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Virtual currencyor virtual moneyis a type of unregulated digital currencywhich is issued and usually controlled by its developers and used and accepted among the members of a specific virtual community. Inthe European Banking Authority defined crypto currency wikipedia currency as "a digital representation of value that is neither issued by a central bank or a public authority, nor necessarily attached to a fiat tomic milliman bettingexpert tipstersbut is accepted by natural or legal persons as a means of payment and can be transferred, stored or traded electronically". By contrast, a digital currency that is issued by a central bank is defined as " central bank digital currency ". Inthe European Central Bank ECB defined virtual currency as "a type of unregulated, digital money, which is issued and usually controlled by its developers, and used and accepted among the members of a specific virtual community". InUS Financial Crimes Enforcement Network FinCENa bureau of the US Treasuryin contrast to its regulations defining currency as "the coin and paper money of the United States or of any other country that [i] is designated as legal tender and that [ii] circulates and [iii] is customarily used and accepted as a medium of exchange in the country of issuance", also called "real currency" by FinCEN, defined virtual currency as "a medium of exchange that operates like a currency in some environments, but does not have all the attributes of real currency".

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What are bitcoins backed by

This situation isn't to suggest, however, that the markets aren't vulnerable to price manipulation; it still doesn't take significant amounts of money to move the market price up or down, and thus Bitcoin remains a volatile asset thus far. That can happen. For now, Bitcoin remains by far the most popular decentralized virtual currency, but there can be no guarantee that it will retain that position.

There is already a set of alternative currencies inspired by Bitcoin. It is however probably correct to assume that significant improvements would be required for a new currency to overtake Bitcoin in terms of established market, even though this remains unpredictable. Bitcoin could also conceivably adopt improvements of a competing currency so long as it doesn't change fundamental parts of the protocol.

Receiving notification of a payment is almost instant with Bitcoin. However, there is a delay before the network begins to confirm your transaction by including it in a block. A confirmation means that there is a consensus on the network that the bitcoins you received haven't been sent to anyone else and are considered your property. Once your transaction has been included in one block, it will continue to be buried under every block after it, which will exponentially consolidate this consensus and decrease the risk of a reversed transaction.

Each confirmation takes between a few seconds and 90 minutes, with 10 minutes being the average. If the transaction pays too low a fee or is otherwise atypical, getting the first confirmation can take much longer. Every user is free to determine at what point they consider a transaction sufficiently confirmed, but 6 confirmations is often considered to be as safe as waiting 6 months on a credit card transaction. Transactions can be processed without fees, but trying to send free transactions can require waiting days or weeks.

Although fees may increase over time, normal fees currently only cost a tiny amount. By default, all Bitcoin wallets listed on Bitcoin. Transaction fees are used as a protection against users sending transactions to overload the network and as a way to pay miners for their work helping to secure the network.

The precise manner in which fees work is still being developed and will change over time. Because the fee is not related to the amount of bitcoins being sent, it may seem extremely low or unfairly high. Instead, the fee is relative to the number of bytes in the transaction, so using multisig or spending multiple previously-received amounts may cost more than simpler transactions.

If your activity follows the pattern of conventional transactions, you won't have to pay unusually high fees. This works fine. The bitcoins will appear next time you start your wallet application. Bitcoins are not actually received by the software on your computer, they are appended to a public ledger that is shared between all the devices on the network. If you are sent bitcoins when your wallet client program is not running and you later launch it, it will download blocks and catch up with any transactions it did not already know about, and the bitcoins will eventually appear as if they were just received in real time.

Your wallet is only needed when you wish to spend bitcoins. Long synchronization time is only required with full node clients like Bitcoin Core. Technically speaking, synchronizing is the process of downloading and verifying all previous Bitcoin transactions on the network. For some Bitcoin clients to calculate the spendable balance of your Bitcoin wallet and make new transactions, it needs to be aware of all previous transactions.

This step can be resource intensive and requires sufficient bandwidth and storage to accommodate the full size of the block chain. For Bitcoin to remain secure, enough people should keep using full node clients because they perform the task of validating and relaying transactions. Mining is the process of spending computing power to process transactions, secure the network, and keep everyone in the system synchronized together.

