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The Workings of Bitcoin

Bitcoin is classified in a variety of ways. Is it a form of currency, a store of value, a payment network, or an asset class?
 
It is, however, easier to define what Bitcoin actually is. In other words, it is software. You should not be fooled by images of shiny coins with Thai baht symbols affixed to them. Bitcoin is a purely digital phenomenon that consists of a set of protocols and processes.
 
 
Additionally, it is the most successful of hundreds of attempts to create virtual money through the application of cryptography, the science of making and breaking codes. Bitcoin has inspired hundreds of imitators, but it remains the largest cryptocurrency by market capitalization. This distinction has been held for more than a decade.
 
(Just a note: according to the Bitcoin Foundation, the name Bitcoin is capitalized when it refers to a container of cryptocurrency or to individual units. Bitcoin is also abbreviated as BTC. Throughout this article, we will alternate between these usages.)
 
ProsCons
Easy to obtain – cryptocurrency exchanges make it easy for you to purchase bitcoin.Due to the unregulated nature of bitcoin, you are not legally protected in the case of a problem.
If you need money, it is easy to cash out and sell your bitcoin.Limited practical use – Bitcoins cannot be used to make purchases. First, it must be converted into regular money.
There is the potential for high returns – bitcoin tends to peak at extremely high prices.The price of bitcoin is extremely volatile – it can drop very quickly and reach extremely low prices.
The security of Bitcoin is that you always know where it comes from and where it goes.A bitcoin cannot be reversed and if it is stolen, it cannot be recovered.
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Why is bitcoin so valuable?

Using bitcoins – and other cryptocurrencies – as a medium of exchange will become a reality soon. This is similar to how traditional money works – such as ringgit and dollars.
 
As opposed to money that is controlled by a central bank, bitcoins do not have any backing. The value of it is solely determined by how much people believe it is worth and therefore buy it with real world money.
 
Scarcity is the only thing that can control bitcoin’s value. Even though not all of it has been made available, bitcoin has a finite number of available units. This is because bitcoin has a fixed amount as well as increasing difficulty in obtaining it.

BTC


Mining BTC

 

You can also mine bitcoin for yourself if you’re fairly tech-savvy. It takes quite a bit of effort, but is appealing to those who aren’t as interested in simply buying bitcoin and waiting for it to rise in value.

Bitcoin mining is necessary for bringing in fresh currency for new investors, which can be extremely profitable for the people doing it.

However, mining any amount of bitcoin requires a lot of computing power. As a result, you will be consuming a lot of electricity each month. Depending on how big your operation is, the extra energy consumed varies, but the BBC reported that global mining consumes as much energy as Switzerland annually.

Hence, you won’t be spending money to buy bitcoins if you’re trying to mine them – but you will be paying for electricity.

A comparison of Bitcoin and Litecoin

  • Litecoin and Bitcoin are both cryptocurrencies. In 2009, Bitcoin emerged as the dominant brand. Two years later, Litecoin emerged as a major competitor.
  • Litecoin has a market capitalization of $13.7 billion, while Bitcoin is worth $1 trillion.
  • It produces more Litecoins and its transaction speed is faster than Bitcoin’s, but these advantages are primarily psychological and have no impact on Bitcoin’s value.
  • Both Bitcoin and Litecoin use fundamentally different cryptographic algorithms: Bitcoin uses an old algorithm, SHA-256, and Litecoin uses a more recent algorithm called Scrypt.

FAQ

As a consensus network, Bitcoin enables a new payment system and a completely digital currency. This is the first peer-to-peer payment network that is powered by its users with no central authority or middleman. According to a user's perspective, Bitcoin is pretty much like Internet cash. Additionally, Bitcoin is the most prominent triple entry bookkeeping system in existence.

A new form of money is proposed that uses cryptography to control its creation and transactions, instead of a central authority, in 1998 via Wei Dai's cypherpunks mailing list, which was referred to as "cryptocurrency" at the time. Bitcoin was introduced by Satoshi Nakamoto in a cryptography mailing list in 2009, along with a proof of concept. Despite his lack of involvement in the project, Satoshi left it in late 2010. Since then, the community has grown exponentially, with many developers working on Bitcoin.
 
Bitcoin's open-source nature often caused unjustified concerns about Satoshi's anonymity. Every developer around the world can review the Bitcoin code or make their own modified version of the Bitcoin software, because the protocol and software are published openly. Unlike current developers, Satoshi only influenced Bitcoin by making changes that were adopted by others, so he did not control it. Therefore, the identity of Bitcoin's inventor is probably as relevant today as the identity of the inventor of paper.

Just as no one owns the technology behind email, nobody owns the Bitcoin network. Globally, Bitcoin is controlled by its users. Developers are improving the software, but they are unable to force a change in the Bitcoin protocol since all users are free to choose what software they want to use. Software users must adhere to the same rules in order to be compatible with each other. All users must reach a complete consensus in order for Bitcoin to function correctly. As a result, all users and developers have a strong incentive to protect this consensus.

