A look at how the Bitcoin Economy works


What is Bitcoin?
Bitcoin is a digital currency that enables payment in a decentralized peer-to-peer (P2P) network that is powered and approved by the consensus of its users. There is no central authority or middleman that controls it.

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Origin of Bitcoin
Specification and proof of concept was published in 2008 in a cryptography mailing list by a pseudonymous entity named “Satoshi Nakamoto”.

Where to get Bitcoin?
One can buy or receive it as a payment, or earn it through “mining” via solving complex mathematical problems.

Circulation
Only 12 million circulation to date, and only 21 million can ever be “issued” by or near year 2140.

Transactions
1. A user generates a request to transfer a bitcoin value from their account to another using a mobile device or computer.

2. The request floats on the bitcoin network until users in the network called “miners” pick it up for processing.

3. During the mining process, transactions are packed into data blocks and are randomly assigned with a header.

4. Miners compete to match the block’s header with a nonce, an arbitrary number used only once, to get a short alphanumeric code called hash, which must have a value below a certain difficulty target.

5. Each hash accepted by the bitcoin network is rewarded with bitcoins, currently at 25, but this will exponentially decrease as more miners join the network. It takes about 10 minutes to process a transaction and once it’s done, it is irreversible.

6. The hash values are then added to the next block’s header, creating a block chain which serves as the public ledger of all transactions ever made in the bitcoin network.

Bitcoin client software is required to create a virtual wallet, a private key, and public key for authenticating and securing each transaction.

Bitcoin price volatility
Because of its young economy, novel nature, and sometimes iliquid markets, the price of bitcoin is still highly volatile.

Who accepts bitcoin?
Bitcoin has grown in popularity over the past few months and many companies have shown support for the crypto-currency. Here are some of them:
Online stores / reseller:
– eBay
– Etsy
– Overstock
– Pizza For Coins
– Silk Road
– Tigerdirect
BitcoinTorrent site:
– The Pirate Bay
– EZTV
Cloud Servers
– Lumfile
– Mega.co.nz
Others:
– 4chan.org – Online forum
– Internet Archive – Online library
– OkCupid – Social site
– Namecheap – Domain hosting
– Paypal – Payment merchant
– Reddit – News aggregator
– Tesla – Automotives
– Virgin Galactic – Aviation
– WordPress – Blogging platform
– Zynga – Gaming

Information sources from:
Bitcoin.org
Bitcoin Ladder
Bitcoincharts
media reports
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