It can be perceived like the Bitcoin data center except that it has been designed to be fully decentralized with miners operating in all countries and no individual having control over the network. This process is referred to as "mining" as an analogy to gold mining because it is also a temporary mechanism used to issue new bitcoins. Unlike gold mining, however, Bitcoin mining provides a reward in exchange for useful services required to operate a secure payment network.

Mining will still be required after the last bitcoin is issued. Anybody can become a Bitcoin miner by running software with specialized hardware. Mining software listens for transactions broadcast through the peer-to-peer network and performs appropriate tasks to process and confirm these transactions. Bitcoin miners perform this work because they can earn transaction fees paid by users for faster transaction processing, and newly created bitcoins issued into existence according to a fixed formula.

For new transactions to be confirmed, they need to be included in a block along with a mathematical proof of work. Such proofs are very hard to generate because there is no way to create them other than by trying billions of calculations per second. This requires miners to perform these calculations before their blocks are accepted by the network and before they are rewarded.

As more people start to mine, the difficulty of finding valid blocks is automatically increased by the network to ensure that the average time to find a block remains equal to 10 minutes. As a result, mining is a very competitive business where no individual miner can control what is included in the block chain. The proof of work is also designed to depend on the previous block to force a chronological order in the block chain.

This makes it exponentially difficult to reverse previous transactions because this requires the recalculation of the proofs of work of all the subsequent blocks. When two blocks are found at the same time, miners work on the first block they receive and switch to the longest chain of blocks as soon as the next block is found. This allows mining to secure and maintain a global consensus based on processing power.

Bitcoin miners are neither able to cheat by increasing their own reward nor process fraudulent transactions that could corrupt the Bitcoin network because all Bitcoin nodes would reject any block that contains invalid data as per the rules of the Bitcoin protocol.

Consequently, the network remains secure even if not all Bitcoin miners can be trusted. Spending energy to secure and operate a payment system is hardly a waste. Like any other payment service, the use of Bitcoin entails processing costs. Services necessary for the operation of currently widespread monetary systems, such as banks, credit cards, and armored vehicles, also use a lot of energy.

Although unlike Bitcoin, their total energy consumption is not transparent and cannot be as easily measured. Bitcoin mining has been designed to become more optimized over time with specialized hardware consuming less energy, and the operating costs of mining should continue to be proportional to demand. When Bitcoin mining becomes too competitive and less profitable, some miners choose to stop their activities. Furthermore, all energy expended mining is eventually transformed into heat, and the most profitable miners will be those who have put this heat to good use.

An optimally efficient mining network is one that isn't actually consuming any extra energy. While this is an ideal, the economics of mining are such that miners individually strive toward it. Mining creates the equivalent of a competitive lottery that makes it very difficult for anyone to consecutively add new blocks of transactions into the block chain.

This protects the neutrality of the network by preventing any individual from gaining the power to block certain transactions. This also prevents any individual from replacing parts of the block chain to roll back their own spends, which could be used to defraud other users.

Mining makes it exponentially more difficult to reverse a past transaction by requiring the rewriting of all blocks following this transaction. In the early days of Bitcoin, anyone could find a new block using their computer's CPU. As more and more people started mining, the difficulty of finding new blocks increased greatly to the point where the only cost-effective method of mining today is using specialized hardware. You can visit BitcoinMining.

The Bitcoin technology - the protocol and the cryptography - has a strong security track record, and the Bitcoin network is probably the biggest distributed computing project in the world. Bitcoin's most common vulnerability is in user error. Bitcoin wallet files that store the necessary private keys can be accidentally deleted, lost or stolen.

This is pretty similar to physical cash stored in a digital form. Fortunately, users can employ sound security practices to protect their money or use service providers that offer good levels of security and insurance against theft or loss. The rules of the protocol and the cryptography used for Bitcoin are still working years after its inception, which is a good indication that the concept is well designed. However, security flaws have been found and fixed over time in various software implementations.

