Posted by Dradon Haystorm on 9th October 2011

What is Bitcoin?

Bitcoin LogoThe bitcoin phenomenon has been growing for many months, and is not likely to go away anytime soon. Bitcoin is a new online system of monetary exchange that operates on a peer-to-peer network. It is a decentralized and open source project, which is to say it is not centrally controlled or monitored by a government, website, new company, or banking system. The principles and rules pertaining to how it operates was built into the original programming, which is known to the whole community involved in the operation of the system across the network. The transparency of the bitcoin architecture is balanced by the heavy encryption that characterizes each transaction, thereby preserving the security and privacy of the funds transacted.

This complex of features is put together by bitcoin in order to bolster a new kind of digital currency that strongly promotes privacy and anonymity across the network, while retaining transparency and accountability for all the transactions. Since the regulation of the currency is driven by an impartial set of rules carried out by software, run by the members participating in the network, the possibility of hacking, or on, or in turn by governmental or banking is essentially nil. The actual transactions involve digital “coins” that are transmitted directly from one peer to the other, making the functioning of all transmissions free of any middlemen or financial third-party.

Coins transferred in the system between peers are stored in each peer’s digital wallet, secure storage folder on the user’s individual PC. Storing the coins in this fashion separates them from the computing operations of the Bitcoin program, in order to prevent hacking the transactions conducted on the open source network. Users of the system should be aware that, although the highly encrypted bitcoin software itself has never been successfully hacked, coins stored on their own computer are subject to compromise by viruses or malware as any other files on their system. Third-party websites that handles exchanging coins for other currencies are also subject to compromises to their security.

New coins in the currency can be generated through a process called and quote mining,” where the activity of the peer-to-peer network in running the program counts towards the generation or mining of coins they can add to their wallet. Bitcoin is set up to strictly regulate the value of the new currency through internal rules determining how many new coins can be created to serve its population of users, and how many users are mining across the network. The coins do not experience “monetary inflation” from the whim of a secret board of bankers, but based on the rules of the software, transparent to all. The logic, fairness, security and privacy of the system is expected to make bitcoins an ongoing, popular and reliable alternative currency.

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