Bitcoin has made headlines again yesterday, reaching an all-time trading high of more than £21.This is a significant development for the fairly new alternative currency, which started at Zero in 2009.Bitcoins has slowly and quietly become a global phenomenon which is featured prominently in the media, and has started to attract the special attention of global regulators.So how exactly does Bitcoin work?Here are seven myths which describe what Bitcoin is, and – more importantly – what it not is.Bitcoin was created in 2009 as a safe and decentralised alternative means to pay for goods and services.Using bitcoins is very easy, by using a bitcoin wallet, which is basically an online account enabling users to buy and sell bitcoins against another currency.Bitcoins can also be exchanged through websites (so called bitcoin exchanges), physical banknotes and cash.Every Bitcoin transaction is sent through the entire Bitcoin network to verify the uniqueness of the used bitcoin, and to ensure that one bitcoin is not spend twice at the same time.

This process takes around 10 minutes and is secure: even if one or several participants in the network were hacked, the confirmation process would still require others to verify the transaction.There is a large range of online retailers selling electronics, fashion, books, music and many other products – and accept Bitcoin as payments.Payment processor BitPay for example reports more than 2,400 merchants are connected to the Bitcoin system.There is also a site called Pizza for Coins which acts as a middleman and converts bitcoins into US dollars that are used to pay for pizza.The only issue – the verification process means that pizza delivery may take a little while When making a transaction, the Bitcoin network checks the transaction history of that particular bitcoin against the records of a number of different nodes in the network.Only when these agree that the bitcoin is genuine, the actual transfer occurs.This P2P system can neither be hacked (because too many participants are involved) nor reveal the real identify of the bitcoin holder (because no bitcoin wallet account names are used in the verification process, just numbers and strings).

However, as with any highly secure product, the attraction for people with knowledge of cryptography to have a go at breaking the system is immense – especially with a real monetary value of each bitcoin.bitcoin documentary chinaThere have been a number of incidents over the last years, resulting in legal action against exchanges when their clients’ Bitcoins were stolen.bitcoin kaufen walletSo the system is not 100% safe and there is a certain danger that bitcoins are being stolen.bitcoin albertaWhich is similar in “real” currencies.bitcoin cote d'ivoireWhilst the first bitcoins were relatively easy to create to help spread the currency, the algorithm makes creating bitcoins increasingly difficult.make bitcoin qr code

Creating (or “mining”) your own bitcoins is possible, but this requires a processor power, storage – and patience (see photo).bitcoin handel in deutschlandYou will have to invest quite a bit of money into hardware, and quite some time, if you would like to make some profit you can calculate here how long this would take.bitcoin wmz exchangeInflation is inherent to every major currency which is managed by one central organisation such as a Government.bitcoin 2048They can decide to print more money if needed, at any time.bitcoin emcEvery time this happens the individual denomination then becomes worth a bit less.With Bitcoins built-in 21 million cap however, there is no quantitative easing or inflation.

At the same time however, the value of each Bitcoin fully depends on market demand and supply – so the value will increase and decrease over time.The majority of Bitcoin transactions are still done for speculative reasons, rather than buying goods online.Bitcoin has seen interest my many speculators, including City traders.However the value of Bitcoins fluctuates significantly, its value has increased from around £2 in November 2011 to over £20 in 2013.These fluctuations are higher than with any other traditional currency, making Bitcoin a very risky investment – which at the moment pays off.However as the currency is not linked to any economy or economic behaviour, future values are more or less impossible to predict.At the moment, Bitcoin’s current market capitalisation is ca USD 370 million.There are around 40 transactions every minute, with roughly 1,000 Bitcoins exchanged.This is decent, but can in no way compare to any major currency.Yet: At the moment nearly 11 million bitcoins have been created.

The Bitcoin algorithm limits the amount of available to 21 million bitcoins, which are divided into smaller units called satoshis.The maximum is 2,100,000,000,000,000 Bitcoin elements which can ever be around.The value of each bitcoin unit being freely defined only by its users, without any central interference.So even if Bitcoin will never replace a traditional major currency, this maximum amount is high enough to create an attractive alternative.A few points are still open for debate – providing a service in exchange for bitcoins circumvents the tax system, as an example.And is Bitcoin actually real money, as you can buy real products, and should Bitcoin exchanges therefore be regulated?Every further Bitcoin milestone will make sure that the discussion continues.Bitcoin is a virtual form of currency that can be used to make payments over the Internet without transaction fees or involving a financial institution.Each Bitcoin is subdivided into 100 million smaller units called satoshis, defined by eight decimal places.

Where does it come from?Bitcoin was created in 2009 by a person or group that goes by the name Satoshi Nakamoto.A 2008 paper written by Nakamoto proposed the creation of a “peer-to-peer electronic cash system” that would allow online payments to be sent directly from one party to another without going through a financial institution.Instead of a trusted third party like a bank, Bitcoin creates trust through a cryptographic system.How is it made?Like gold, no central bank controls Bitcoin currency so governments can’t print or mint more of it.Using computers and complex software, people can “mine” Bitcoins by solving complex mathematical problems.If they solve the problem, they get Bitcoin.But since the process is so difficult most people just buy Bitcoin from various exchanges popping up.How does the system work?The problem that Bitcoin aimed to solve was that the person using a virtual currency can’t verify that one of the owners did not double spend the coin.Bitcoin’s answer involves a lot of complex math and software but the essence is that the system publicly records all transactions with a timestamp, which lets participants to agree on a single history of the order in which they were received.

The first transaction is the real one.How safe is it?Nakamoto wrote in his paper that the system is secure “as long as the honest nodes collectively control more [computing] power than any cooperating group of attacker nodes.” In 2010, there was bug in the Bitcoin code that allowed someone to create a fake transaction.But the problem was identified and resolved.There have been reports of other incidents as well.The chief scientist of Bitcoin said that the chances of a major breach are decreasing over time as the system and software matures.The chances of the types of breaches we saw in 2010 happening again are very small, he added.Is there an unlimited supply of Bitcoin?The anonymous creator of the currency capped the number of total possible Bitcoins at 21 million.Since 2009, nearly half of them, or 11.1 million have been mined and put into circulation.The cap on Bitcoin has attracted the interest of some investors who believe that the fixed supply will lead to an increase in the price of Bitcoin over time.