Like any other form of software, the security of Bitcoin software depends on the speed with which problems are found and fixed. The more such issues are discovered, the more Bitcoin is gaining maturity. There are often misconceptions about thefts and security breaches that happened on diverse exchanges and businesses.

Although these events are unfortunate, none of them involve Bitcoin itself being hacked, nor imply inherent flaws in Bitcoin; just like a bank robbery doesn't mean that the dollar is compromised. However, it is accurate to say that a complete set of good practices and intuitive security solutions is needed to give users better protection of their money, and to reduce the general risk of theft and loss.

Over the course of the last few years, such security features have quickly developed, such as wallet encryption, offline wallets, hardware wallets, and multi-signature transactions. It is not possible to change the Bitcoin protocol that easily.

Any Bitcoin client that doesn't comply with the same rules cannot enforce their own rules on other users. As per the current specification, double spending is not possible on the same block chain, and neither is spending bitcoins without a valid signature. Therefore, it is not possible to generate uncontrolled amounts of bitcoins out of thin air, spend other users' funds, corrupt the network, or anything similar.

However, powerful miners could arbitrarily choose to block or reverse recent transactions. A majority of users can also put pressure for some changes to be adopted. Because Bitcoin only works correctly with a complete consensus between all users, changing the protocol can be very difficult and requires an overwhelming majority of users to adopt the changes in such a way that remaining users have nearly no choice but to follow.

As a general rule, it is hard to imagine why any Bitcoin user would choose to adopt any change that could compromise their own money. Yes, most systems relying on cryptography in general are, including traditional banking systems.

However, quantum computers don't yet exist and probably won't for a while. In the event that quantum computing could be an imminent threat to Bitcoin, the protocol could be upgraded to use post-quantum algorithms. Given the importance that this update would have, it can be safely expected that it would be highly reviewed by developers and adopted by all Bitcoin users. You can find more information and help on the resources and community pages or on the Wiki FAQ.

Make a donation. Frequently Asked Questions Find answers to recurring questions and myths about Bitcoin. View All General What is Bitcoin? Who created Bitcoin? Who controls the Bitcoin network? How does Bitcoin work? Is Bitcoin really used by people?

How does one acquire bitcoins? How difficult is it to make a Bitcoin payment? What are the advantages of Bitcoin? What are the disadvantages of Bitcoin? Why do people trust Bitcoin? Can I make money with Bitcoin? Is Bitcoin fully virtual and immaterial? Is Bitcoin anonymous? What happens when bitcoins are lost? Can Bitcoin scale to become a major payment network?

Legal Is Bitcoin legal? Is Bitcoin useful for illegal activities? Can Bitcoin be regulated? What about Bitcoin and taxes? What about Bitcoin and consumer protection? Economy How are bitcoins created? Why do bitcoins have value? Can bitcoins become worthless? Is Bitcoin a bubble? Is Bitcoin a Ponzi scheme? What if someone bought up all the existing bitcoins? What if someone creates a better digital currency? Transactions Why do I have to wait for confirmation? How much will the transaction fee be?

What if I receive a bitcoin when my computer is powered off? Mining What is Bitcoin mining? How does Bitcoin mining work? How does mining help secure Bitcoin? What do I need to start mining? Security Is Bitcoin secure? Could users collude against Bitcoin? Is Bitcoin vulnerable to quantum computing? Where can I get help? General What is Bitcoin? As payment for goods or services. Purchase bitcoins at a Bitcoin exchange. Exchange bitcoins with someone near you. Earn bitcoins through competitive mining.

Payment freedom - It is possible to send and receive bitcoins anywhere in the world at any time. No bank holidays. No borders. No bureaucracy. Bitcoin allows its users to be in full control of their money. Choose your own fees - There is no fee to receive bitcoins, and many wallets let you control how large a fee to pay when spending.

