Bitcoin is a cryptocurrency, a digital asset designed to work as a medium of exchange that uses cryptography to control its creation and management, rather than relying on central authorities. It was created in 2009 by an unknown person using the alias Satoshi Nakamoto. Transactions are made with no middle men – meaning, no banks! There are no transaction fees and no need to give your real name. More merchants are beginning to accept them: You can buy webhosting services, pizza or even manicures.
Bitcoins can be used to buy merchandise anonymously. In addition, international payments are easy and cheap because bitcoins are not tied to any country or subject to regulation. Small businesses may like them because there are no credit card fees. Some people just buy bitcoins as an investment, hoping that they’ll go up in value.
Buy on an Exchange – Several marketplaces called “bitcoin exchanges” allow people to buy or sell bitcoins using different currencies. Mt. Gox is the largest bitcoin exchange.
Transfers – People can send bitcoins to each other using mobile apps or their computers. It’s similar to sending cash digitally.
Mining – People compete to “mine” bitcoins using computers to solve complex math puzzles. This is how bitcoins are created. Currently, a winner is rewarded with 25 bitcoins roughly every 10 minutes.
Bitcoins are stored in a “digital wallet,” which exists either in the cloud or on a user’s computer. The wallet is a kind of virtual bank account that allows users to send or receive bitcoins, pay for goods or save their money. Unlike bank accounts, bitcoin wallets are not insured by the FDIC.
Though each bitcoin transaction is recorded in a public log, names of buyers and sellers are never revealed – only their wallet IDs. While that keeps bitcoin users’ transactions private, it also lets them buy or sell anything without easily tracing it back to them.
From a user perspective, Bitcoin is nothing more than a mobile app or computer program that provides a personal Bitcoin wallet and allows a user to send and receive bitcoins with them. This is how Bitcoin works for most users.
As a new user, you can get started with Bitcoin without understanding the technical details. Once you have installed a Bitcoin wallet on your computer or mobile phone, it will generate your first Bitcoin address and you can create more whenever you need one. You can disclose your addresses to your friends so that they can pay you or vice versa. In fact, this is pretty similar to how email works, except that Bitcoin addresses should only be used once.
BALANCES = BLOCK CHAIN
The ‘block chain’ is a shared public ledger on which the entire Bitcoin network relies. This ledger contains every transaction ever processed, allowing a user’s computer to verify the validity of each transaction. This way, Bitcoin wallets can calculate their spendable balance and new transactions can be verified to be spending bitcoins that are actually owned by the spender. The integrity and the chronological order of the block chain are enforced with cryptography.
TRANSACTIONS = PRIVATE KEYS
A transaction is a transfer of value between Bitcoin wallets that gets included in the block chain. Bitcoin wallets keep a secret piece of data called a private key or seed, which is used to sign transactions, providing a mathematical proof that they have come from the owner of the wallet. The signature also prevents the transaction from being altered by anybody once it has been issued. All transactions are broadcast between users and usually begin to be confirmed by the network in the following 10 minutes, through a process called mining.
PROCESSING = MINING
Mining is a distributed consensus system that is used to confirm waiting transactions by including them in the block chain. It enforces a chronological order in the block chain, protects the neutrality of the network, and allows different computers to agree on the state of the system. To be confirmed, transactions must be packed in a block that fits very strict cryptographic rules that will be verified by the network. These rules prevent previous blocks from being modified because doing so would invalidate all following blocks. Mining also creates the equivalent of a competitive lottery that prevents any individual from easily adding new blocks consecutively in the block chain. This way, no individuals can control what is included in the block chain or replace parts of the block chain to roll back their own spends.
There are a growing number of businesses and individuals using Bitcoin. This includes brick-and-mortar businesses like restaurants, apartments, and law firms, as well as popular online services such as Namecheap, Overstock.com, and Reddit. While Bitcoin remains a relatively new phenomenon, it is growing fast. At the end of April 2017, the total value of all existing bitcoins exceeded 20 billion US dollars, with millions of dollars worth of bitcoins exchanged daily.
It turns out Businesses and Governments from around the World are slowly accepting virtual currencies, as they partner up with upcoming third-party Bitcoin services that act as middleman to facilicate the exchange of cryptocurrency directly to fiat currency.
