What is Bitcoin and how does it work?
What is Bitcoin?
Bitcoin is a cryptographically secured digital currency that is settled outside the jurisdiction of any central authority. The currency was created in 2009 by a mysterious person calling himself Satoshi Nakamoto and was introduced primarily to be used for payments not subject to government oversight, transaction fees or transfer delays – unlike traditional “mandatory” currencies ( Paperback).
In 2010, the price of a bitcoin was around 0.003 cents per coin. In October 2017, the coin surged to $4,200 – although this level has been volatile, with fluctuating and recurring daily movements. At that time, hundreds of other virtual currencies appeared, each with their own benefits and uses. However, few of these coins are highly valued, but Bitcoin has lesser competitors alongside Litecoin in the form of Ether and Bitcoin Cash.
Commodity or currency?
Bitcoin was originally invented as a payment method and works exactly as intended in some specific cases. However, it lacks wide reach and is currently in a volatile state to be considered a viable alternative to fiat currency: sellers must constantly review their prices to cope with fluctuating movements in its value.
This means that Bitcoin is primarily used as an investment similar to gold and other precious metals, rather than as a traditional currency. Like commodities, currency transcends the direct influence of any particular economy and is not significantly affected by changes in monetary policy.
Keep in mind that while Bitcoin isn’t influenced by many of the factors that affect traditional currencies, there are a number of unique influences to consider.
How does bitcoin work?
Bitcoin requires two basic mechanisms to work: the blockchain and the mining process.
String data is a common digital record of all bitcoin transactions executed up to that point in time. These transactions are grouped into “clusters” that are cryptographically secured and linked together during mining.
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Serial data is accessible to everyone at any time and can only be changed at will and computing power of the vast majority of the network, making it almost impossible to change it after the fact, so you don’t become a victim of human error and no single point of failure.