Higher fees can encourage faster confirmation of your transactions. Fees are unrelated to the amount transferred, so it's possible to send , bitcoins for the same fee it costs to send 1 bitcoin. Additionally, merchant processors exist to assist merchants in processing transactions, converting bitcoins to fiat currency and depositing funds directly into merchants' bank accounts daily. As these services are based on Bitcoin, they can be offered for much lower fees than with PayPal or credit card networks.

This protects merchants from losses caused by fraud or fraudulent chargebacks, and there is no need for PCI compliance. Merchants can easily expand to new markets where either credit cards are not available or fraud rates are unacceptably high. The net results are lower fees, larger markets, and fewer administrative costs. Security and control - Bitcoin users are in full control of their transactions; it is impossible for merchants to force unwanted or unnoticed charges as can happen with other payment methods.

Bitcoin payments can be made without personal information tied to the transaction. This offers strong protection against identity theft. Bitcoin users can also protect their money with backup and encryption. Transparent and neutral - All information concerning the Bitcoin money supply itself is readily available on the block chain for anybody to verify and use in real-time.

No individual or organization can control or manipulate the Bitcoin protocol because it is cryptographically secure. This allows the core of Bitcoin to be trusted for being completely neutral, transparent and predictable. Degree of acceptance - Many people are still unaware of Bitcoin. Every day, more businesses accept bitcoins because they want the advantages of doing so, but the list remains small and still needs to grow in order to benefit from network effects.

Volatility - The total value of bitcoins in circulation and the number of businesses using Bitcoin are still very small compared to what they could be. Therefore, relatively small events, trades, or business activities can significantly affect the price. In theory, this volatility will decrease as Bitcoin markets and the technology matures.

Never before has the world seen a start-up currency, so it is truly difficult and exciting to imagine how it will play out. Ongoing development - Bitcoin software is still in beta with many incomplete features in active development.

New tools, features, and services are being developed to make Bitcoin more secure and accessible to the masses. Some of these are still not ready for everyone. Most Bitcoin businesses are new and still offer no insurance. In general, Bitcoin is still in the process of maturing. Bitcoin price over time: Can bitcoins become worthless? Doesn't Bitcoin unfairly benefit early adopters? Won't the finite amount of bitcoins be a limitation?

Won't Bitcoin fall in a deflationary spiral? Isn't speculation and volatility a problem for Bitcoin? What does "synchronizing" mean and why does it take so long? Isn't Bitcoin mining a waste of energy? Hasn't Bitcoin been hacked in the past? Help I'd like to learn more.

Support Bitcoin. M3 is M2 plus large time deposits and money market funds. Since M0 and M1 are readily accessible for use in commerce, we will consider these two buckets as medium of exchange, whereas M2 and M3 will be considered as money being used as a store of value. As part of their monetary policy, most governments maintain some flexible control over the supply of currency in circulation, making adjustments depending upon economic factors.

This is not the case with Bitcoin. So far, the continued availability of more tokens to be generated has encouraged a robust mining community, though this is liable to change significantly as the limit of 21 million coins is approached. What exactly will happen at that time is difficult to say; an analogy would be to imagine the U. Fortunately, the last Bitcoin is not scheduled to be mined until around the year This can be seen with precious metals like gold. Fortunately, Bitcoin is divisible up to 8 decimal points.

This allows for quadrillions of individual units of Satoshis to be distributed throughout a global economy. One bitcoin has a much larger degree of divisibility than the U. While the U. It is this extreme divisibility which makes bitcoin's scarcity possible; if bitcoin continues to gain in price over time, users with tiny fractions of a single bitcoin can still take part in everyday transactions.

One of the biggest selling points of Bitcoin has been its use of blockchain technology. Blockchain is a distributed ledger system that is decentralized and trustless, meaning that no parties participating in the Bitcoin market need to establish trust in one another in order for the system to work properly. This is possible thanks to an elaborate system of checks and verifications which is central to the maintenance of the ledger and to the mining of new Bitcoins.

Best of all, the flexibility of blockchain technology means that it has utility outside of the cryptocurrency space as well. Thanks to cryptocurrency exchanges , wallets , and other tools, Bitcoin is transferable between parties within minutes, regardless of the size of the transaction with very low costs. The process of transferring money in the current system can take days at a time and have fees. Transferability is a hugely important aspect of any currency.

