Bitcoin is a virtual currency used via the internet, not tied to any central authority or intermediary institution. With this virtual currency, individuals or institutions can make transactions just like they would with real money, either spending or accepting it.
Although it is said to have been invented by Satoshi Nakamoto, it is unknown whether this is the actual name of the inventor. The person who created the system disappeared about a year after its invention. When the system was established, it was limited to 21 million Bitcoins, and more than 12 million Bitcoins have entered circulation to date. To bring new Bitcoins into circulation, a 16-character code must be solved. The person who solves the code earns 25 Bitcoins. The 21 million limit is intended to impose a restriction similar to gold-backed currency. If you want to make a transaction or payment using the Bitcoin system without dealing with the code, you can buy it from websites that sell Bitcoin for money. The exchange rate of Bitcoin, like the rate between national currencies, is determined by supply and demand in the market. However, if the amount of Bitcoin to be issued remains limited to 21 million, we can predict that Bitcoin will not face a significant depreciation compared to other currencies. In fact, it has rapidly gained value against other currencies since its inception. A month ago (on October 22, 2013), 1 Bitcoin was worth 730 USD, while today it is worth 830 USD. Bitcoin can be divided up to 8 decimal places, so transactions as small as 0.00000001 Bitcoin can be made. Considering that there are 12 million Bitcoins in circulation and the current value of Bitcoin is 830 USD, we can conclude that there are approximately 10.2 billion dollars worth of Bitcoin in circulation. To make a comparison, let’s note that there is about 1.2 trillion dollars in circulation in the form of USD.
Individuals can store their Bitcoin in virtual wallets they create online and can use these wallets to make transactions. These wallets do not require personal information. What sets Bitcoin apart from real money is that it allows transactions without revealing identities. In the purchase of goods and services, investments, and acceptance of payments, people’s names do not need to be disclosed.
The most notable advantage of Bitcoin over real currencies is that it is not tied to the central bank of any country, and thus is not affected by any country’s economic situation. Additionally, since it is unknown who owns it and it is not monitored or controlled by a central authority, Bitcoin accounts cannot be frozen or confiscated. The anonymity of identity and the lack of central oversight make the system vulnerable to illegal financial transfers of all kinds.
Let’s say you want to make a payment of 10,000 USD and you want to do this using Bitcoin. First, you need to create a Bitcoin virtual wallet. The original Bitcoin client is an open-source application. Once you run the application for the first time, connections are made, and blocks start downloading within a few minutes. This process takes some time, and it requires 8 GB of space on your computer’s hard drive. Once the virtual wallet is created, it automatically shows your first address. Encrypting the wallet is very important because if it is not encrypted, it remains vulnerable to theft. After completing these steps and creating the virtual wallet, you can then buy 12 Bitcoins from one of the websites selling Bitcoin at the rate of 1 Bitcoin = 830 USD, place them in your virtual wallet, and make payments from there. When you make such a payment, the recipient, time, and amount of the payment cannot be tracked. Similarly, if someone else pays you this way, it cannot be tracked either.
The increasingly widespread use of Bitcoin is heavily criticized, especially on the grounds that it provides an infrastructure for money laundering. If such transactions are declared illegal in the near future, it wouldn’t be surprising.
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