Bitcoin – the original cryptocurrency – is a form of digital currency that allows people to pay and exchange money without using banks or other financial institutions. Bitcoin still has to establish a wide network of supporting mobile payment systems in order to gain widespread adoption.
How does cryptocurrency work?
This means that if I want to buy something online, I can simply hand over money and the retailer doesn’t need to ask for a copy of my identity or ask for proof of bank details. Instead, they can see the money is in my bank account.
If you want to know more about bitcoin, click here for more information.
It is this block that is not stored on the users’ computer but instead embedded in a secure computer that the buyer and seller will use to complete the transaction. This process is called mining.
How does Bitcoin work?
A digital currency works in a similar way to any other. It starts with a ‘block’ – essentially a pre-computed list of data that comprises a complete, immutable record of previous transactions. Then, when you want to transfer money to someone, you agree on a new block that represents the transfer and records it in the transaction history. However, the process of computing the block is time-consuming. The computer the buyer uses has to use computational power to try to find a new block. This is known as ‘mining’.
What are Bitcoin’s advantages over normal currency?
Using Bitcoin is relatively easy and cheap. This is largely down to the way it works. Bitcoin is the cheapest form of currency available on the market and there are lots of benefits to using it:
- There is no charge to use a Bitcoin for online transactions (usually around 1% – 2% of the transaction cost)
- There are also no exchange charges when exchanging your Bitcoin for other currencies
- The only form of tax that applies to Bitcoin is the transaction tax (which is the same as a normal transaction)
- You can instantly transfer the money from one Bitcoin to another – this is known as an ‘instant exchange’ – without the need to wait for your currency to be transferred through the ‘exchange’
- You don’t have to deal with banks or intermediaries – usually, they charge fees, charge interest, and charge fees to withdraw your money, which can be as much as 1% to 3% in some cases
What is Bitcoin Cash?
Bitcoin Cash (sometimes referred to as Bcash) is a brand-new currency that has recently been introduced to the Bitcoin system. Bitcoin Cash is not another version of Bitcoin, but an entirely new currency created by a hash-power ‘fork’ which splits the currency into two.
This means that the original Bitcoin protocol is preserved and compatible with Bitcoin Cash, but that many different blockchains have been created using the Bitcoin protocol. This makes it possible for people to exchange Bitcoins using the original protocol.
This is the third new currency that has been introduced to the Bitcoin system, with the previous ones being Bitcoin Cash in August 2017, and Bitcoin Gold in October 2017.
Is it safe?
Unlike any other currency or asset, the value of Bitcoin does not fluctuate with market forces – it can only be controlled. To reduce volatility, the Bitcoin network ‘shares’ the transaction data across several computers, ensuring that every single Bitcoin transaction is verified before it is sent.
Many other currencies have difficulty with this and their values are highly affected by market sentiment. The fact that this takes place across millions of computers also increases the security of the system.