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Bitcoin 101: How Does It Work?

Bitcoin, dubbed as the “cryptocurrency of the future”, is a digital currency that is used as fiat money in many countries. Bitcoin is said to translate close to the value of gold and as the bullish trend in this Bitcoin era seems to be stabilizing. In fact, its market value may even get to an all-time high as the period nears 2020.

What is Bitcoin?

Bitcon is a decentralized form of digital currency that has disrupted the normal route of financial transactions as it is managed by a peer-to-peer blockchain network without any middlemen or a central bank.

The pioneers of Bitcoin wanted to put the control over to the people or users which gets rid of the high interest rates and corruption. This creates a decentralized system wherein financial transactions are transparent and users get to be on top of their own funds.

Who’s Behind It?

Bitcoin, a cryptocurrency established in 2009 was founded by an anonymous person under the name Satoshi Nakamoto. There is very little information about him as he suddenly disappeared right after the release of the Bitcoin whitepaper in 2008.

It was in 2007 that Satoshi Nakamoto authored the Bitcoin code. The first ever Bitcoin block was mined on January 3, 2009 which marked the birth of the leading cryptocurrency. Satoshi Nakamoto was very involved during the first two years of the introduction of Bitcoin. He, however, stopped his participation in the Bitcoin project in December 2010 and delegated the task to Gavin Anderesen and noone has ever heard from him again.

Some details regarding Satoshi Nakamoto’s identity has been revealed such as his nationality being Japanese but details on gender or whether it represents an individual or a team is unknown to this day. He is said to hold an enormous stash of his own cryptocurrency that is worth over $5.8 billion.

Is It Legal?

Bitcoin is freely and legally used in financial transactions worldwide. Regarding the legality of Bitcoin transactions, it would actually depend on your location or country. In 2013, this cryptocurrency has been categorized as a convertible decentralized cryptocurrency by the Financial Crimes Enforcement Network (FinCEN) that is under the US Treasury Department. The purchase of goods and services using Bitcoin is considered legal. Whether you are a small or large-scale business, accepting Bitcoin payments is lawfully acceptable. This is also taxable in accordance to the law.

The following countries recognize Bitcoin as a legal digital currency:

  • Bulgaria,
  • Australia
  • Canada
  • Finland
  • Estonia
  • China
  • France
  • Japan
  • Mexico
  • Sweden
  • Israel
  • Germany
  • Slovenia
  • Iceland

The following countries consider Bitcoin as illegal:

  • Vietnam
  • Bolivia
  • Ecuador

How Does It Work?

Bitcoin works on a blockchain or a public ledger with blocks pertaining to confirmed transactions. Each block entry is broadcasted to the blockhain network for validation to ensure that all users are aware of all transactions. This process allows the blockchain network to trust how the system works. It’s a very secure system because all transactions are publicly recorded so it would be difficult to produce fake bitcoins or to hack the system.

Unlike the fiat money, Bitcoin is not controlled by a central bank or any financial institution. Bitcoins are generated in a mathematical procedure or referred to as Bitcoin mining. There is very limited Bitcoin to be mined or a total of 21 million so there is no way that a central bank could flood the market with new Bitcoins to devalue those that are currently in circulation.

Paola

Paola Garcia lives in Jakarta Indonesia. She is an associate professor in University of Indonesia and also managing Scoopinion at the same time. She is also fond of watching theatrical plays.

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