Considering the volatile nature of cryptocurrencies, everyone is curious to learn more about these new digital currencies. The first and the most popular cryptocurrency is definitely Bitcoin. If you want to know what this digital currency is without getting confused with all the technical details, this guide is for you. It explains how this system works, how and how you can get started with it.
What is Bitcoin technology?
You might have some confusions with regard to the concept of Bitcoin. We need to separate this concept into two components. On one have, we have bitcoin-the-token which is a code representing the ownership of a digital concept. On the other hand, we have bitcoin-the-protocol which is the network that maintains the ledger of balances.
According to John McAfee, Founder of McAfee,
“You can’t stop things like Bitcoin. It will be everywhere and the world will have to readjust.”
This system allows all the payments to be sent and received without the supervision of a central authority such as a bank or a payment gateway. This currency is not printed and is created and held electronically. It is produced by computers around the world.
With verification based on cryptography, cryptocurrencies are a growing new currency which share some characteristics with the traditional currencies and have some advantages over fiat money.
Who created it?
Bitcoin was proposed for the first time by a pseudonymous software developer named Satoshi nakamoto in 2008. The idea was to create a digital form of payment which was independent from any central authority and could be exchanged in a secure and verifiable way.
To this day, no-one knows who Satoshi Nakamoto really is and identity of this inventor remains anonymous.
Rick Falkvinge, Founder of the Swedish Pirate party, predicted that,
“Bitcoin will do to banks what email did to the postal industry.”
Differences between bitcoin and traditional currencies
Bitcoin is used to pay for things electronically. In this regard, cryptocurrencies and traditional currencies are similar. However, there are some characteristics which distinguishes these two types of currencies.
Cryptocurrencies different from fiat digital currencies in several ways. Here are some of them:
- Decentralized – Decentralization is the most important characteristic of cryptocurrencies which means that no single institution controls the network. The network is maintained by volunteer coders and runs on open networks. This feature attracts the ones who are not comfortable with banks and financial institutions having control over their money. Bitcoin also solves the problem of double-spending through cryptography and maintaining the integrity of transactions.
- Limited supply – Fiat currencies have unlimited supplies. This means that central banks can issue as many as they want to manipulate the value of the currency. On the other hand, the supply of bitcoin is limited by an underlying algorithm and this makes it more attractive as an asset.
- Pseudonymous – Since there are no central validators, users do not need to identify themselves and neither transactions nor accounts are linked to real world people. You receive Bitcoins on so-called addresses, which are random chains of around 30 characters. When a transaction request is submitted, the protocol checks all previous transactions to confirm that the sender has the necessary bitcoins as well as the authority to send them. The system does not need to know his or her identity.
- Immutable – After a transaction is confirmed, it cannot be reversed. Unlike electronic fiat money, there is no central authority that can say “return the money”. So, if you send the fund to an scammer, no one can help you.
- Fast and global – Transactions are carried out instantly and are confirmed within a few minutes. Since bitcoin transactions happen in a global network of computers, they are completely regardless of your physical location.
- Secure – Bitcoins are locked in a public key by cryptocurrency system and only the owner of the private key can send cryptocurrency.
How does bitcoin work?
Without making it too technical, Bitcoin works on a vast public ledger called blockchain, where all confirmed transactions are included blocks. As each block enters the system, it is broadcast to the peer-to-peer computer network of users for validation. This feature prevents stealing and double-spending as each user is aware of all the transactions. The process also helps blockchain users trust the system.
Unlike traditional currencies which are issued by the central bank, Bitcoins are mathematically generated as the computers in this network execute difficult tasks; a procedure known as Bitcoin “mining”. The mining process gets more difficult over time and the number of bitcoins that can be mined decreases until the whole 21 million bitcoins are mined.
Tyler Winklevoss, co-creator of Facebook, summed it up when he said:
“We have elected to put our money and faith in a mathematical framework that is free of politics and human error.”
How can I buy bitcoin?
International payments are easy and cheap because bitcoins are not tied to any country or subject to regulation. Here are some of the ways you can use to acquire bitcoins:
- Buy on an exchange – Bitcoin exchanges are marketplaces that allow users to buy and sell bitcoins using other currencies. The leading bitcoin exchange which is Coindesk is a safe place to buy bitcoins.
- Transfer – People can send Bitcoins to one another like they then when they transfer digital fiat money.
- Mining – People can mine bitcoins using computers to solve difficult mathematical problems. This is also how bitcoins are created.
How to accept bitcoin payment for your store?
If you have an online or offline business, accepting bitcoins as a type of payment can help you a lot in improving your business.
Bitcoin is the currency of the internet and in order to survive in this competitive market, it is necessary that you integrate Bitcoin payment gateways on your electronic store.
PayPax is one of the new names when it comes to payment gateways, however, it offers a number of great features which are noteworthy. PayPax offers different services and one of them is offering bitcoin payment gateways that you can integrate to your website or application.
You can use PayPax to easily set up a bitcoin payment gateway on your e-store. Gateways on PayPax are customizable, mobile-friendly and provides full API for custom integrations.