You probably have heard of bitcoins before. You may have also heard of this virtual currency within the confines of illegal activities. Bitcoins are nothing more than a decentralized digital currency. That means that no government/country controls the currency. Bitcoins are digital coins you can send through the internet. So what would the advantages be of using a digital currency like bitcoins?
- When you transfer bitcoins, the transaction is directly between the sender and the receiver. There is no middle man required.
- This direct transaction concept drops the fees much lower. In fact, you can specify the fee (which helps process the transaction which we’ll talk about later).
- You can send the payment across physical country lines without any complications.
- No big-bad bank can freeze your “bank account”. Now, it’s important to point out that it is possible (if you are doing illegal activities and getting paid with bitcoins) the police/agency who will arrest you may impound or take your computer hardware into evidence…. which is like freezing your bank account.
- No limits or special requirements to get started.
How does Bitcoin work?
First, bitcoins are generated from all over the world by people running software on computers to mine for bitcoins. The mining that takes place is computers solving algorithms that generate the bitcoins. It takes a lot of computer work to solve these mining situations.
Second, you store you bitcoins in a digital wallet. Normally this is a piece of software that is installed on your computer that keeps track of your bitcoins.
Third, when you want to transfer (or receive) bitcoins, a digital signature is attached to the transaction. And then in a moment a miner will verify the transaction, and the transaction is then anonymously and permanently stored in the network.
Bitcoins and Litecoins
Only a year ago, bitcoins were so new and unknown that they were selling for $25 for one bitcoin. Today, they are trading at $1,000+ for one bitcoin. The massive valuation growth has spurred other virtual currencies to test the water in similar concepts to bitcoins. One such digital currency is Litecoin which is almost exactly the same as bitcoins except that at the present time, it is much easier to mine.
One has to wonder if in the future digital currency will be more widely used than physical (country-controlled) currency. I wonder if in the future a country will “guarantee” their own currency by maintaining their own “bitcoin fort knox”. I’m also curious to see what other virtual currencies arise and how they will compete against the massive head-start that bitcoins possess.
If you would like to make a donation to me, or this flat file CMS project (SimpleKit) that you see running this site, you can donate using either Bitcoin or Litecoin on the sidebar on the left.