How do digital currencies like Bitcoin work?

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How do digital currencies like Bitcoin work?

by rahimsaiyad » Fri Apr 18, 2014 12:10 pm

How do digital currencies like Bitcoin work? Who regulates them? And what are their advantages/disadvantages?
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Re: How do digital currencies like Bitcoin work?

by kyletorpey » Thu May 22, 2014 2:51 am

At its core, Bitcoin is nothing but math. Math and computer code is what controls how Bitcoin works, when new bitcoins will be created, who will get those bitcoins, and which transactions will be confirmed. The point of the network is to be as trustless and censorship resistant as possible.

The Bitcoin network is basically a decentralized ledger of accounts. Each one of those accounts has a corresponding number of bitcoins attached to them. The only person who can move bitcoins from a particular account is the person who has the private key attached to that account.

Bitcoin is not regulated as of today. There are plenty of governments around the world that plan to regulate the cryptocurrency, but the problem is that it's rather difficult to regulate a protocol. It may be possible to regulate Bitcoin as a technology in a place like North Korea, but freer nations will find it to be rather hard to tackle the cryptocurrency and distributed ledger. For now, the regulators will have to focus on the entry and exit points of the Bitcoin ecosystem.

The main benefit of digital currency is the fact that it is censorship resistant. There are other benefits such as lower transaction costs and the fact that Bitcoin is programmable money, but the fact that it's censorship resistant is what gives it its intrinsic value. The only real disadvantage to most cryptocurrencies right now is the fact that they are rather volatile, but that volatility has slowly declined over time.
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