The world of cryptocurrency may seem a mysterious, misty place for the uninitiated. It is natural that one would want financial transactions to be safe. Payment methods that include credit card, bank account, or cash feel secure; they are established. Using radically different transaction sources appear risky; switching to virtual currency payments can be intimidating because people naturally fear the unknown.
On its face, the notion that it is difficult to use digital currency such as Bitcoin is false. However, individuals and businesses ready to test the waters do need guidance so that they can move forward confidently. Focusing on Bitcoin, the following explains digital currency and how to use it.
Computer Currency Chronicles
Digital currency and cryptocurrency are terms that can be used interchangeably (unlike virtual currency, used in online gaming). Cryptocurrency equates to money, but it can be exchanged only digitally across computer networks. Tokens are the assets that are exchanged for goods. Unlike regular currency, which is regulated up by the Federal government, cryptocurrency is not controlled or distributed by a single entity. That aspect makes its use difficult to regulate or censor.
However, exchanges can be tracked, a process performed by a technology called blockchains. On the front end, blockchains are analogous to ledgers; the blockchain is a bookkeeping system upon which many digital currencies are based, where metadata is employed to represent transaction information; a block is a transaction. These data, which are permanent and secure, include, for example, timestamps and previous transaction history; the system processing and transaction verification occurs via computers owned by groups who have no stake in that transaction, called miners.
Using blockchain accounting in a peer-to-peer network removes third-party interference, keeping users’ personal information out of outside hands. Entities, such as startup technology-company OmniMatrix, are working to educate the public on the inherent security of the blockchain process and the value in using digital currency.
Various computer-network currency types are presently in use. They are traded on well-known exchanges, such as Kraken and Coinbase. They hold value based on what is termed a medium of exchange; because participants are invested in the viability of cryptocurrency, it serves a sustainable marketplace function. Of the cryptocurrency systems, trendsetter Bitcoin is the most recognizable one.
A Bit of Bitcoin History
Virtual currencies were introduced before bitcoin in the 1990s at a time when venture-financed technology companies exploded onto the scene; digital currency startups joined the rush, but they failed in their efforts as a consequence of internal strife and corruption. Notably, unlike blockchain-based Bitcoin, they relied on outside services to control the transaction.
Bitcoin came into being between August 2008 and February 2009 through a complex process. It was invented by an individual going by the name Satoshi Nakamoto – sort of. Since Satoshi Namoto is a pseudonym, the unknown creator may have been a single person or a collective. Whatever its origin, Bitcoin has historically dominated the digital currency world.
Bitcoin Buys and Whys
Do not think of Bitcoin as some kind of dark-web tender-system. It serves as an operable form of payment for goods and services from an evolving number of entities: feel free to use bitcoins to book a room through Expedia, buy a rug from Overstock, download Xbox games from Microsoft, or take home a set of headphones from Newegg. Some brick-and-mortar merchants even accept them as payment, usually posting a sign indicating their openness.
There is clear value to accepting bitcoins, especially for small companies. Because the transactions are not regulated, they can fit easily into an international model. They are also less costly than credit card purchases, since Visa, MasterCard, and American Express take a percentage of each buy. Most appealingly, transactions are anonymous; at a time when it seems no movement goes unnoticed, there is a sense of security to this.
However, because customers can’t just go to a bank and grab a Bitcoin gift card – remember, mainstream financial institutions are not players in the cryptocurrency universe – they have to make a virtual visit to an exchange to gain access to the coin or the exchange’s own gift cards. The process is relatively simple.
When one is ready to dive in, look for an exchange. The best ones for beginners behave transparently, as for example does NordikCoin, providing an accessible interface and simplified process. Users create an account based on an email and a secure password. Using traditional payment methods, the user purchases bitcoins based on their value at that time. The bitcoins are stored in what is appropriately termed a wallet. The user has the option of choosing between two kinds of wallets; just as a music collector can download files to a computer and mobile phone, or transfer them to the cloud, bitcoin owners can choose between storing the currency on either their own device or a remote server.
The wallet generates an address that is used for a transaction, including where one receives a payment from another user. Each transaction thereafter requires the user to creates a new address as part of the blockchain security process. Mobile phone users will sometimes process transactions using a unique QR code.
Every transaction includes in the blockchain a private key that contains user data. This key transfer may be compared to presenting a driver’s license, along with a signature, at a credit card checkout – it verifies that the cryptocurrency sender is the owner of the wallet. However, unlike a photo identification, this key provides no personal information.
This bitcoin-payment procedure, with the inherent key signature, opens no avenue for anyone to alter a key or access a user’s personal information. The decentralized nature of the system also means no financial or government entity can take control of a buyer’s currency or prevent access to it for any reason. While one may pay a wallet fee, these should be minimal, and other costs, including international transactions, are exempt from typically-imposed extra fees.
Behind the scenes, the process of buying and selling using virtual currency is abstract and complicated. For consumers or businesses, however, using bitcoin as a form of payment can be seamless. Doing appropriate research may lead either group to conclude that bitcoin can be part of a practical commerce solution.