QUICK LIST OF COMPANIES ACCEPTING BITCOIN
- WordPress.com – An online company that allows user to create free blogs
- Overstock.com – A company that sells big ticket items at lower prices due to overstocking
- Subway – Eat fresh
- Microsoft – Users can buy content with Bitcoin on Xbox and Windows store
- Reddit – You can buy premium features there with bitcoins
- Virgin Galactic – Richard Branson company that includes Virgin Mobile and Virgin Airline
- Tigerdirect – Major electronic online retailer
- Namecheap – Domain name registrar
- CheapAir.com – Travel booking site for airline tickets, car rentals, hotels
- Expedia.com – Online travel booking agency
- Gyft – Buy giftcards using Bitcoin
- Newegg.com – Online electronics retailer now uses bitpay to accept bitcoin as payment
- Dell – American privately owned multinational computer technology company
- Wikipedia – The Free Encyclopedia with 4 570 000+ article
- Steam – Desktop gaming platform
- Alza – Largest Czech online retailer
- The Internet Archive – web documatation company
- Bitcoin.Travel – a travel site that provides accommodation, apartments, attractions, bars, and beauty salons around the world
- The Pirate Bay – BitTorrent directories
- Zynga – Mobile gaming
- Etsy Vendors – 93 of them
- PizzaForCoins.com – Domino’s Pizza signed up – pay for their pizza with bitcons
- Whole Foods – Organic food store (by purchasing gift card from Gyft)
- Mint.com – Mint pulls all your financial accounts into one place. Set a budget, track your goals and do more
- Fancy.com – Discover amazing stuff, collect the things you love, buy it all in one place (Source: Fancy)more
- Bloomberg.com – Online newspaper
- Humblebundle.com – Indie game site
- BigFishGames.com – Games for PC, Mac and Smartphones (iPhone, Android, Windows)
- San Jose Earthquakes – San Jose California Professional Soccer Team (MLS)
- Square – Payment processor that help small businesses accept credit cards using iPhone, Android or iPad
- Dish Network – An American direct-broadcast satellite service provider
- The Libertarian Party – United States political party
- Intuit – an American software company that develops financial and tax preparation software and related services for small businesses, accountants and individuals.
- ShopJoy – An Australian online retailer that sells novelty and unique gifts
- Grooveshark – Online music streaming service based in the United States
- Braintree – Well known payments processor
- MIT Coop Store – Massachusetts Institute of Technology student bookstore
- Shopify.com – An online store that allows anyone to sell their products
- Famsa – Mexico’s biggest retailer
- Naughty America – Adult entertainment provider
- Mexico’s Universidad de las Américas Puebla – A major university in Mexico
- MovieTickets.com – Online movie ticket exchange/retailer
- Lionsgate Films – The production studio behind titles such as The Hunger Games and The Day After Tomorrow
- Rakutan – A Japanese e-commerce giant
- RE/MAX London – UK-based franchisee of the global real estate network
- T-Mobile Poland – T-Mobile’s Poland-based mobile phone top-up company
- Stripe – San Francisco-based payments company
- Save the Children – Global charity organization
Since 2008, bitcoin adoption has been influenced by a diverse range of factors that have made it one of the most volatile currencies in the world. Yet, despite such volatility, more than 100,000 bitcoin transactions are taking place per day and the volume continues to grow due to the ‘permissionless innovation’ provided by bitcoin’s underlying technology, the blockchain.
As the blockchain matures, bitcoin will increasingly resemble traditional financial services, with functions such as retail banking (Circle), exchanges (Coinbase) and payment processors (bitnet) being created. But how did it all start off, and where will it go next? Here, we take a brief overview of the major milestones in the cryptocurrency’s brief history and look to where it might be headed in the future.
- – Three individuals, Neal Kin, Vladimir Oksman, and Charles Bry file an application for an encryption patent application. All three individuals deny having any connection to Satoshi Nakamoto, the alleged originator of the Bitcoin concept. The three also register the site Bitcoin.org in the same month, over on anonymousspeech.com – which allows people to buy domain names anonymously.
- – Despite the above, Satoshi Nakamoto releases his white paper, revealing his idea for a purely peer-to-peer version of electronic cash to the world. In his vision, he manages to solve the problem of money being copied, providing a vital foundation for Bitcoin to grow legitimately.
- – The first block, nicknamed ‘Genesis’ is launched allowing the initial ‘mining’ of Bitcoins to take place. Later that month, the first transaction takes place between Satoshi and Hal Finney, a developer and cryptographic activist.
- – Bitcoin receives an equivalent value in traditional currencies. The New Liberty Standard established the value of a Bitcoin at $1 = 1,309 BTC. The equation was derived so as to include the cost of electricity to run the computer that created the Bitcoins in the first place.
- – The world’s first Bitcoin market is established by the now defunct dwdollar.
- – A programmer living in Florida named Laslo Hanyecz sends 10,000BTC to a volunteer in England, who spent about $25 to order Hanyecz a pizza from Papa John’s. Today that pizza is valued at $19,999,100 and stands as a major milestone in Bitcoin’s history.
- – Bitcoin is hacked. A vulnerability in how the system verifies the value of Bitcoin is discovered, leading to the generation of 184 billion Bitcoins. The value of the currency – from a high of $0.80 to $1 in June drops through the floor.
- – Bitcoin goes under the spotlight. After the hack in August – and a subsequent discovery of other vulnerabilities in the blockchain in September – an inter-governmental group publishes a report on money laundering using new payment methods. Bitcoin, it suggested could help people finance terrorist groups.
- – Bitcoin reaches $1 million. Based on the number of Bitcoins in circulation at the time, the valuation leads to a surge in Bitcoin value to $0.50/BTC.
- – Bitcoin reaches parity with the US dollar for the first time. By June each Bitcoin is worth $31 giving the currency a market cap of $206 million.