While it takes vast amounts of electricity to mine Bitcoin, maintain the blockchain, and process digital transactions, individuals do not typically hold any physical representation of Bitcoin in the process. Durability is a major issue for fiat currencies in their physical form. A dollar bill, while sturdy, can still be torn, burned, or otherwise rendered unusable.

Digital forms of payment are not susceptible to these physical harms in the same way. For this reason, bitcoin is tremendously valuable. It cannot be destroyed in the same way that a dollar bill could be. That's not to say, however, that bitcoin cannot be lost. If a user loses his or her cryptographic key, the bitcoins in the corresponding wallet may be effectively unusable on a permanent basis.

Thanks to the complicated, decentralized blockchain ledger system, bitcoin is incredibly difficult to counterfeit. Doing so would essentially require confusing all participants in the Bitcoin network, no small feat. The only way that one would be able to create a counterfeit bitcoin would be by executing what is known as a double spend.

This refers to a situation in which a user "spends" or transfers the same bitcoin in two or more separate settings, effectively creating a duplicate record. While this is not a problem with a fiat currency note—it is impossible to spend the same dollar bill in two or more separate transactions—it is theoretically possible with digital currencies. What makes a double spend unlikely, though, is the size of the Bitcoin network.

By controlling a majority of all network power, this group could dominate the remainder of the network to falsify records. However, such an attack on Bitcoin would require an overwhelming amount of effort, money, and computing power, thereby rendering the possibility extremely unlikely.

Generally, Bitcoin holds up fairly well in the above categories when compared against fiat currencies. So what are the challenges facing Bitcoin as a currency? One of the biggest issues is Bitcoin's status as a store of value. Bitcoin's utility as a store of value is dependent on its utility as a medium of exchange. We base this in turn on the assumption that for something to be used as a store of value it needs to have some intrinsic value, and if Bitcoin does not achieve success as a medium of exchange, it will have no practical utility and thus no intrinsic value and won't be appealing as a store of value.

Like fiat currencies, Bitcoin is not backed by any physical commodity or precious metal. Bitcoin has exhibited characteristics of a bubble with drastic price run-ups and a craze of media attention. This is likely to decline as Bitcoin continues to see greater mainstream adoption, but the future is uncertain. Bitcoin's utility and transferability are challenged by difficulties surrounding the cryptocurrency storage and exchange spaces.

In recent years, digital currency exchanges have been plagued by hacks, thefts and fraud. In those cases, however, regulation is much more settled, providing somewhat more straightforward means of redress. Bitcoin and cryptocurrencies more broadly are still viewed as more of a "Wild West" setting when it comes to regulation. You are encouraged to form your own opinion for this projection and adjust the valuation accordingly.

The predominant medium of exchange is government backed money , and for our model we will focus solely on them. Roughly speaking, M1 which includes M0 is currently worth about 4. M3 which includes all the other buckets minus M1 is worth about 45 trillion U. To this, we will also add an estimate for the worldwide value of gold held as a store of value. While some may use jewelry as a store of value, for our model we will only consider gold bullion.

The U. Since there has in recent years been a deficit in the supply of silver and governments have been selling significant amounts of their silver bullion , we reason that most silver is being used in industry and not as a store of value, and will not include silver in our model.

In aggregate, our estimate for the global value of stores of value comparable to bitcoin, including savings accounts, small and large time deposits, money market funds, and gold bullion, come to This is a rather simple long term model.

Perhaps the biggest question it hinges on is exactly how much adoption will Bitcoin achieve? Coming up with a value for the current price of Bitcoin would involve pricing in the risk of low adoption or failure of Bitcoin as a currency, which could include being displaced by one or more other digital currencies. Models often consider the velocity of money, frequently arguing that since Bitcoin can support transfers that take less than an hour, the velocity of money in the future Bitcoin ecosystem will be higher than the current average velocity of money.

