About Bitcoin

What is digital currency?

First and foremost, digital currency is money! Bitcoin is a type of digital currency with meaningful value in the real world, and as such, it can be traded for dollars, yen, or any other global currencies. Bitcoin is typically denoted on currency exchanges as "BTC".

One of the differences between a digital currency, such as Bitcoin, and a physical currency, such as yen or dollars, is that there is no physical manifestation of Bitcoin.

Digital Currencies in the Real World

Online games is one area in which digital currencies are already widely used. Using physical currency, you can purchase virtual currency in the game's world. You can then buy items in the game using this unique currency. This type of digital currency is valuable in the realm of that online game.

Certain online websites also offer a similar type of digital currency, allowing you, for example, to purchase 1,000 "points" in exchange for 1,000 JPY. Your points can then be exchanged for different products and services on that website. That digital currency has value within the confines of that website.

In this sense, Bitcoin is similar. You can purchase products or services at any shop or website that accepts Bitcoin.

What sets Bitcoin apart?

If so many digital currencies already exist, what makes Bitcoin special? The truth is, Bitcoin is fundamentally different from these types of digital currencies in many ways.

Digital currencies which are created by companies as part of their gaming or e-commerce sites are targeted at improving customer retention, and increasing profits.

Bitcoin, on the other hand, was created as a digital currency to facilitate payments anywhere, just like dollars or yen.

Bitcoin aims to be a daily use currency that can be used all over the world. Rather than using physical bills or coins, Bitcoins are stored in digital wallets on your PC or smartphone, and can be used to buy products and services globally.

While we are still in the early stages, given Bitcoin's inherent convenience, safety, and global nature when compared to government currencies such as dollars or yen, Bitcoin is poised to become the digital currency of the next generation!

What is electronic money?

"Bitcoin" and "Electronic Money" are similar concepts, but in reality there are some important distinctions. Below, we will outline some important differences between Bitcoin and electronic money.

Electronic money is a method of settling payments in a specific currency without using bills or coins. Settlement methods include online or contactless payment, which are often used at convenience stores or when paying your train or subway fare.

Many of us have already used this form of payment in our daily lives. Electronic money is convenient and quick, as there is no need to physically take coins or bills out of your wallet.

Bitcoin also has no bills or coins, and enjoys all of the above benefits, such as speed and convenience. In this sense, it is natural to think of Bitcoin as electronic money.

So, is Bitcoin electronic money?

Yes, but Bitcoin is also much more.

Electronic money is typically used as a means of settling payments only within a specific region.

In Japan, for example, electronic money is used in place of JPY bills or coins. Users must deposit yen to their bank account, or add money at electronic terminals.

This is effectively the same as settling the payment in JPY, whether or not physical currency is used.

With Bitcoin, you do not charge your account, or add money at electronic terminals.

To use Bitcoin, you first need to exchange your existing currency, such as JPY, to Bitcoin. Once you have exchanged your money to Bitcoin, you can purchase products with Bitcoin.

Once you have completed your exchange, Bitcoin and electronic currency transactions are similar - you simply make a payment at a shop or website that accepts Bitcoin. Your Bitcoin will be sent to the merchant, and at the same time an equal amount of Bitcoin will be deducted from your digital wallet.

In conclusion, Bitcoin is currency, just like dollars and yen. Electronic money is a system designed to settle payments without using bills and coins. Therefore, digital currencies do not equal electronic money.

As there are no banks or governments involved, below are some of the reasons using Bitcoin is an excellent way to perform certain activities, such as money transfers.

1. Transfers are directly from person to person - there is no intermediary involved

   Normally, to send money to a person you are not physically near, you need to use a bank or other money remittance service to facilitate the transfer. Using Bitcoin to send funds, however, is the same as passing somebody cash from your own wallet.

2. Fees are nearly zero

   With Bitcoin, there are no middlemen. This means fees paid to send and receive Bitcoin funds are basically zero, or extremely small. This is a key advantage of Bitcoin, particularly for tiny payments. Bank transfers and credit card payments carry significant fees, making it difficult to effectively send small amounts of money. This limitation can easily affect a business' bottom line.

   Due to its ingenious and advantageous structure, settlement fees approaching zero are readily achieved with Bitcoin!

3. There is no monitoring performed or limits imposed by any third party

   As Bitcoin does not require banks or third parties to settle payments, the process is faster, paperwork is not needed, and funds can flow freely.

   Further, Bitcoin is global - there is no difference in the unit of currency between countries. There are already many stores and websites around the world that accept Bitcoin today, and as Bitcoin increases in popularity, this number will only grow!

Where is Bitcoin stored?

Bitcoin is stored in a digital "wallet". This is similar to your bank account, where you store your yen or dollars.

Anybody wanting to use Bitcoin simply needs to create a digital wallet. That wallet can then be used to store Bitcoin, send, and receive payments.

The identifier for a Bitcoin wallet is similar to an email address. The wallet ID is a long string of characters.

Due to its length, a wallet ID is very difficult to memorize. Therefore, to perform transactions, a shortened ID or a QR code is typically used.