From the user's perspective, Bitcoin is nothing more than a mobile app or a computer program which provides a personal Bitcoin wallet and enables them to send and receive bitcoins. The way Bitcoin works for most users is as follows.
 
An important part of the Bitcoin network is a public ledger known as a "block chain." The ledger contains all transactions ever processed, so that a user's computer can verify the validity of each transaction. Each transaction is authenticated by a digital signature corresponding to the sending address, allowing all users full control over sending bitcoins from their own Bitcoin addresses. Additionally, anyone can process transactions using specialized hardware and earn bitcoins as a reward for doing so. Mining is often referred to as this. If you want to learn more about Bitcoin, you can read the original paper and the dedicated page.

Definitely. Businesses and individuals are increasingly using Bitcoin. Businesses such as restaurants, apartments, and law firms are also accepting Bitcoin, as well as popular online services such as Namecheap and Overstock.com. Bitcoin is a relatively new phenomenon, but it is growing rapidly. There were more than 100 billion dollars in bitcoins as of May 2018, and they were being exchanged daily for millions of dollars each.

  • The purchase of a good or service.
  • A Bitcoin exchange is the best place to buy bitcoins.
  • You can exchange bitcoins with someone nearby.
  • Earn bitcoins by mining competitively.
  • Although it may be possible to find sellers willing to accept credit card payments or PayPal payments in exchange for bitcoins, most exchanges do not allow funding through these methods. This occurs when someone buys bitcoins with PayPal, and then reverses their half of the transaction. Chargebacks are commonly referred to as such.

It is easier to accept bitcoin payments than debit or credit card payments, and no merchant account is required. Payments are made through a wallet application, either on your computer or smartphone, by entering the recipient's address, the amount to be paid, and clicking on send. Numerous wallets can obtain the recipient's address by scanning the QR code or by touching two phones together using NFC technology.

 

Comparison

 Bitcoin (BTC)Bitcoin cash (BCH)Ether (ETH)Litecoin (LTC)EOS (EOS)Stellar (XLM)NEO (NEO)
Launch2009201720152011201820142014
Circulating supply>17 million>17 million>102 million>58 million>906 million>18 billion65 million
Maximum supply21 million21 millionNo upper limit84 millionNo upper limitNo upper limit100 million
Current mining/release rate12.5 per block12.5 per block3 per block25 per blockUp to 5% inflation per yearUp to 1% inflation per yearUp to 15 million per year
Transactions per second7602056280010001000
(maximum)
Networkn/an/aEthereumn/aEOS.IOStellarNEO
Block time (approximate)10 minutes10 minutes15 seconds2 minutes 30 seconds0.5 seconds5 seconds15 seconds

Bitcoin compared to other major cryptocurrencies


Unlike physical currencies, cryptocurrencies are virtual currencies that operate independently of banks and governments but can still be exchanged – or speculated upon – just like any other form of currency. The first decentralized cryptocurrency, bitcoin, was launched in 2009. There have since been thousands of cryptocurrencies launched, also known as altcoins.

Bitcoin remains the market leader, but cryptocurrencies such as bitcoin cash, bitcoin gold, ether, litecoin, ripple, EOS, stellar (XLM), and NEO could challenge it in the future due to rising demand, expanded applications, and technological advancements.

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Bitcoin traders should not invest more money than they can afford to lose in the cryptocurrency market, as it is a wild west. Volatility in crypto assets can be intense, with prices fluctuating significantly in a single day. For novice investors, trading against highly sophisticated players can be a challenging experience.

Bitcoin Futures - Contract Specs

CONTRACT UNIT
5 bitcoin, as defined by the CME CF Bitcoin Reference Rate (BRR)
PRICE QUOTATION
U.S. dollars and cents per bitcoin
TRADING HOURS
CME Globex:
Sunday – Friday 5:00 p.m. – 4:00 p.m/ CT with a 60-minute break each day beginning at 4:00 p.m. CT
CME ClearPort:
Sunday 5:00 p.m. – Friday 5:45 p.m. CT with no reporting Monday – Thursday from 5:45 p.m. – 6:00 p.m. CT
MINIMUM PRICE FLUCTUATION
Outright:
5.00 per bitcoin = $25.00
CALENDAR SPREAD
1.00 per bitcoin = $5.00
PRODUCT CODE
CME Globex: BTC
CME ClearPort: BTC
Clearing: BTC
BTIC: BTB
LISTED CONTRACTS
Monthly contracts listed for 6 consecutive months and 2 additional Dec contract months. If the 6 consecutive months includes Dec, list only 1 additional Dec contract month.
SETTLEMENT METHOD
Financially Settled
TERMINATION OF TRADING
Trading terminates at 4:00 p.m. London time on the last Friday of the contract month. If this is not both a London and U.S. business day, trading terminates on the prior London and the U.S. business day.
SETTLEMENT PROCEDURES
POSITION LIMITS
EXCHANGE RULEBOOK
BLOCK MINIMUM
PRICE LIMIT OR CIRCUIT
VENDOR CODES