What is a Bitcoin? Bitcoin is a decentralized digital currency, made up of a block of encrypted data. This currency exists purely in electronic form, and exchanged through a secure peer-to-peer file transfer system. Bitcoins are considered to have value because they are accepted as payment by a number of online vendors.

1. Bitcoin Accepted Here!
By: Ahmed Banafa, Distinguished Tenured Staff | Faculty | SME | E-Learning Expert | Four-time
winner of instructor of the year award
What is a Bitcoin?
Bitcoin is a decentralized digital currency, made up of a block of encrypted data. This currency
exists purely in electronic form, and exchanged through a secure peer-to-peer file transfer
system. Bitcoins are considered to have value because they are accepted as payment by a number
of online vendors.
Bitcoin‘s value, is determined by supply and demand in the market, much like gold or any other
traded commodity. It‘ is subject to the same volatility and sometimes irrational performance.
Paula Rosenblum explained it well in her article in Forbes :It‘s a cross between a stock and a
form of payment. It‘s a form of payment because you can use Bitcoins to pay for things. You
can also send small amounts of currency to people in other countries, without worrying about
exchange rates or currency conversion fees.
It‘s a stock because there‘s a fixed number of ―Bitcoins‖ in the universe. The value of each
Bitcoin fluctuates based on the law of supply and demand. The more people that want to use
them, the higher their value.
Bitcoin was envisioned as a peer-to-peer trustless exchange. In plain English, that means I want
to do a transaction with you, but I don‘t trust you with my credit card number or other personal
information. I don‘t care what country you live in, who you are, or what you do. I understand
that any transaction we enter into will be irrevocable. That means I can‘t call someone to say

2. ―Stop that payment.‖ Payment is made immediately. If you have a dispute, it has to be with the
party you made the arrangement with.
Information on every Bitcoin is recorded in what‘s called a ―ledger.‖ Think of it as the
equivalent of the book and page number of the title to your house. The book and page number
didn‘t change, only the owner of the title. When you sell your house, the ownership was
transferred to someone else. The book and page number remained the same. Similarly, when
someone pays for something with a Bitcoin, that spot in the ledger is transferred to the buyer.
But no one knows who the current owner of that spot is, or who the seller was. That information
is encrypted. In fact, it‘s very hard to separate Bitcoin, the currency, from Bitcoin, the
technology. They‘re inextricably linked. One could not exist without the other.
Problems with Bitcoin
Bitcoin as a currency is completely unregulated
Bitcoin‘s value is not backed by anything real or tangible.
Bitcoins are not so easy to buy.
How can I get Bitcoins?
Buy on an Exchange : Several marketplaces called ―Bitcoin exchanges‖ allow people to
buy or sell Bitcoins using different currencies.
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.
Bitcoin Mining
A common analogy for Bitcoins is gold: like gold, they have value only because people want
them, the supply is limited, more Bitcoins are created only by ‗mining‘ for them and the
difficulty in mining grows as they are mined. But rather than being stored in underground vaults
Bitcoins are simply entries in a notional ledger held across many computers around the world.
The actual mining of Bitcoins is by a purely mathematical process. A useful analogy is with the
search for prime numbers: it used to be fairly easy to find the small , but as they were found it
got harder to find the larger ones. Nowadays researchers use advanced high-performance
computers to find them.
For Bitcoins the search is not actually for prime numbers but to find a sequence of data (called a
‗block‘) that produces a particular pattern when the Bitcoin ‗hash‘ algorithm is applied to the
data. When a match occurs the miner obtains a bounty of Bitcoins (and also a fee if that block

3. was used to certify a transaction). The size of the bounty reduces as Bitcoins around the world
are mined.
Is Bitcoin secure?
Bitcoin is referred to as a cryptocurrency because it relies on cryptography for security. Bitcoins
are cryptographically signed each time they are exchanged, which requires that each Bitcoin user
have both a public and unique private key. These transactions are maintained in a master registry
called the blockchain, which is maintained by all of Bitcoin‘s users.
Despite these measures, however, Bitcoin is still vulnerable to hacking, largely because Bitcoins
are stored on individual users‘ PCs.
Digital Wallet
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.

4. The Future of Bitcoin?
As Marc Andreessen mentioned in his article : Bitcoin is a classic network effect, a positive
feedback loop. The more people who use Bitcoin, the more valuable Bitcoin is for everyone who
uses it, and the higher the incentive for the next user to start using the technology. Bitcoin shares
this network effect property with the telephone system, the web, and popular Internet services
like eBay and Facebook.
Bitcoin is a four-sided network effect. There are four constituencies that participate in expanding
the value of Bitcoin as a consequence of their own self-interested participation. Those
constituencies are (1) consumers who pay with Bitcoin, (2) merchants who accept Bitcoin, (3)
―miners‖ who run the computers that process and validate all the transactions and enable the
distributed trust network to exist, and (4) developers and entrepreneurs who are building new
products and services with and on top of Bitcoin.
One immediately obvious and enormous area for Bitcoin-based innovation is international
remittance.Switching to Bitcoin, which charges no or very low fees, for these remittance
payments will therefore raise the quality of life of migrant workers and their families
significantly.
Here in the United States, a long-recognized problem is the extremely high fees that the
“unbanked” — people without conventional bank accounts – pay for even basic financial
services. Bitcoin can be used to go straight at that problem, by making it easy to offer extremely
low-fee services to people outside of the traditional financial system.
A fascinating use case for Bitcoin is micropayments. Micropayments have never been feasible,
despite 20 years of attempts, because it is not cost effective to run small payments (think $1 and
below, down to pennies or fractions of a penny) through the existing credit/debit and banking
systems. The fee structure of those systems makes that nonviable.
Think about content monetization, for example. One reason media businesses such as
newspapers struggle to charge for content is because they need to charge either all (pay the entire
subscription fee for all the content) or nothing (which then results in all those terrible banner ads
everywhere on the web). All of a sudden, with Bitcoin, there is an economically viable way to
charge arbitrarily small amounts of money per article, or per section, or per hour, or per video
play, or per archive access, or per news alert.
Another potential use of Bitcoin micropayments is to fight spam. Future email systems and
social networks could refuse to accept incoming messages unless they were accompanied with
tiny amounts of Bitcoin – tiny enough to not matter to the sender, but large enough to deter
spammers, who today can send uncounted billions of spam messages for free with impunity.
Some prominent economists are deeply skeptical of Bitcoin, even though Ben S. Bernanke,
formerly Federal Reserve chairman, recently wrote that digital currencies like Bitcoin ―may hold
long-term promise, particularly if they promote a faster, more secure and more efficient payment
system.‖ And in 1999, the legendary economist Milton Friedman said: ―One thing that‘s missing

5. but will soon be developed is a reliable e-cash, a method whereby on the Internet you can
transfer funds from A to B without A knowing B or B knowing A – the way I can take a $20 bill
and hand it over to you, and you may get that without knowing who I am.‖
Of course there is a dark side of all this , including illegal activities like drug trafficking, money
laundry , and more . But nothing is pure evil or pure good, regulations will evolve with this
technology to minimize the dark side of Bitcoin.
References
http://dealbook.nytimes.com/2014/01/21/why-bitcoin-
matters/?_php=true&_type=blogs&_php=true&_type=blogs&smid=tw-share&_r=1
http://www.forbes.com/sites/paularosenblum/2014/01/27/bitcoin-the-currency-of-the-future/
http://www.businessinsider.com/how-bitcoins-are-mined-and-used-2013-4
https://bitcoin.org/en/faq
http://money.cnn.com/infographic/technology/what-is-bitcoin/