Bitcoins are different to normal currencies like the Euro and US Dollar who derive their Value solely from the trust the people who use it. There is not any backing with gold and silver as in the time of the Gold Standard. If not for this trust the euro and the US dollar and the other normal currencies would be almost be almost worthless as the users do not think they provide any value
Bitcoin is not controlled by a central authority, for example a central bank or a government. Therefore it is impossible to artificially influence the value of bitcoins as the supply cannot be increased or decreased at will. Bitcoin operates on a network of user based computers that Verifies every transaction. Changes will only be applied with the users’ consensus. This means that changes are not made easily and that makes bitcoin very stable.
- Bitcoin can be used worldwide. Transactions with bitcoin can take place from and towards the entire world.
- Transactions are easy, fast and very cheap. Transactions take a maximum of 15 minutes to complete, where regular bank transactions can take 1 or even up to 3 bank days to complete.
- Transaction fee is close to zero and making a transaction is not more difficult than a regular bank transfer on the internet.
- Bitcoin is Peer-to-Peer there is no intermediately that you need to trust. A user has complete control over his/her account. Your account is yours and nobody can touch it.
- Bitcoin is direct so governments and other powerful entities can't seize your money. - Bitcoins are anonymous and untraceable. The transaction address created by the user is public, but does not allow for the user to be identified with ease. Users are free to spend their bitcoins in the way they desire.
- The anonymity of bitcoin also makes its security very high. Stealing your private information is close to impossible.
- The software for bitcoin is open-source code and thereby completely transparent.
- Bitcoin is created by a process called Mining Anyone can take part in the process and effectively ‘mine’ their own money.
- Because the growth of the amount of bitcoins is much lower when compared to the euro the purchasing power of bitcoins increases more than twofold each year.The supply of bitcoin is predictable and stable. This makes it more valuable and the inflation is controlled. There will never be more than 21 million bitcoins.
Bitcoin wallets are private and cannot be opened by anyone else. This means if the user of a wallet loses/forgets the password of the wallet, there is no longer access to the wallet. The amount of bitcoins would be lost to the user.
Security of bitcoin is very high, but websites holding bitcoin wallets can be attacked. In that case bitcoins and other information about the user can be stolen.
Bitcoin transactions take place outside of government control, but Governments can put restrictions on converting bitcoins to normal currencies.
Maintaining the block chain is called mining, and those who do are rewarded with newly created bitcoins and transaction fees. The block chain is Bitcoin's public ledger of past transactions. Mining is the process of adding transaction records to Bitcoin's public ledger of past transactions. This ledger of past transactions is called the block chain as it is a chain of blocks. Mining is also the mechanism used to introduce Bitcoins into the system.
Miners are paid any transaction fees as well as a 'subsidy' of newly created coins. Payers have an incentive to include such fees because doing so means their transaction will likely be added to the block chain sooner; miners can choose which transactions to process and prefer to include those that pay fees. Bitcoin mining is so called because it resembles the mining of other commodities: it requires exertion and it slowly makes new currency available at a rate that resembles the rate at which commodities like gold are mined from the ground.
Mining is intentionally designed to be resource-intensive and difficult so that the number of blocks found each day by miners remains steady. Over the past years mining has become increasingly competitive and has been compared to an arms race with ever more specialized technology being used.. The most efficient mining hardware makes use of custom designed application-specific integrated circuits, which outperform general purpose CPUs and use less power as well.
Without access to these purpose built machines, a bitcoin miner is unlikely to earn enough to even cover the cost of the electricity used in his or her efforts. If you want to start mining bitcoins yourself or just want more technical information, we recommend this article:Start Bitcoin Mining
Bitcoin was invented by Satoshi Nakamoto. Little is known about Satoshi Nakamoto, his name is probably a pseudonym. It is certainly a possibility that Satoshi Nakamoto is more than one person. In the media there has been a lot speculation about the true identity of Satoshi Nakamoto, so far without the result of conclusively proving who he is.
Satoshi Nakamoto started working on Bitcoin in 2007. The publication of Bitcoin started in 2008 when Bitcoin.org was registered at anonymousspeech.org on the 18th of August. Because anonymousspeech.org allows persons to register anonymously, the person(s) that registered Bitcoin.org is unknown. A few days earlier on the 15th of August Neal Kin, Vladimir Oksman, and Charles Bry file an application for an encryption patent application. All three individuals deny a connection to Satoshi Nakamoto, the originator of the Bitcoin concept. On the 31th October the now famous white paper is published by Satoshi Nakamoto. The practical history of Bitcoin starts in January 2009.The Bitcoin paper
•January 3, 2009 The first ever block, Block 0 aka the Genesis Block, is mined by Satoshi Nakamoto.