- – The first major theft takes place. Bitcoin Forum founder allinvain reports having 25,000 BTC taken from his digital wallet, which had an equivalent value of $375,000. In the same month, a major breach of security sees the value of the currency go from $17.51 to $0.01 per Bitcoin.
- – The US Financial Crimes Enforcement Network (FINCEN) issues some of the world’s first bitcoin regulation in the form of a guidance report for persons administering, exchanging or using virtual currency. This marked the beginning of an ongoing debate on how best to regulate bitcoin.
- – Bitcoin market capitalisation reaches $1bn.
- – Federal Judge Mazzant claims: “It is clear that Bitcoin can be used as money” and “It can be used to purchase goods or services” in a case against Trendon Shavers, the so-called ‘Bernie Madoff of bitcoin’. Bloomberg begins testing bitcoin data on its terminal. Although alternative tickers exist, endorsement from Bloomberg gives bitcoin more institutional legitimacy.
- – Bitcoin price climbs to $700 in as the US Senate holds its first hearings on the digital currency. The Federal Reserve chairman at the time, Ben Bernanke, gives his blessing to bitcoin. In his letter to the Senate homeland security and government affairs committee, Bernanke states that bitcoin “may hold long-term promise, particularly if the innovations promote a faster, more secure and more efficient payment system”.
- – China’s central bank bars financial institutions from handling bitcoin transactions. This ban was issued after the People’s Bank of China said bitcoin is not a currency with “real meaning” and does not have the same legal status as fiat currency. The ban reflects the risk bitcoin poses to China’s capital controls and financial stability. Today China remains the world’s biggest bitcoin trader, with 80% of global bitcoin transactions being processed in China.
- – Bitcoin custodians Elliptic launch the world’s first insured bitcoin storage service for institutional clients. All deposits are comprehensively insured by a Fortune 100 insurer and held in full reserve. This means Elliptic never re-invests client assets; instead they secure them in deep cold storage. Overstock.com becomes the first major online retailer to embrace bitcoin, accepting payments in the US. Overstock was the first in what is now an expeditiously growing list of large businesses that accept bitcoin.
- – HMRC classifies bitcoin as assets or private money, meaning that no VAT will be charged on the mining or exchange of bitcoin. This is important as it is the world’s first and most progressive treatment of bitcoin, positioning the UK government as the most forward thinking and comprehensive with regard to bitcoin taxation.
- – The US government auctions off more than 29,000 bitcoins seized from the Silk Road, the illegal online marketplace. The sale and closure of the marketplace marks growing institutional understanding of the potential use cases of bitcoin. Additionally, the closure and auction of the Silk Road has helped bitcoin gain legitimacy as it demonstrates that bitcoin is not an easy way for online criminals to avoid the rule of law.
- – From this point onwards bitcoin can no longer be considered as a currency for criminals. The use of the bitcoin blockchain means that the identity of users can often be established.
- – The ‘Bit Licence’ edges towards reality as the New York State Department of Financial Services releases the first draft of the agency’s proposed rules for regulating virtual currencies. The European Banking Authority publishes its opinion on ‘virtual currencies’. Their analytical report recommends that EU legislators consider declaring virtual currency exchanges as ‘obliged entities’ must comply with anti-money laundering (AML) and counter-terrorist financing requirements.
- – The EBA report is important as it acts as a catalyst to launch bitcoin into the financial mainstream by highlighting the fact that virtual currencies require a regulatory approach to strive for an international coordination to achieve a successful regulatory regime.
- – Also that month GABI (Global Advisors Bitcoin Investment Fund) launches the world’s first regulated Bitcoin Investment fund. This is important to the bitcoin ecosystem as the launch of this investment vehicle adds further legitimacy to bitcoin in addition to allowing regulated investors a way to invest in bitcoin.
- – The Chancellor of the Exchequer, George Osborne, demonstrates his and HM Treasury’s positive outlook on bitcoin when he purchases £20 worth of bitcoin and announces HM Treasury’s Call for Information on digital currencies, offering digital currency businesses the chance to comment on the risks and benefits and potentially influence future government policy.
- – TeraExchange announces that the first bitcoin derivative transaction was executed on a regulated exchange, adding a new hedging instrument to bitcoin and instilling credibility and institutional confidence in the entire bitcoin community.
- – Tech giant Microsoft begins accepting bitcoin payments.
- – The New York Stock Exchange is a minority investor in Coinbase’s $75M funding round. The NYSE aims to tap into the new asset class by bringing transparency, security and confidence to bitcoin.
- – The results of the UK Treasury’s call for information on digital currency are announced.
- – 160,000 merchants accept bitcoin payments.
- – Barclays announced that they would become the first UK high street bank to start accepting bitcoin.
- – The Cabinet of Japan recognized virtual currencies like bitcoin as having a function similar to real money.
- – The number of bitcoin ATMs had doubled over the last 18 months and reached 771 ATMs worldwide.
- – The number of businesses accepting bitcoin continues to increase.
- – Bitcoin gains more legitimacy among lawmakers and legacy financial companies. For example Japan passed a law to accept bitcoin as a legal payment method.
- – 1 Bitcoin surpassed the spot price of an ounce of gold for the first time.