Do you know what bitcoins really are? Have you ever heard about them on a talk show or perhaps in the news? If you think they are actual coins, with a monetary value attached to them, you are close, but entirely not correct. If you are new to the concept of Bitcoin, you would probably have a list of questions regarding them. All the common Bitcoin frequently asked questions are answered right here.
What are Bitcoins?
Bitcoins are, perhaps the most advanced form of payment ever introduced by humans. They are an electronic, virtual form of currency and are used to make payments for goods and services, which are bought or sold across borders, countries and continents. Technically it is not exactly a currency, but instead an alternative to currency, similar to gold.
These transactions are mapped and tracked by an extensive network of mathematical encryptions. This is one of the most predominant reasons behind their recent growth and popularity. The security they offer, as a mode of payment, is perhaps another reason why people have started preferring them over traditional means of payment.
How is Their Value Determined?
Bitcoins, like other currencies, have a monetary value attached to them. However, who decides this value and, more importantly, does the value change over time? Bitcoins do not have a fixed value and are extremely volatile as the value can go up or down by as much as 20% in a day.
The price of a bitcoin is determined by the relative supply and demand and, at times, the price is arbitrarily set by the buyer and seller. Since there is no intermediary or regulatory body involved, it is the seller’s responsibility to quote a fair and realistic price. However, the value of bitcoins is also influenced by the respective rates, which are quoted in the market.
What Constitutes a Bitcoin?
If you think Bitcoins are actual coins made up of metal or copper, you couldn’t be more mistaken. Bitcoins are small public ledgers which maintains a record of all transactions, which are not longer than a standard text message. Essentially, each bitcoin is characterized by two defining features; its address or user name and a history of all items bought or sold.
Some people might question the security and safety involved in such virtual transactions. The third component of a bitcoin is a private key header and maintains digital signatures of respective bitcoin owners, which helps to validate and authenticate transactions. A user cannot access the bitcoin until and unless he provides the exact signature that is encrypted in the database.
Do they respect privacy?
Bitcoins are not, to say the least, as anonymous as they may appear to be. Each transaction is, at times, publicly recorded and can be traced back to the original owner of the bitcoin. Since it ensures that all transactions are transparent, bitcoins are usually designed to avoid fraudulent activities like money laundering.
What happens when bitcoins get lost?
Imagine a situation when you lose your wallet and you cannot find it anywhere. Losing a bitcoin is much like losing your wallet. When you lose a bitcoin, they are still present in the database, but are removed from the circulation, altogether! Therefore, once a bitcoin is lost, it gets lost in cyberspace and there is no way to redeem it. This exerts an upward pressure on the price of existing bitcoins in the market, since the reduced supply fails to match the high demand.
Who owns and controls it?
Much like a public limited company is owned by its investors or shareholder, bitcoin is also owned by its users. A web developer’s role is limited to upgrading and installing the software and making sure all users are using compatible versions. It was, however, invented by Satoshi Nakamoto in 2009, but soon enough the project was abandoned, after which, Bitcoin operates as an open source system, accessible to users, all around the world.
How can Bitcoins be purchased?
If you wish to acquire bitcoins, you can do so by the following means:
- Find someone who owns Bitcoins and exchange with them
- While buying or selling good and services, use Bitcoins
- Much like a stock exchange, Bitcoins can be purchased by a Bitcoin Exchange
- Competitive Mining
What is Chargeback?
If you want to purchase Bitcoins, exchange them, as a mode of payment with your credit card or PayPal. However, such exchanges have recently been banned, due to the sheer number of people who make a transaction just to acquire Bitcoins, at the same time retrieving the other half of the payment. This phenomenon is commonly known as charge back.
Bitcoins operate on an extensive network, with complex mathematical configurations and uses complicated data mining techniques. However, the fact that many people are now replacing credit card, PayPal and even cash payments with Bitcoins is reason enough to consider acquiring them. It cannot be denied that Bitcoins have made payments convenient, easy and faster than ever before. However, the level of acceptability and other legalities involved in using Bitcoins as a medium of payments is still a question mark for many economies and markets.