Currency

What is Bitcoin?

Bitcoin is a cryptocurrency and worldwide payment system. It is the first decentralized digital currency – the system works without a central repository or single administrator. The network is peer-to-peer and transactions take place between users directly through the use of cryptography, without an intermediary. These transactions are verified by network nodes and recorded in a public distributed ledger called a blockchain. Bitcoin was invented by an unknown person or group of people under the name Satoshi Nakamoto and released as open-source software in 2009.

Bitcoins are created as a reward for a process known as mining. They can be exchanged for other currencies, products, and services. As of February 2015, over 100,000 merchants and vendors accepted bitcoin as payment. Research produced by Cambridge University estimates that in 2017, there are 2.9 to 5.8 million unique users using a cryptocurrency wallet, most of them using bitcoin.

Terminology

The word bitcoin first occurred and was defined in the white paper that was published on 31 October 2008. It is a compound of the words bit and coin. The white paper frequently uses the shorter coin.

There is no uniform convention for bitcoin capitalization. Some sources use Bitcoin, capitalized, to refer to the technology and network and bitcoin, lowercase, to refer to the unit of account. The Wall Street Journal, The Chronicle of Higher Education, and the Oxford English Dictionary advocate use of lowercase bitcoin in all cases, a convention which this article follows.

Units

The unit of account of the bitcoin system is bitcoin. As of 2014, tickers used to represent bitcoin are BTC[a] and XBT.[b] Its Unicode character is. Small amounts of bitcoin used as alternative units are millibitcoin (mBTC) and satoshi. Named in homage to bitcoin’s creator, a satoshi is the smallest amount within bitcoin representing 0.00000001 bitcoin, one hundred millionth of a bitcoin. A millibitcoin equals to 0.001 bitcoin, one thousandth of a bitcoin or 100,000 satoshis.

Legal status, tax and regulation

Because of bitcoin’s decentralized nature, restrictions or bans on it are impossible to enforce, although its use can be criminalized. The legal status of bitcoin varies substantially from country to country and is still undefined or changing in many of them. While some countries have explicitly allowed its use and trade, others have banned or restricted it. Regulations and bans that apply to bitcoin probably extend to similar cryptocurrency systems.

Criticism and Controversy of Bitcoin

Energy consumption

Bitcoin has been criticized for the vast amounts of electricity consumed by mining. As of November 2017, global bitcoin mining activity consumes as much electric power as entire countries the size of Ireland, Denmark or Morocco.

Transaction delays

The transaction times vary from several seconds to several hours depending on the offered transaction fee and other technical parameters.

Susceptibility to criminal activity

The use of bitcoin by criminals has attracted the attention of financial regulators, legislative bodies, law enforcement, and the media. The FBI prepared an intelligence assessment, the SEC has issued a pointed warning about investment schemes using virtual currencies, and the US Senate held a hearing on virtual currencies in November 2013.

Several news outlets have asserted that the popularity of bitcoins hinges on the ability to use them to purchase illegal goods. In 2014, researchers at the University of Kentucky found “robust evidence that computer programming enthusiasts and illegal activity drive interest in bitcoin, and find limited or no support for political and investment motives.”

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