What is bitcoin and how much is it worth?

30 Aug

Bitcoin event

Blockchain Summit Sydney

What is a bitcoin?
Bitcoin is decentralised, which means that no single authority or institution holds or controls the bitcoins.
Regular currency is controlled by one governing authority such as a central bank. If the country requires more money it can print more money but that devalues the currency and leads to inflation.
Bitcoins can be transferred electronically and practically instantly and have historically had low transaction fees, though this is something that has recently changed.

How are bitcoins created?
Only 21 million bitcoins can ever be created in order to protect the value of the bitcoin system. Bitcoins can be ‘mined’, which is the process of actually creating bitcoins, or they can be bought using regular currency.
Bitcoins can be mined using computer software and a mathematical formula designed by the Bitcoin founder Satoshi Nakamoto.
Satoshi Nakamoto is anonymous and could be one person or a group of software developers.
Some people have claimed to be the Bitcoin founder but to date, the Bitcoin inventor’s identity remains anonymous.
Bitcoins are created digitally by a community of people that anyone can join.
Each machine that mines bitcoins makes up part of the network and each machine works together.
Bitcoins are made or ‘mined’ by computer power on the bitcoin network. Miners use the computer software to follow the mathematical formula to produce bitcoins.
The mathematical formula is freely available for anyone to check and the software used is open source, meaning anyone can check it.
Bitcoins are not based on gold or federal reserves but on mathematics.
Bitcoins are created as a reward for mining, they can be exchanged for other currencies, products or services.
They are used to purchase goods or services on the digital black market.

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How do bitcoins work?
There are certain rules governing the creation of bitcoins; miners cannot just keep producing bitcoins as they please.
Because only 21 million bitcoins can ever be produced by miners, the value of the system is preserved and the value of the bitcoins fluctuates wildly, depending on supply and demand. the bitcoins can then be divided into smaller parts.
Bitcoins can then be divided into smaller parts – you do not have to buy an entire bitcoin.
The smallest divisible bitcoin amount is one hundred millionth and is called a Satoshi after the founder of bitcoin.
Bitcoin transactions are sent to and from Bitcoin wallets, which is where your bitcoins are stored electronically.
Bitcoin transactions are completely transparent, any bitcoin transaction can be traced back to the point where the bitcoins were produced.
However bitcoin is completely anonymous as bitcoin addresses are not linked to names, addresses or other personally identifying information and any one user can hold multiple bitcoin addresses.
Anyone can see how many bitcoins are held at a certain address but they don’t know who the address belongs to.
Once you have made a transaction using bitcoins there is no way to get them back unless the recipient returns them.

How can you use bitcoins?

You can start trading with bitcoins by buying bitcoins using your credit card.
Then once you have acquired some bitcoins you need to get yourself a bitcoin wallet to store it.
You need a special key to make transactions to other bitcoin users.
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How much is a bitcoin worth?
Much to economists’ confusion, bitcoins are traded and used as a form of currency.
For a form of currency to be successful it must be both a store of value and a medium of exchange.
Many users of Bitcoin will rave about how effective Bitcoin is as a medium of exchange.
Traditional currency is backed by reserves assets or unconsumed goods. In the past currency was backed by gold.
However, there is no consensus as to what exactly gives bitcoins its intrinsic value. Some say it’s the maths and technology behind it. Others say it is the effort of the miners to make the bitcoins.
Investing in bitcoin is a gamble just like investing in any over-inflated industry, good or service.
One Bitcoin is currently worth £3337.98 ($4309.30/€3612), but this figure fluctuates a lot and bitcoin has almost doubled in value since July.
As it stands, if you invested $2,000 into bitcoin five years ago you could be a millionaire today.

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