Bitcoin—What Should You Know | Eide Bailly LLP

You have probably heard the term Bitcoin and all the media buzz about this new technological evolution of currency, but you may not understand the clamor.

Cryptocurrency, also referred to as virtual currency, is just what it sounds like: While the value of Cryptocurrency may go up bitcoin down, that value exists solely with the people that create it and those that accept it as a replacement to the more recognized forms of payment. Bitcoin is one of the most popular forms of virtual currency, and the only one most people recognize.

But it would probably surprise you to know that there are more than 1, other cryptocurrencies in circulation. About Bitcoin Bitcoin was developed in by an unknown programmer under the alias Satoshi Nakamoto.

How Bitcoin Mining Works

While tangible money is minted or printed, a Bitcoin has no physical form. Bitcoin, the supply of Bitcoin has been limited from the beginning. Under the Bitcoin cryptocurrency system, only 21 million Bitcoin are available to be mined, and it is said that more than 15 million Bitcoin are already in circulation.

That leaves only 6 mining more to be mined. This definitive number of available Bitcoin seems to give Bitcoin owners comfort in supporting Bitcoin value, but the recent volatility in value might say otherwise. Bitcoin Mining Example The details of Bitcoin mining are fairly complicated, involving hash functions and checksums, and other terms the common person may not understand. Mining, when a complex mathematical function is solved correctly by Computer A, the owner of Computer A is awarded X amount mining Bitcoin.

The benefit to bitcoin Bitcoin community is the solution of the math problem. These problems act as security checks to help prevent Bitcoin fraud and improve transactions.

And, once Bitcoins are produced through the mining process, they can be used in the market, which moves the Bitcoins into the potential hands of the general public for use as wages, for purchases, mining conversion to real cash, or to be traded on an exchange or for other services or goods. In the beginning of cryptocurrencies, the primary problem centered around how to create, hold and transfer the cryptocurrencies.

Because there is no central banking system for Bitcoin or other cryptocurrencies, the digital footprint for these virtual currencies is recorded in a virtual digital wallet. Entities were then formed to act much like banks, but without the regulations and oversight, to assist in the one-on-one cryptocurrency transactions and to create historical records of those transactions. Most times the exchanges worked, but other times they did not and some were forced out of the marketplace.

Creating Value If this sounds complicated, it is. But remember that for cryptocurrencies to work as envisioned, the process requires a key element—acceptance of value.

Bitcoin is Secure

First, there is the value received by the Bitcoin miner.

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