Bitcoin has been around for years, but just recently has been making noise since this cryptocurrency value has gone up. If you haven’t noticed, there have been many posts about Bitcoin recently. The news is either good or bad, depending on who you ask. Some articles defends Bitcoin and some say that Bitcoin is just a sham.

Many people around the world are asking – what gives Bitcoin its worth? Or why is a bitcoin worth anything in the first place?

Image credit: bitcoin.org

What is Bitcoin?

Bitcoin is a currency that was created in 2009 by an unknown programmer or a group of programmers using the alias of “Satoshi Nakamoto”. It is a worldwide cryptocurrency, which means it’s a digital asset that is designed to work as a medium of exchange using cryptography to secure transactions and to control the creation of other additional units of currency. This digital currency was created using mathematical computations and managed by millions of computer users called “miners”.

It is also a form of payment system used to settle financial transactions without any middlemen, meaning no banks to tax and monitors the exchange of currency. This means no transaction fees and no need to give out a person’s identity. Bitcoin is regulated by no nation or bank of any country. So in essence, Bitcoins are computer codes that have monetary value.

Why Use Bitcoins?

Bitcoins can be used to purchase merchandise anonymously. And as mentioned earlier, international payments can be easy and cheap because it’s not tied to any bank or country regulation. Some businesses prefer them because there are no credit card fees to pay and some people buy them as investments, waiting for the currency to go up in value.

How Does It Work?

Bitcoins are not tangible like physical money and credit cards. It doesn’t actually exist in the physical sense. Whenever a user engages in a Bitcoin transaction, they are sending a highly encrypted digital token that basically says “this token is number xx, and I’m transferring ownership to the recipient”.

The coin’s identity, owner and the new owner are all cryptographically protected using public keys. After every Bitcoin transaction, the Bitcoin market is alerted to the new ownership. This means that when the new Bitcoin owner tries to use or spend it, buyers will only accept the currency if it comes from an associated account.

How To Get Bitcoins?

Before investing your money on Bitcoins, you must understand that it is still experimental, although it has been operating without any interruptions for over eight years now. You have to know a few things in order to use this digital currency securely and without any hassles.

Here are some key facts:

  • Bitcoins are impossible to inflate or counterfeit.
  • Bitcoins can be used to send and receive any amount of money or funds to anyone, anywhere around the planet at a very low cost. The payments cannot be blocked and the Bitcoin wallets cannot be frozen, unlike regular bank accounts.
  • No third-party bank or company will be involved because you can directly control the funds yourself.
  • Any Bitcoin transaction cannot be refunded or reversed. Deal only with people of businesses that you truly trust.
  • Any Bitcoin transaction must be confirmed at least once.
  • Bitcoins are not anonymous and the transactions are saved publicly and permanently. So this means that anyone can see the remaining balance and transaction of a Bitcoin address but not the person’s identity.
  • You can buy Bitcoins from an exchange using your bank account or by accepting them as a payment for goods or services.

Different marketplaces known as Bitcoin exchanges let people buy and sell using different currencies. People can send bitcoins using mobile apps or through their PCs. It’s similar to sending cash digitally. Also, people can “mine” bitcoins using their PCs to solve complex math problems.

Examples of Bitcoin exchanges include:

Bitcoins are traded from one personal “Wallet” to another. A Bitcoin wallet is a small personal database that a user stores on a smart device, tablet, PC or in a cloud service. Examples of wallets include:

Controversies Behind Bitcoin

Bitcoin has been in the spotlight because of the $500,000 theft and two United States senators are pressing for a crackdown on the digital currency. Some say that Bitcoin is used to buy illegal drugs and other illegal activities online through shadowy markets that exploit the effective and untraceable Bitcoins and the unregulated way (compared to tranditional banks) it can be traded or purchased.

Any new form of currency inevitably raises controversy on many fronts. And there are three known ways that the currency can be abused:

  1. Its technical weakness due to the time delay in confirmation. During the confirmation interval, Bitcoins can be double-spent in some rare instances. During these few seconds, a dishonest person can submit a second payment of the same amount to a different recipient.
  2. Pool miners taking unfair share. Bitcoin is best mined through pooling or joining a group of hundreds or thousands of other miners. The organisers of each pool choose how to divide the discovered bitcoins. Any dishonest Bitcoin mining organiser can take more mining shares for themselves.
  3. Mismanagement of online exchanges. Unlike traditional banks, losses are partially insured for customers. Bitcoin exchanges have no insurance coverage for users.

Is Bitcoin a Scam?

Bitcoin is a technology, and as a form of technology, it doesn’t have any inherent ability to be a scam or to scam people. It exists on a self-moderated algorithm which allows it to regulate itself and avoid any tinkering by any 3rd party forces, be it private or government. So, it’s more secure as compared to any paper currency and it can be manipulated to influence the market. In fact, the source code behind bitcoin is publicly available for anyone to see.

But this doesn’t mean that Bitcoin cannot be exploited to scam investors. The system has proven itself to be lucrative and clever criminals will always find a way to dupe people whenever money is involved.

Any investors should take steps to know the warning signs of scams or fraudulent exchanges.

An exchange or exchanges are offering to sell Bitcoin below their market value is an easy way of snaring new digital currency investors that are eager to get a deal. But in reality, Bitcoin always sells at market value. People invest in it and wait for it to rise. Any exchange that deals with lower prices are often fraud or fake. They take the money and never send the Bitcoin as promised.

Another one is that their domain is not secure. Any legit and verified business website has secure addresses. Check the domain name. If the address shows HTTPS, it means the site is secure. All their information is encrypted.

Lastly, if the website makes any outrageous claims, then it is likely a scam. Any currency exchanges that promise an edge over the competition is likely a scam. They guarantee dynamic returns, but in reality, most legit exchanges cannot promise because they don’t control the market. Cryptocurrency is still a high-risk investment.

The technology itself is not at fault, but the platform has been used by people to scam others. Do your research if you want to invest in Bitcoin. Bitcoin may change the future of currency and government control. Keep your eye on it!

About Author

Jon specialises in research and content creation for content marketing campaigns. He’s worked on campaigns for some of Australia’s largest brands including across Technology, Cloud Computing, Renewable energy and Corporate event management. He’s an avid scooterist and musician.