Last updated 21 July 2016

Bitcoin 101

Bitcoin 101 - Expatfinder.comCryptocurrency, a digital or virtual currency that uses cryptography for security, is becoming increasingly popularly among online shoppers and investors. Its widely used form, bitcoin, is defined as a “virtual” currency used by online users as a form of payment for online purchases of both goods and services. It is the only decentralized currency that is neither connected nor backed by any state.

It is still unclear who first started bitcoin, but online resources suggested that it was an idea of either an individual or a group of people who call themselves as “Satoshi Nakamoto”. The virtual currency was launched over the Internet in 2009, targeting online retailers and investors everywhere. It is currently valued at $730, a giant leap from $13.50 in January.

Bitcoins may be purchased through bitcoin exchanges such as Tokyo-based Mt. Gox and San Francisco-based Coinbase. Mt. Gox requires users to create an account through their website and to link their bank account to their Mt. Gox account. The conversion of a currency to a bitcoin currency is done though order books which are linked to the user’s virtual wallet. Coinbase caters to Bitcoin beginners through three major services: an exchange, a digital wallet and a payment processor for vendors. Users are required to register through their online website and to provide their bank account information. Bitcoins are considered universal -once acquired, these may be transferred to any virtual wallets.

Some people are able to acquire Bitcoins for free. These people, called “miners, acquire Bitcoin by answering a series of computer-generated math problems. The number of bitcoins a miner may acquire depends on the number of math problems he is able to solve. As the virtual currency rises in value, the math problems become more complicated. The mined bitcoins are stored in digital addresses which are then sent to virtual wallets.

Many businesses are trying their luck with the aid of cryptocurrency. The University of Nicosia in Cyprus, for an instance, has allowed its students to use bitcoins to pay their tuition and other school fees. There were also suggestions that it can be used as an alternative for traditional money remittances. Richard Branson, owner of Virgin-Galactic, announced that it is accepting bitcoins as payment for future space travels. Virgin-Galactic plans to offer suborbital spaceflights to space tourists. In his Twitter account, multi-billionaire Mr. Branson said: “Want to spend your #bitcoins? How about a ticket to space! Will discuss today live on @SquawkCNBC @virgingalactic”

Economists say that Bitcoin has the potential of making its way through e-Commerce but security would be a huge problem in the long-run. Nevertheless, the potentials of this currency is massive. Hileman, an economic historian at the London School of Economics, said: "I expect more high-technology companies, particularly ones with unique and or expensive products that can be purchased across borders, to adopt bitcoin as a means of payment. For example, given Elon Musk's prior history as a payments system entrepreneur, I wouldn't be surprised if we soon saw Tesla automobiles priced in bitcoin."


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