Bitcoin [BTC] is a digital currency generated and held electronically. They are not printed like euros and dollars, but created by worldwide computers, using open-source software. It falls under a growing asset class called cryptocurrencies. It can be used for online purchases when both parties involved are willing. It is the same as the traditional euros and dollars, which can be digitally traded.
How does BTC differ from fiat currencies?
The Bitcoin network is not controlled by any regulatory body. Volunteer coders group maintains the open dedicated computer network spread worldwide. People, who desire to bypass their money transfers from government or bank institutions, get attracted to BTC. Banks makes adjustments to the ledgers when payments are made or received via online transactions. In BTC, transaction integrity gets maintained because no-one owns the open network.
Dollars, yen, euros and other fiat currencies have unlimited supply because the central bank has the authority to issue as many as are required to manipulate currency value related to one another. Currency holders have to bear the cost.
Alternatively, the bitcoin supply is controlled tightly by its original algorithm. Every hour a tiny amount of BTC trickle and continues to do so but at a reducing rate until it reaches 21 million maximum. Therefore, in theory, BTC is an appealing asset. With the growth in demand and supply remaining the same, its price will increase. It is time to buy BitCoins!
Pseudonymity [Disguised Identity]
Senders of traditional online payments get identified but theoretically, bitcoin users operate partly anonymous. There is no validator medium, so users do not need to verify while transferring BTC to another user. The user makes a request and the system checks every previous transaction to identify if the sender has necessary bitcoins and authority to transfer to another user. There is no need for her or his identity.
Each user’s identification is based on his/her wallet address. Law enforcement has a specific technique to identify bitcoin users if needed. The network is transparent, so the development of a specific transaction is perceptible to everyone. Therefore not a perfect option for money-launderers and terrorists.
Immutability [cannot be changed]
Unlike fiat currency transactions, Bitcoin transactions are irreversible. It is because BTC is not centralized. There is no central arbitrator that can agree to refund the funds. A BTC transaction recorded on the blockchain network cannot be modified. It even means no-one can tamper the bitcoin network.
Bitcoin’s smallest unit is called ‘Satoshi’. 1 Satoshi is equal to 0.00000001 bitcoin. 1 US cent is equal to 9419 Satoshi. Thus micro-transactions are possible with BTC but are impossible with traditional fiat currencies.
Bitcoins can be purchased on exchanges or directly from other people. Payments can be made in hard cash or wire transfers or credit/debit cards. To store bitcoins there will be a need for a wallet. It can be an offline, desktop, or online wallet. Make sure that you remember your wallet keys and password safely. If you lose them, then your stored bitcoin gets lost.
If necessary, bitcoins can be sold directly to family or friends or some interested buyers online. Be wise and avoid meeting strangers for exchange of BTC in person!