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What is Bitcoin? – Definition, Functions, And More

Definition Bitcoin

Bitcoin is a virtual, independent, and decentralized currency when any state controls it, financial institution, bank, or company. Although we can use it as a payment method, it is an intangible currency, just like physical money.

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Origin

The word bitcoin had its origin in 2009 when it was created by Satoshi Nakamoto (pseudonym of its author or authors). Who created it with the aim that it be used to make purchases only through the Internet. The same document to which we refer previously from the Bank of Spain expands this objective: “Bitcoin was born with high ambitions: to provide citizens with a means of payment that enables the execution of fast transfers of value, at low cost and that, furthermore, does it can manipulate or control by governments, central banks or financial entities.”

The virtual currency uses cryptography to manage its creation. We program the system to produce a particular number of bitcoins per unit of time through computers familiar as miners. Currently, that number is set at 25 bitcoins every ten minutes, although it is programmed to halve every four years. Thus, starting in 2017, 12.55 bitcoins will issue every ten minutes. Production will continue until 2140 when we reach the ceiling of 21 million units in circulation.

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How Does It Work?

To use this virtual currency, we will need to download software on our computer or mobile phone that will act as a virtual “wallet”. That will generate a bitcoin address, which we can use to send and receive money from other users. Also, the sending of bitcoins is instantaneous, and we can check all operations real-time. Transactions with this currency involve a transfer of value between two bitcoin addresses, public but anonymous. To guarantee security, transactions are securing using a series of crucial cryptography since each account has a public and a private key.

Risks of Bitcoin

As in other virtual currencies, bitcoin also has a series of risks that must highlight to know precisely the magnitude of this currency. To identify them, we again turn to the report of the General Directorate of Operations. Markets and Payment Systems of the Payment Systems Department of the Bank of Spain, which groups them into:

  • Financing of illicit activities and money laundering. Due to the scheme’s decentralized nature, transfers occur directly between the payer and the beneficiary.  without the need for an intermediary or administrator. It implies a difficulty in the identification and early warning of possible suspicious behavior of illegal activities.
  • The widespread use of emerging electronic payment systems by organized crime networks can negatively impact digital payment ways.
  • Although, in principle, any PC can actively create new bitcoin unit. The high computational capacity required means that, in practice, this activity is dominated by a small group of actors.
  • Impact on price stability and financial stability. Since the private trading platforms where Bitcoins can exchange for legal tender currencies marking by high price volatility due to speculative movements.

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