What Is Bitcoin, How Is It Different Than “Real” Money

Bitcoin is a virtual currency. It doesn’t exist in the kind of physical form that the currency & coin we’re used to exist in. It doesn’t even exist in a form as physical as Monopoly money. It’s electrons – not molecules.

But consider how much cash you personally handle. You get a paycheck that you take to the bank – or it’s autodeposited without you even seeing the paper that it’s not printed on. You then use a debit card (or a checkbook, if you’re old school) to access those funds. At best, you see 10% of it in a cash form in your pocket or in your pocketbook. So, it turns out that 90% of the funds that you manage are virtual – electrons in a spreadsheet or database.

But wait – those are U.S. funds (or those of whatever country you hail from), safe in the bank and guaranteed by the full faith of the FDIC up to about $250K per account, right? Well, not exactly. Your financial institution may only required to keep 10% of its deposits on deposit. In some cases, it’s less. It lends the rest of your money out to other people for up to 30 years. It charges them for the loan, and charges you for the privilege of letting them lend it out.

How does money get created?

Your bank gets to create money by lending it out.

Say you deposit $1,000 with your bank. They then lend out $900 of it. Suddenly you have $1000 and someone else has $900. Magically, there’s $1900 floating around where before there was only a grand.

Now say your bank instead lends 900 of your dollars to another bank. That bank in turn lends $810 to another bank, which then lends $720 to a customer. Poof! $3,430 in an instant – almost $2500 created out of nothing – as long as the bank follows your government’s central bank rules.

Creation of Bitcoin is as different from bank funds’ creation as cash is from electrons. It is not controlled by a government’s central bank, but rather by consensus of its users and nodes. It is not created by a limited mint in a building, but rather by distributed open source software and computing. And it requires a form of actual work for creation. More on that shortly.

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Introduction to Bitcoin

 Bitcoin has been in the news the last couple of weeks, but a lot of people are still unaware of them. Could Bitcoin be the future of online currency? This is just one of the questions, frequently asked about Bitcoin.

How Does Bitcoin Work?

Bitcoin is a type of electronic currency (CryptoCurrency) that is autonomous from traditional banking and came into circulation in 2009. According to some of the top online traders, Bitcoin is considered as the best known digital currency that relies on computer networks to solve complex mathematical problems, in order to verify and record the details of each transaction made.

The Bitcoin exchange rate does not depend on the central bank and there is no single authority that governs the supply of CryptoCurrency. However, the Bitcoin price depends on the level of confidence its users have, as the more major companies accept Bitcoin as a method of payment, the more successful Bitcoin will become.

Benefits and Risks of Bitcoin

One of the benefits of Bitcoin is its low inflation risk. Traditional currencies suffer from inflation and they tend to lose their purchasing power each year, as governments continue to use quantative easing to stimulate the economy.

Bitcoin doesn't suffer from low inflation, because Bitcoin mining is limited to just 21 million units. That means the release of new Bitcoins is slowing down and the full amount will be mined out within the next couple of decades. Experts have predicted that the last Bitcoin will be mined by 2050.

Bitcoin has a low risk of collapse unlike traditional currencies that rely on governments. When currencies collapse, it leads to hyperinflation or the wipeout of one's savings in an instant.

Bitcoin exchange rate is not regulated by any government and is a digital currency available worldwide.

Bitcoin is easy to carry. A billion dollars in the Bitcoin can be stored on a memory stick and placed in one's pocket. It is that easy to transport Bitcoins compared to paper money.

One disadvantage of Bitcoin is its untraceable nature, as Governments and other organisations cannot trace the source of your funds and as such can attract some unscrupulous individuals.

How to Make Money with Bitcoin

Unlike other currencies, there are three ways to make money with Bitcoin, saving, trading and mining. Bitcoin can be traded on open markets, which means you can buy Bitcoin low and sell them high.

Read More : Introduction to Bitcoin