Another view on this though would be that velocity of money is not restricted by today's payment rails in any significant way and that its main determinant is the need or willingness of people to transact. Therefore, the projected velocity of money could be treated as roughly equal to its current value. Another angle at modeling the price of Bitcoin, and perhaps a useful one for the near-to-medium term, would be to look at specific industries or markets one thinks it could impact or disrupt and think about how much of that market could end up using Bitcoin.

Commodity Futures Trading Commission. Accessed May 13, Congressional Research Service. Board of Governors of the Federal Reserve System. Buy Bitcoin Worldwide. Federal Reserve Bank of New York. Bitcoin Wiki. Accessed March 12, Consumer Financial Protection Bureau. Accessed Mar. National Science Foundation. Federal Trade Commission Consumer Information. Office of the Director of National Intelligence.

The Law Library of Congress.

As a bitcoin enthusiast, you may have wondered, what is bitcoin backed by?

Ram slam cricket betting tips From a user perspective, Bitcoin is nothing more than a mobile app or computer program that provides a personal Bitcoin wallet and allows a user to send and receive bitcoins with them. Bitcoin is fully open-source and decentralized. Some of these are still not ready for everyone. But now that Bitcoin is the sixth most valuable currencyit does beg the question And how much will your refund be? The level of confidence seen in a currency can be indicated, or even preserved, by its level of usage around the world. Bitcoin allows money to be secured against theft and loss using very strong and useful mechanisms such as backups, encryption, and multiple signatures.
Back betting One of the biggest selling points of Bitcoin has been its use of blockchain technology. There are only 21 million bitcoin that can be mined in total. Mining is the process of spending computing power to process transactions, secure the network, and keep everyone in the system synchronized together. Just as a currency must be durable, it must also be difficult to counterfeit in order to remain effective. It is not possible to change the Bitcoin protocol that easily. Best of all, the flexibility of blockchain technology means that it has utility outside of the cryptocurrency space as well. What is Convertible Virtual Currency?
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Uk spread betting forex Like fiat currencies, Bitcoin is not backed by any physical commodity or precious metal. However, lost bitcoins remain dormant forever because there is no way for anybody to find the private key s that would allow them to be spent again. Many governments operate with a preset amount of inflation which serves to drive the value of the fiat currency down. Every Bitcoin node in the world will reject anything that does not comply with the rules it expects the system to follow. Bitcoin is a digital currency that was created in January
Csgl betting tips Refunds might not be in cryptocurrency. Like any other payment service, the use of Bitcoin entails processing costs. Compare Accounts. We tend to not think about it because that is how the financial system has been operating for hundreds of years. Bitcoin Bitcoin's Price History. The authenticity of each transaction is protected by digital signatures corresponding to the sending addresses, allowing all users to have full control over sending bitcoins from their own Bitcoin addresses. Alternatives to Bitcoin.
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The blockchain is a public ledger used to verify and record these transactions. The issue of security has been a fundamental one for bitcoin since its development. On one hand, bitcoin itself is very difficult to hack, and that is largely due to the blockchain technology which supports it.

As blockchain is constantly being reviewed by bitcoin users, hacks are unlikely. On the other hand, however, the fact that bitcoin itself is difficult to hack does not mean that it's necessarily a safe investment. There does exist the potential for security risks at various stages of the trading process. Bitcoins are held in wallets and traded through digital currency exchanges like Coinbase.

Developers are always improving wallet security, but there are also those looking to access other peoples' wallets illegally to swipe their tokens and coins. In the transaction process, two-factor identification is commonly used as a security measure. Of course, having the security of a transaction linked to an email address or a cell phone number means that anyone with access to those components can authenticate transactions.

If hackers can determine some of your non-cryptocurrency-related personal information, they may be able to infiltrate your transactions in that space regardless. Bitcoin users are assigned private keys, which allows access to their bitcoins. Hackers can infiltrate wallets and steal bitcoins if they know a user's private key. There have been widely publicized frauds, scams, and hacks that have plagued individual investors and even major cryptocurrency exchanges in their short history.

