Health IS Technology Blog

Bitcoin and Digital Currencies


 

What Are Bitcoins?

Bitcoin is a digital currency. It has been around since 2009, when an anonymous source under the alias, Satoshi Nakamoto is likely to have invented them. Because Bitcoins are fully digital, there is no need to worry about banks or added fees. Also, your identity can remain completely anonymous with Bitcoin transactions, should you choose to use them.

Bitcoin is now on an open-source platform, wherein not just one user owns the rights to the software. The official Bitcoin website gives the following description for the resource.

"Bitcoin uses peer-to-peer technology to operate with no central authority or banks; managing transactions and the issuing of bitcoins is carried out collectively by the network. Bitcoin is open-source; its design is public, nobody owns or controls Bitcoin and everyone can take part. Through many of its unique properties, Bitcoin allows exciting uses that could not be covered by any previous payment system."

Why Bitcoin And Digital Currencies?

As someone who has never interacted with digital currencies such as Bitcoin, you might be asking ‘why would I use this?’ This is a completely reasonable question. Why would you start using this new form of money when your bank account and wallet already contain traditional paper and coin currencies?Bitcoin digital currency with desktop computer and stack of money illustration

A major pro point about digital currencies is their increased level of security. There’s no entering your full name, address, and credit card number into an online form when working with digital currency. For merchants, digital currencies can reassure them that there will be no payment reversal, such as when a check bounces or a debit card has insufficient funds.

There’s also the benefit of reducing unnecessary fees with digital currency. Coinbase describes this pro point on their website: 

“Free from restrictions, penalties and fees commonly imposed by banks, you are empowered to make decisions about your finances that were previously the domain of financial institutions and governments.”

The bottom line when it comes to digital currency is that it’s yours. It’s not regulated by governments, banks, or merchants. Because of that, the individual has much more control over their own finances and monetary transactions.

Why Not Bitcoin or Digital Currencies?

With any new form of currency there will be risks. This is especially true for a form of currency that is distributed, exchanged, and earned in a completely unique way. A commonly discussed con of Bitcoin is its unpredictability when it comes to price volatility. Volatility in economics refers to the rate at which the security of something shifts. So, a stock may rise or fall, either way its volatility is impacted.

There’s also something to be said for the almost trendy nature of Bitcoin. Just like any other application or fad, there’s no saying if or when Bitcoin’s popularity is going to die out. The difference between an app and Bitcoin, though, is that if the latter loses traction, users’ finances could be affected. Digital currencies are no longer a monopoly, either. Bitcoin has quite a few competitors who could threaten its success.

Important Things to Know About Digital Currencies

Cryptocurrency

Cryptocurrencies are subsets of digital currencies. They are the facet that control the security of transactions. Without them, it would be very difficult to stop users from double spending their digital currency. So, no one can attempt to duplicate or use the same bitcoin twice, for example. This protects merchants and consumers alike. These cryptocurrencies involve something called cryptography. That is, the techniques relating to coded messages within a computer network. So, it's simply a way to keep information secret, which is important when it comes to currency. Using cryptography, cryptocurrencies also keep the creation of additional Bitcoin (or other currencies) at bay.

Simply, Blockgeeks define cryptocurrencies as “limited entries in a database no one can change without fulfilling specific conditions.” 

Bitcoin Miners

“Miners” are the only members of the community that can confirm transactions on Bitcoin. For this service, they’re rewarded with their own digital currency. Anyone can become a miner, and as there is no centralized government overseeing the distribution of Bitcoin, the way the currency is administered is very different from what we’re used to. Bitcoin on miners

“...Miners use special software to solve math problems and are issued a certain number of bitcoins in exchange. This provides a smart way to issue the currency and also creates an incentive for more people to mine.”

Blockchain

Blockchain technology graphicWhile your activity with Bitcoin is anonymous, it’s still tracked with something called the blockchain. The blockchain is a digital ledger that keeps a record of transactions between users of the digital currency. Harvard Business Review said the following about the benefits of blockchain: 

“With blockchain, we can imagine a world in which contracts are embedded in digital code and stored in transparent, shared databases, where they are protected from deletion, tampering, and revision.”

This is just another ambiguous pro/con of digital currencies: since the internet is forever, so are your transactions.

Conclusion

Whether or not you’ve experimented with Bitcoin before, now might be the time to do so. Take a look at this chart, outlining the number of Bitcoin transactions of all time.
Bitcoin confirmed transactions per day

As you can see, since its introduction in 2009, Bitcoin has grown significantly. Based on trends, this expansion will likely continue.

What do you think? Have you ever used Bitcoin or another digital currency? If not, what’s holding you back? Let us know on our Facebook page!

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Bekah Witten
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Bekah is the content writer for the University of South Florida's Health Information Systems, and a recent graduate from the University of Tampa.