Bitcoin or other digital currencies garner huge attention in the media reports and everywhere else. Government hearings are held on the virtual currencies. Investors need to know that buying or using digital currency like Bitcoin carry some amount risks. The speculative trading in BTC carries huge risk. There’s also a risk of the fraud related to the companies who claim to provide free Bitcoin payment platforms or other products & services.

How Does Bitcoin Work?

Bitcoin is the peer-to-peer digital payment system, which uses its personal currency, named bitcoin, to transact the business. Bitcoins aren’t issued by governments or banks —indeed Bitcoin platform was made to offer the alternative to the national currencies like dollar, or commodity-based currencies like silver or gold coins.

About BTC

Bitcoin was actually introduced in the year 2009 as open source software. Just think of this as the sophisticated computer system that encrypts records and verifies the bitcoin transactions. Whereas Bitcoin users are totally anonymous, public record and “block chain” is shared and public between the Bitcoin system users. The mathematical proofs can be used to verify authenticity of every transaction.

Bitcoins are made by process known as “mining.” Just like mining for the gold, process is highly labor intensive. Mining generally serves 2 purposes. Firstly, miners make use of software algorithms for adding transaction records to the Bitcoin’s ledger of the past transactions as well as verify legitimate BTC transactions. For such efforts, Bitcoin miners will get the transaction fees. Additionally, if miner finds the new “block,” miner will be awarded the new bitcoins. The finite number of bitcoins will be mined (over 21 million based over mathematics underlying BTC mining).

Bitcoins also can be bought or sold on internet and at the physical locations. The huge number of the physical establishments or exchanges allow the customers to buy & sell bitcoins using real cash, money orders, credit cards, or other methods.