Bitcoin is the currency of the Internet: a distributed, worldwide, decentralized digital money. Unlike traditional currencies such as dollars, bitcoins are issued and managed without any central authority whatsoever: there is no government, company, or bank in charge of bitcoin. As such, it is more resistant to wild inflation and corrupt banks. With Bitcoin, people can be their own bank.
For buying bitcoins, they can be bought online from Bitcoin.com using a credit card, or by using an exchange via a bank transfer of fiat currency. Bitcoin can also be purchased locally using services like Localbitcoins or Bitcoin ATMs——although recently Lloyds bank do not allow to use their credit card to buy bitcoin anymore.
In the real bitcoin world, however, there is no intermediate. As major credit card fees today can be as high as 6% which hurt both businesses and consumers, bitcoin uses peer-to-peer technology to operate with no central authority or banks therefore nobody owns or controls Bitcoin and everyone can take part. Managing transactions and the issuing bitcoins is carried out not by an authority, but by a network of communicating nodes and miners running open-source bitcoin software.
Miners are special users that use computing power to verify and secure bitcoin transactions. For their work they receive some bitcoin as a reward.
Computers around the world ‘mine’ for coins by competing with each other. To succeed in mining you’d need a specialized mining computer, as they are much faster than your regular laptop and specialized to complete mining work. Mining is competitive business today and requires specialized equipment to earn return. Mining is the act of processing and verifying transactions on the readily available software applications (such as wallet apps) of Bitcoin network and securing them into the blockchain. Each set of transactions are processed into blocks, secured by the miners, and added to the blockchain.
Because of the blockchain, bitcoin is able to gain its most important and significant characteristic——cryptocurrency. Cryptocurrency is a new type of digital money used to exchange agreed-upon values. It is just like regular currency, except it uses cryptography to secure transactions and control the creation of its native currency.
Blockchain is the digital ledger where all transactions are registered. All bitcoin transactions are also stored in the blockchain. The blockchain is a distributed database, which means each network node verifies and stores its own copy of the blockchain. These nodes can validate transactions, add them to their copy of the blockchain (the ledger), and then forward these additions to other nodes. Owners (those in control of bitcoin addresses) are not explicitly identified. The value within a wallet is not tied to real-world people or email addresses, but rather to specific bitcoin address(es). Through these properties, bitcoin allows exciting uses that could not be covered by any previous payment system.
The blockchain is public and all transactions are recorded and visible via tools known as ‘blockchain explorers’. Additionally, bitcoin exchanges, where bitcoins are traded for traditional currencies, are often required by law to collect the personal information of users.
However,the supply of bitcoin is limited to 21 million units. This was set according to the initial design of the Bitcoin software, and this limitation is fixed into the bitcoin algorithm.
As more and more people come to use Bitcoin, the increased demand combined with the fixed supply will force the price to go up. Because the number of people using Bitcoin in the world is still relatively small, the price of Bitcoin (in comparison to a more traditional currency) can fluctuate significantly on a daily basis.