Chapter 1 – Bitcoin 101: How it Works?
Bitcoin is a virtual currency with a stored value that can be used like real money to pay for goods and/or services. It is also known by such names as digital money, electronic currency or crypto-currency. Unlike real money, however, Bitcoin has no physical attributes since it exists only in the virtual realm. Its only existence is online – in your smart phones, tablets and computers.
It has no size, shape, or color because it is nothing but a non-destructible, strongly encrypted, long string of data or algorithm which cannot be duplicated or forged but has a purchasing value which naturally appreciates in time as determined by peer use in a free-wheeling, free market internet economy.
The best way to understand Bitcoin as a currency and a legal tender, and Airbitz Bitcoin Wallet as a wallet address is to liken it to other fiat currencies such as the U.S. Dollar, the Euro, or the British Pound. As fiat currencies, the USD, the Euro or the Pound is not backed by gold, silver, or other precious metals but are still accepted as legal tenders whose purchasing values are derived from the strength of their respective country’s ironclad guarantees and the people’s faith on the issuing authorities.
In the same sense, Bitcoin derives its value from the Bitcoin holder’s faith on the issuing authority which in this case happens to be the whole global Bitcoin digital network. No single entity controls, owns and manages the Bitcoin. (As will be explained later, it is a purely peer to peer system where transactions are managed and recorded through a collective effort by the Bitcoin community.) In essence, the real value of a Bitcoin depends on how much of it a seller or a service provider is willing to part with his goods or services.
It is the people’s faith on the Bitcoin system that gives it its value. And, for as long as there are merchants and service providers who believe in Bitcoin and are willing to accept it as a legal tender for their goods and services, Bitcoin may well be on its way to being entrenched as the ideal cash payment system for online commerce.
In a nutshell, Bitcoin is a digital currency which you can send through the internet via computers, smart phones or tablets to pay anyone anywhere in the world. It belongs to no one in particular and is not subject to financial control and restraints from any regulatory entity. It is the first of a kind peer-to-peer global digital currency created exclusively to facilitate online payments without the need of a financial institution acting as intermediary. It means you can pay anyone anywhere in the world instantly.
Bitcoin (spelled with a capital “B”) refers to the open source software and the system it established to create, track and record the bitcoin transactions and serves as the heart of the electronic cash system designed to be the medium of exchange in the fast expanding internet commerce. Bitcoin (spelled with a small “b”) refers to the highly encrypted string of data has) generated and tracked by the system which is sent and received as virtual currency to pay for goods and services transacted online or with any physical outlet that accepts it.
The best part about his electronic cash system is the fact that payments are instantaneous and entail zero or very minimal fees. It also retains the same value no matter which corner of the earth you use it- the real benchmark of a global currency. Bitcoins may only exist in your computers, smart phones and tablets but they have the same purchasing power as any real world currency.