What Is Bitcoin and How Does It Work?


Quick Answer

Bitcoin is a virtual currency that works through anonymous computer transfers, according to CNN. Bitcoin is particularly attractive to people engaging in illegal commerce on the Internet.

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Full Answer

Bitcoin was created in 2009 by an anonymous individual using the name of Satoshi Nakamoto, writes CNN. Because these virtual coins are not linked to any one nation or currency, they are unregulated and therefore particularly useful for international commerce. Many small businesses also appreciate bitcoins because they are not subject to fees, as are credit cards.

It is possible to buy bitcoins through online marketplaces, the most popular of which is known as Mt. Gox, says CNN. It is also possible to transfer bitcoins directly using various computer apps. A third option for acquiring bitcoins is a process known as "mining," in which individuals compete to solve complex math problems and are rewarded with the coins.

A bitcoin owner accumulates the coins in a digital wallet, explains CNN. The wallet stores the coins on the cloud or on a personal computer. Because bitcoins are not regulated, they are not FDIC insured. Lack of FDIC insurance is particularly problematic because coins stored in the cloud are vulnerable to hacking, while those stored on a computer are prone to accidental deletion.

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