The worth of Bitcoin has been on the rise since 2009 when Satoshi Nakamoto, an anonymous inventor who used the mentioned name as a pseudonym, introduced the currency to the world, according to money.usnews.com. Even though every year the value of the online currency is increased, people still do not know what Bitcoin is and if it ever can replace real money or credit card payments.
According to The Washington Post, in 2011, the worth of one Bitcoin was equal to $0.30. Today, the price that people have to pay for one Bitcoin is not even close to that number as the worth of one Bitcoin is equal to $770, as displayed on the currency’s official website, bitcoin.com.
Nevertheless, despite the fact that online currency has become so powerful, many people do not know what the currency actually is. It is also hard to explain the mechanism behind the currency as Bitcoin is not similar to any other payment method that people use in today’s world.
The currency’s official website indicates to compare Bitcoin to email rather than money. Even though Bitcoin might seem to be similar to payment methods, such as credit card or PayPal, there are two main differences that distinguish the currency from those payment networks.
The Washington Post states that Bitcoin is decentralized, which means that there is no bank or stakeholder that controls the currency. Bitcoins are fully controlled by people who create them and the people that use them. Those people and companies who want to use the currency do not need to have an agreement with the U.S banking system as while using other payment networks.
Another aspect that makes Bitcoin a unique payment method is that transactions with the digital currency do not incorporate real money. With the use of a credit card or PayPal on the internet and processing the payments digitally, the user does not physically use bills and coins. Nevertheless, the right amount of money in currencies, such as U.S. dollars, is always transferred between banks every time the user makes an online transaction.
On the other hand, with Bitcoin, there is no transfer of money between banks while processing a transaction. The reason for that is that Bitcoin is a currency by itself, and it is fully transmitted in the Bitcoin network, according to The Washington Post.
However, if Bitcoins are not physical, how are they actually created? Answering this question is not easy, as the currency is somewhat imaginary. The digital currency is both created and held electronically. The money is produced by commuters running software all around the world. The simplest way to explain the Bitcoin’s mechanism is to say that it is an encrypted
piece of digital code produced by software that solves mathematical problems, according to coindesk.com.
Therefore, unlike any other currency, Bitcoin has never been based on gold, silver, or any other valuable physical material. The currency is indeed based on mathematics. Moreover, the mathematical formula that software has to follow to produce Bitcoins is freely available and anybody can check it. The software that generates the currency is freely available as well, according to coindesk.com.
Nevertheless, if both the software and the formula are available, somebody might ask if it is possible for people to create Bitcoins for themselves instead of buying them for nearly $770 a coin. In fact, anybody can try to produce the currency, yet not everyone will be lucky enough to obtain some results. The Bitcoin’s designer decided that of all computers around the world, every 10 minutes one of them will win the prize of 25 newly produced Bitcoins, according to The Washington Post. Nevertheless, the number changes every four years, and the process of producing the currency is not entirely free as well. More information about generating the currency can be found at bitcoinmining.com.
All of the information might seem to be very complicated for somebody who has never heard about the currency before.
“I know it is an electronic currency, and it is mainly used for exchange online,” said a Computer Science student at Saint Leo University, Ammar Mohrat.
Therefore, since the mechanism behind Bitcoin is so difficult to understand it is still unclear whether the currency has a chance to become a mainstream payment method in the future.
“I don’t think it is going to become the main currency because I don’t believe that any government would support such a thing especially here in the U.S.” added Mohrat,
Nonetheless, startups, such as Bitpay, Coinbase, or Circle, which process Bitcoin payments, have already raised millions of dollars while more and more Bitcoin ATM’s pop up around the world, according to The Washington Post. Even though the future of the currency is unknown yet, Bitcoin has begun a new era of digital payments.