In the Marco Polo article, the value of paper money and it’s impact have been discussed. Crypto currencies such as Bitcoin, Litecoin, Feathercoin and many more are all based on the same principle. It's value is defined by the supply & demand on trade markets. It keeps its value based on the amount of trust the public has in Bitcoin.
At the moment this causes a lot of fluctuation whenever rumors spread making it a very volatile currency. For now Bitcoins are used more as financial bonds, speculating and even gambling on the value of the coins in the future. This may settle down later on in the the adoption life cycle as more consumers and businesses start adopting Bicoin as a payment option and when the coin reaches a balanced value without much fluctuation.
How does is work?
Bitcoin is open source, meaning everyone can look at the code and use it. There are two programs that realize the Bitcoin network. First being Personal wallets for payment and storage of Bitcoins. When transferring Bitcoins your wallet adds a signature using you private key to prove its validity. Each payment gets added to a ledger called a block chain. That's where the second program comes in place, the Mining application. Miners maintain this ledger by utilizing the processor, calculating hashes and sending them out to other miners and wallets creating a decentralized ledger. For this mining they get a chance on nding a random Bitcoin. The more miners the more difficult
to find a Bitcoin. to minimize the variance of receiving a Bitcoin. Miners often work together in a pool, receiving a fair share relative to their processing power.
What are the risks?
There are no risks within the code of Bitcoin, paying storing and mining Bitcoins is safe. The problem lies with the client side. Tansferring Bitcoins is permanent, thus theft or loss of Bitcoins is irreversible. Your wallet is secured by a private key. When this key is compromised by malware your Bitcoins run a risk of being stolen. It is advised to store your private keys on external storage. Another problem is the loss of Bitcoins. When you lose your private key you can never gain access to your stored Bitcoins.
Disregard Money. Acquire Bitcoins!
How Bitcoin is becoming the next generation of currencies!
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