BITCOIN

Crypto currency

     Crypto currencies are just lines of computer code that hold monetary value.  Those lines of code are created by electricity and high-performance computers.  Crypto currency is also known as digital currency.  Either way, it is a form of digital public money that is created by painstaking mathematical computations and police by millions of computer users called miners.  Physically, there is nothing to hold although you can exchange crypto for cash.

     Crypto comes from the word cryptography, the security process used to protect transactions that send the lines of code for purchases.  Cryptography also controls the creation of new coins, the term used to describe specific amounts of code.  Hundreds of coin types now dot the crypto markets; only a handful have the potential to become a viable investment.

     Governments have no control over the creation of crypto currencies, which is what initially made them so popular.  Most crypto currencies begin with a market cap in mind, which means that their production will decrease over time thus, ideally, making any particular on more valuable in the future.

What Are Bitcoins?

     Bitcoin was the first popular crytocoin.  No one knows exactly who created it.  Most cryptocurrencies are designed for maximum anonymity.  But Bitcoin first appeared in 2009 from a developer supposedly named Satoshi Nakamoto.  He has since disappeared and left behind a Bitcoin fortune.

     Because Bitcoin was the first major cryptocurrency, all digital currencies created since then are called altcoins, or alternative coins.  Litecoin, peercoin, feathercoin, ethereum and hundreds of other coins are alcoins because they are not Bitcoin.

     One of the advantages of Bitcoin is that it can be stored offline on a person’s local hardware.  That process is called cold storage and it protects the currency from being taken by others.  When the currency is stored on the Internet somewhere  (hot storage), there is high risk of it being stolen.

     On the flip side, if a person loses access to the hardware that contains the bitcoins, the currency is simply gone forever.  It’s estimated that as much as $30 billion in bitcoins have lost or misplaced by miners and investors.

How bitcoins work

     Bitcoins are completely virtual coins designed to be self-contained for their value, with no need for banks to move and store the money.  Once you own bitcoins, they behave like physical gold coins: They possess value and trade just as if they were nuggets of gold in your pocket.  You can use your bitcoins to purchase goods and services online, or you can tuck them away and hope that their value increases over the years.

     Bitcoins are traded from one personal wallet to another.  A wallet is a small personal database that you store on your computer drive that is cold storage, on your smartphone, on your tablet or somewhere in the cloud (hot storage).

     Bitcoins are forgery resident.  It is so computationally intensive to create a Bitcoin, it isn’t financially worth it for counterfeiters to manipulate the system.