What are the challenges?

Similar to yen or dollars, settling payment in Bitcoin requires both parties to accept Bitcoin. If one or both parties cannot accept Bitcoin, a payment cannot be made.

As Bitcoin is still in the early stages of development and adoption, this is currently a significant challenge to overcome.

What can I do with Bitcoin?

You can do everything with Bitcoin that you can do with traditional currencies! Bitcoin can be used for everything from small retail payments to huge funds remittances between major institutions.

In other words, Bitcoin is just another currency, albeit a digital one, that exists in the world.

Unlike yen or dollars, Bitcoin must be settled electronically. There are no paper bills or coins.

As settlements are electronic, sending funds over the internet is simple. Whether the recipient is next door or on the other side of the world, funds can be settled in a very short amount of time.

How is Bitcoin different from yen or dollars?

If Bitcoins were the same as yen and dollars, there would be no need for it to exist. So, what makes Bitcoin unique?

The biggest difference is that there is no Bitcoin central bank. There is no institution, government, or other third party that oversees the issuance and circulation of Bitcoin.

Even though it has the basic characteristics of a government currency, Bitcoin is not managed by any country or company. This is the groundbreaking concept that makes Bitcoin unique.

Who administers Bitcoin?

As we mentioned before, there is no government institution or company managing Bitcoin. So, who is managing it?

Common sense tells us that a currency not managed by a trusted central institution is risky. If someone were to issue large amounts of such a currency and then profit or benefit from that issuance, all faith in that currency would be lost. No one would find value in such an unstable currency, and it would simply fall out of circulation.

Rather than being centrally managed however, Bitcoin is managed by a decentralized network of computers.

All transactions and activities, such as new currency issuances, are recorded on a massive network of computers. All Bitcoin transactions ever performed are recorded in one giant ledger, which is stored in its entirety on computers around the world.

This visual, public record serves to protect against issues such as currency fraud and duplicate payments. All transactions are stored on the public ledger (although personal information is never saved). These records are kept in order to keep Bitcoin in circulation, and ensure its integrity.

If a single government institution or company managed this ledger, then Bitcoin would be no different from existing government currencies. By managing the Bitcoin ledger via a decentralized group of computers however, Bitcoin does not require central management.

The major concern with distributing a single, massive Bitcoin ledger across so many computers on the Bitcoin network is that a mismatch could occur on some of the machines.

However, the Bitcoin protocol effectively solves this problem, which is one of the reasons Bitcoin is trusted and expanding so rapidly!

What is Bitcoin mining?

In order to ensure accuracy and consistency in the Bitcoin ledger, transactions are added to the ledger only at fixed intervals. This fixed interval process is required to ensure separation between existing and new transaction data on the Bitcoin network.

The process to add a new transaction to the Bitcoin ledger includes verifying the details of all existing and new transactions. This process requires massive amounts of computational power.

Bitcoin obtains this computational power from people across the internet, who volunteer their computational resources. Through these massive calculations, new entries are added to the Bitcoin ledger.

In return for donating their computing resources to the Bitcoin network, the volunteers who have succeeded in verifying and adding new transactions to the Bitcoin ledger are rewarded with a payment in Bitcoin. This payment is a reward to the volunteers for participating in the verification process, and contributing to the overall health of the Bitcoin network.

This Bitcoin reward payment comes in the form of newly issued Bitcoin, released to the volunteer at the moment the transaction is successfully verified. In short, the reward payment doubles as a currency issuance mechanism.

Rather than using their computing power to play games or surf the web, these volunteers have chosen to dedicate their resources to maintaining the Bitcoin network. This new issuance payment is a reward for that contribution.

This is the crux of the mining process. There are now people and companies all over the world who run businesses based on Bitcoin mining. Thanks to these people and companies, the integrity of Bitcoin is maintained today.

New Bitcoins can only be generated through this mining process. Those who believe in the concept of Bitcoin dedicate their efforts towards this process of verifying transactions and adding to the Bitcoin ledger.

Will Bitcoins continue to be issued forever?

In short, the answer is no. The amount of Bitcoin to be generated is fixed, and was decided at the time the Bitcoin protocol was released. This was done to avoid any confusion, or inflation caused by a sudden influx in the amount of Bitcoin.

The total amount of Bitcoin to be issued is fixed at 21 million BTC, and this amount will be reached by the year 2140. Once reached, there will be no further new issuances.

Who created Bitcoin?

In October 2008, the details of the Bitcoin protocol were posted on the internet by an anonymous author, known only by the pseudonym "Satoshi Nakamoto".

3 months later, in January, 2009, the first real world implementation of the Bitcoin protocol was released as open source software. The first Bitcoin transaction was completed soon after. These early adopters have seen a massive increase in the value of their original Bitcoin.

In February 2010, one year later, the world's first Bitcoin exchange opened its (virtual) doors, paving the way for the world's first Bitcoin settlement in May of the same year.

"Hiro SHINOHARA (Translated from BitBiteCoin.com) "