforcement bodies will start cracking down harder. Bitcoin will again take up it’s negative associations and fall out of the limelight.



Where Did Bitcoin Come From?


Although Bitcoin is not the first cryptocurrency to come to market (that would be E-Gold, an early cryptocurrency that was created in 1996 and backed by real gold), it is easily the most famous.


Bitcoin was developed by a still-anonymous engineer called Satoshi Nakamoto, who wrote a paper in 2008 called “Bitcoin – A Peer to Peer Electronic Cash System.” Though there have been several attempts to identify Satoshi Nakamoto, his identity remains a mystery despite being worth several billion dollars as the founder – and majority holder – of Bitcoin.


2009 brought about the beginning of Bitcoin mining, but it wasn’t until 2010 that Bitcoin was actually used in a transaction.


As stated above, Bitcoin first gained popularity on the deep web, but now many legitimate businesses accept this digital currency in lieu of cash and credit cards.



In Conclusion


Though many perceive Bitcoin to be on its way down, it still has several unique advantages over the competition, including first-to-market and high visibility. However, the future of Bitcoin is uncertain at best and most likely won’t have any affect on your Average Joe. Regardless, it’s still interesting to learn and watch how markets worldwide are effected by it. Bitcoin is an advanced digital currency system worth understanding as it effects stock markets here in the U.S, but also world wide.