•January 12, 2009 The first ever bitcoin transaction takes place between Satoshi Nakamoto and Hal Fenny, a developer and cryptographic activist.
•October 5, 2009 First exchange rate published by New Liberty Standard: $1 = 1309.03. The exchange rate is based on an equation that includes the cost of electricity to run a computer that generated Bitcoins.
•December 30, 2009 The difficulty to mine new Bitcoins is increased for the first time.
•February 6, 2010 The first currency exchange The Bitcoin Market is launched.
•May 22, 2010 The first, real-world transaction using Bitcoins takes place when a Jacksonville, Florida programmer, Laszlo Hanyecz, offers to pay 10,000 Bitcoins for a pizza on the Bitcoin Forum. At the time, the exchange rate put the purchase price for the pizza at around US$25.
•July 17, 2010 MtGox is established, which has become the largest and most well-known Bitcoin currency exchange.
•August 15, 2010 A major vulnerability in the Bitcoin system was exploited. 184 billion illicit Bitcoins were created in a transaction. The transaction was not verified before it entered the block chain. A few hours later the transaction was found and removed. It has been the only major security flaw found in the Bitcoin protocol
•February 9, 2011 Bitcoin reaches parity with the US dollar. $1 = 1 BTC.
• February 10, 2011 The publicity created by Bitcoin reaching parity with the US dollar causes Bitcoin.org to nearly go down.
• April 5, 2011 Bitmarket.eu is started. Bitcoin can now be exchanged to euro’s and several other currencies like the Polish zloty.
•June 13, 2011 Bitcoin user allinvain reports that 25,000 BTC have been stolen from his wallet, the biggest theft of Bitcoins ever.
• June 24, 2011 The difficulty to generate Bitcoin has continued to grow, now passing the point of 1 million. During 2011 and 2012 Bitcoin continues growing steadily, now nearly every product type can be bought with Bitcoin. Increasing amount of companies begin accepting Bitcoin as a means of payment.
• November 24, 2012 The first Halving Day. The subsidy for a new block decreases from 50 to 25 BTC.
• December 6, 2012 Bitcoin Central becomes the first official licensed Bitcoin bank.
• April 1, 2013 Bitcoin hits the $100 mark.
•April 9, 2013 Following a sudden confiscation of bank accounts in Cyprus, Bitcoin shoots up to $200 per BTC.
•November 19, 2013 Following a hearing of FED President Ben Bernanke praising Bitcoin in the US Senate, Bitcoin reaches an all-time high at $1242 per BTC.
•December 5, 2013 The Chinese Central Bank bans the use of Bitcoin in China and conversion from Bitcoin to Yuan. Bitcoin drops in value to $600, where it has more or less stayed until now.
For in a depth look to the evolution of Bitcoin, please visit these sites:History of Bitcoin Bitcoin Paper, click on icon
A bitcoin wallet has similarities to regular, offline wallet. As the name would suggest it is a place where bitcoins are stored, like the normal currencies are in the wallet that is probably within reach of you right now. A bitcoin wallet has two major components, a public key and a private key The public key is comparable to your bank account number. It identifies the wallet for other users, so that they send their bitcoins to your wallet. The private key is necessary for the transaction process and will be explained later on in the article: How does a bitcoin exchange work?
The transaction process for bitcoins is different to what other currencies use. There are no banks involved in the transaction process, but it is directly peer-to-peer. Every transaction that takes place is sent to the public ledger of all bitcoin transactions called the block chain. This makes bitcoin transactions transparent. Anyone can see between which accounts a transfer has been made and also how much been transferred.
Every transaction has to be verified before it can take place, this is also where the private key comes in. The private key is needed for the verification, which is done independently. It should be noted though that the exact private key always remains private, so privacy is guaranteed. If the two wallets between which the bitcoins are transferred are based on the same website the transfer can be almost instantaneous, with the receiver getting his or her bitcoins within seconds.
Most transactions though are verified by the block chain. The receiver will get his or her bitcoins as soon as a new block of transactions is verified and added to the block chain. A new block is added to the block chain approximately every 10-15 minutes, meaning that the amount of time it takes for a receiver in transactions with bitcoins is 15 minutes at the maximum. Although this is not instantaneous, it is still a major advantage to the regular banking system where it can take several days before a transaction has been completed. Also are the transaction costs involved in bitcoins far lower than the costs for transactions in the regular banking system, with the cost for a bitcoin transaction being very close to zero.