Question

What is Bitcoin and how does cryptocurrencies (bitcoin) work? Do you think this is an alternative for Currency in circulation?

Answer 1

Bitcoin is regarded as the largest crypto-currency. It was first introduced in 2009, and is the cryptocurrency most widely traded. In 1998, Wei Dai described Bitcoin as an implementation of the crypto-currency concept on the cypherpunks mailing list. Dai has suggested a new form of money that uses cryptography rather than a central authority to control its creation and transactions. In 2009 Satoshi Nakamoto released the Bitcoin specification and proof of concept in a cryptography mailing list.

Payments are made through a Bitcoin wallet application that resides on a user's computer or mobile device, and a person only has to enter the Bitcoin address and payment amount of the recipient before pressing the send to complete payment. A competitive and decentralized process called "mining" creates new bitcoins Bitcoin miners use specialized equipment to process transactions and protect the network, and collect new bitcoins in return. The Bitcoin protocol ensures the creation of new bitcoins at a fixed rate making the bitcoin mining process a very competitive business.

While attackers go after Bitcoin-related sites, there is a significant distinction between the Bitcoin network's security and the Bitcoin exchanges. Within the Bitcoin protocol itself, none has ever found a crucial flaw that would enable a user inside the Bitcoin network to fraudulently generate coins or counterfeit transactions. That said, various Bitcoin exchanges have been compromising throughout the lifetime of the virtual currency, and as the value of a Bitcoin increases, so is the risk of using exchanges.

Many blockchains have not been developed to accommodate the traffic of a large number of users, an problem that market players have to tackle for digital currencies in order to gain greater mainstream use. In addition, the regulatory climate is highly complicated due to the fact that many nations have different sets of laws, ensuring that global regulations are deeply fragmented. The digital currency can be a big value store in areas of the world suffering from massive economic instability, because these regions will see their native currencies witnessing dramatic value shifts overnight.

Bitcoin might eventually replace the U.S. dollar as the world's reserve currency, but the digital currency will need to make strides in some crucial ways for that to happen. Currencies act as an exchange medium, as a store of value and as an account unit. While the U.S. dollar has been well established in these specific areas, some analysts have voiced doubts that Bitcoin could fulfill those key roles.