Bitcoin, a decentralized digital currency, now has a market capitalization of over $6 billion. It is now accepted as a legitimate currency in countries such as Argentina and Japan. The price of Bitcoin has climbed so high that it’s even possible to buy an apartment! However, despite its potential to fine-tune how people interact with money, some questions still surround the new digital currency.
What is the Bitcoin Era?
Bitcoin, like all things, has its pros and cons. Its decentralized structure brings with it both benefits and risks. One of the risks that deal with the lack of control is there is no central authority to regulate Bitcoin use. Rather, the bitcoin era platform is regulated by peer review and network nodes. It means that it’s up to the individual(s) using Bitcoin to make sure transactions are correct. The risks of fraud are especially high in situations where exchanges don’t follow security best practices. For example, in 2011, a Japan-based Bitcoin exchange called Mt. Gox was breached. It resulted in the loss of over $400,000 worth of Bitcoins.
Big players can influence the price by launching a Pump and Dump scheme. In a P&D scheme, a large number of Bitcoins are purchased and then “pumped” into the market to raise the price. Once the price rises, Bitcoins are sold at a profit. The downside of P&D is that it can cause false demand, thus creating a bubble. The volatility of Bitcoin could create problems for the markets that use it. For example, in 2011, the Tokyo-based Mt. Gox exchange was hacked, meaning that 1% of all Bitcoins were stolen. It led to an increase in volatility between 2013-2014.
Short intro to Bitcoin code
Bitcoin contains peer-to-peer technology, which means that no government authority issues new cash or tracks exchange. Instead, everyone running the software helps to process and confirm transactions. This decentralization means that anyone can use bitcoin without needing to identify themselves. Bitcoin’s decentralized network is kept secure by a distributed consensus mechanism. This mechanism makes it extremely difficult for anyone to alter the existing transaction record without everyone else agreeing to the changes. It ensures that any central authority cannot control the transaction history. The software which runs bitcoin is open source, meaning that anyone can look at it and make sure it does what it’s supposed to. You can refer to bitcoincodesweden.com for full details. All transactions are public, but each user has a unique 30+ character alphanumeric ID. Each time a block is added to the blockchain, the whole network updates with every transaction it contains – so everyone can see what has been happening. Bitcoin’s transactions are sent from and to electronic bitcoin “wallets,” which everyone has. The wallets contain the users’ public and private keys that allow them to be verified as owners of the bitcoins. Wallets also keep a secret piece of data called a “private key,” which allows users to prove they have this money. A common misconception is that bitcoin is completely anonymous – but in reality, it is only pseudo-anonymous.
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