Beginners Guide: What is Bitcoin?

A bitcoin was developed by Satoshi Nakamoto in 2009 as a digital currency and peer-to-peer payment system. The currency is normally introduced as open source software and the creation and transfer of money is controlled by cryptography. Participants verify and record statements in exchange for newly minted bitcoins and transaction fees in a process called mining.

A web application, mobile device, personal computer or wallet software is used to send and receive bitcoins that are created by a mining process.

The mining process is very important because participants can use it to obtain bitcoins although the exchange of other currencies, services or products can also be used be used to obtain bitcoins. Price volatility has been fueled in a great way by bitcoins and that is why its commercial use is very small. The fact that the currency has a lower transaction fee compared to credit card processors has made it the most preferred form of payment by merchants.

Transactions

Digitally signed messages are normally broadcasted to the network when it comes to sending payments. It is important to point out that the payer and the payee are not explicitly identified by their names in bitcoin transactions. Users must have Bitcoin addresses because the transfers are only done from one address to another. A block chain is a shared public record where a block of transactions is confirmed. A block of transactions is normally confirmed after very ten minutes. Users get a reward of 25 bitcoins per block for every competitive confirmation process.

Software

Bitcoin wallet software allows users to transact bitcoins and it is sometimes referred to as a Bitcoin client. The software was released for the first time as open source code in 2009 by Satoshi Nakamoto. Other contributors have been able to maintain and enhance the Bitcoin wallet software or Bitcoin-Qt in different ways. The software can be used as a server utility for merchants or as a desktop wallet for regular payments. Other payment services can also be facilitated by Bitcoin-Qt as long as all the requirements are met by users.

Bitcoin-Qt can be used as a standard for the implementation of new payment services and can also serve to define the Bitcoin protocol. Several programming languages have been used in the implementation of Bitcoin wallet software for web applications, mobile devices and personal computers. The use of QR codes to simplify transactions when making a purchase with a mobile device is very ubiquitous.

Wallets

A wallet is a collection of cryptographic keys that are normally used by Bitcoins. Both private and public keys are generated in public-key cryptography. The cryptographic keys are generated in pairs to form what is commonly referred to as a digital wallet. The possession of cryptographic keys can only be proved by a digital signature.