Part of the issue is simply that the technology and space are new. While this makes cryptocurrencies like bitcoin incredibly exciting—and potentially very profitable—investments, it also means that there are those looking to capitalize on security holes before they are corrected. All bitcoin investors are advised to take proper precautions to best protect their holdings. Your Money.

Personal Finance. Your Practice. Popular Courses. Bitcoin Guide to Bitcoin. Cryptocurrency Bitcoin. Key Takeaways Bitcoin is a decentralized digital currency that uses cryptography to secure transactions. Bitcoin transactions are recorded in a digital ledger called a blockchain. Blockchain technology and users' constant review of the system have made it difficult to hack bitcoins.

Hackers can steal bitcoins by gaining access to bitcoin owners' digital wallets. It's minted plenty of millionaires among the technological pioneers, investors and early bitcoin miners. If you're willing to assume the risk associated with owning bitcoin, there is an increasing number of digital currency exchanges like Coinmama, CEX, Kraken and Coinbase -- the largest and most established of them -- where you can buy, sell and store bitcoins.

Getting started is about as complicated as setting up a Paypal account. With Coinbase, for example, you can use your bank or Paypal account to make a deposit into a virtual wallet, of which there are many to choose from. Once your account is funded, which usually takes a few days, you can then exchange traditional currency for bitcoin. You can sell it. Or you can just hang on to it.

Note that there are no inherent transaction fees with bitcoin, although exchanges like Coinbase typically charge a fee when you buy or sell. Short, qualified answer: Yes, for now, as long as -- like any currency -- you don't do illegal things with it. For instance, bitcoin was the sole currency accepted on Silk Road, the Dark Web marketplace for drugs and other illicit goods and services that was shuttered by the FBI in Since then, bitcoin has largely evaded regulation and law enforcement in the US, although it's under increased scrutiny as it attracts more mainstream attention.

Legal and regulatory hazards aside, as both an investment and currency, bitcoin is very risky. When you wake up in the morning, you know pretty precisely how much a dollar can buy. The financial value of a bitcoin, however, is highly volatile and may swing widely from day to day and even hour to hour.

Exhibit A: December Bitcoin transactions cannot be traced back individuals -- they are secured but also obscured through the use of public and private encryption keys. This anonymity can be appealing, especially with companies and marketers increasingly tracking our every purchase, but it also comes with drawbacks. You can never be certain who is selling you bitcoin or buying them from you. Opportunities for money laundering abound; in , authorities in the Netherlands arrested 10 men for just this.

Theft is also a risk. There are few avenues for pursuing refunds, challenging a transaction or recovering such losses. Once a transaction hits the blockchain, it's final. Because bitcoin is so new and decentralized, there is plenty of murkiness and many unknowns.

Even the technical rules for mining are still evolving and up for debate. The IRS views bitcoins as property, not currency. Even Coinbase, the most established of them all has struggled to keep up with demand, plagued by site outages, scaling issues and customer service complaints.

Even if it's venture-backed, every bitcoin player today is by definition a startup and comes with all of the associated risks. In August , different sects within the bitcoin mining community had a disagreement about the rules governing the mining process -- specifically, what constitutes the appropriate size in megabytes of a block.

Unable to form a consensus, there was a fork in the blockchain , with the bitcoin originalists going one way and the group favoring larger blocks going another to start Bitcoin Cash. Though they share a common digital ancestry, each now has its own individual blockchain with slightly different protocols.

Forking is almost assured to happen again in the future. More than a thousand , with more sprouting up every day. Aside from bitcoin, which is the real progenitor of them all, other well-known alternative currencies include Ethereum, Ripple and Litecoin. We take a look at the pros and cons of each, and how they stack up, in this explainer.

Buying and selling bitcoin : A quick and dirty introduction to trading cryptocurrency. Bitcoin, Ethereum or Litecoin : Which is best for you? Be respectful, keep it civil and stay on topic. We delete comments that violate our policy , which we encourage you to read. Discussion threads can be closed at any time at our discretion.

What is bitcoin? Here's everything you need to know Blockchains, bubbles and the future of money.

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