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Bitcoin is a form of electronic currency that uses peer-to-peer (P2P) networks to track and verify transactions. The Bitcoin system does not make use of financial institutions so no central authority is necessary to control this currency. Bitcoins can be considered as cash online.
The Bitcoin System
Bitcoins are generated or “mined” after processing a so-called “block” of data. A Bitcoin block is a cryptographic problem or puzzle a user’s computer solves with the aid of a lot of processing power. Bitcoin generation—popularly called “mining”—requires great computing power. Users who may not have the required resource can, however, simply purchase or sell Bitcoins from Bitcoin exchange sites or over-the-counter exchange establishments or engage in in-person trading.
The entire Bitcoin network relies on a shared public ledger called the “block chain.” The block chain contains every Bitcoin or similar digital currency transaction ever processed. The validity of transactions made is verified via the digital signatures of users’ Bitcoin addresses. The verification process identifies Bitcoin spenders as the owners of the Bitcoins they use for transactions.
Every Bitcoin transaction requires a Bitcoin address and a Bitcoin wallet. Similar to email addresses, users use these addresses to send and receive Bitcoins. Users can have as many addresses as they like; some use one address per transaction.
Bitcoin users rely on a Bitcoin wallet to help manage their transactions. Each wallet has a piece of data called a “private key,” which is used as proof that the transactions come from the wallet’s owner. This key or signature prevents any transaction from being altered.
There are different types of Bitcoin wallets—software wallets (installed on computers), mobile wallets (installed on mobile devices), and Web wallets (wallets hosted on cloud services).
Bitcoins can be used to pay for various online services like Web hosting, mobile app development, and cloud file storage. They can also be used to pay for products like games, music files, gift cards, and books. Bitcoin use is not limited to online transactions, however, as some real-world establishments accept Bitcoins as payment for various goods. These can also be traded for traditional currency via sites that offer most international currencies in exchange.
Bitcoin is not the only digital currency available. Litecoin is another P2P currency that differs from Bitcoin in that it boasts of faster transaction confirmations, a larger number of coins, and less required computing power to generate. Numbers estimate Litecoin to be the second-largest cryptocurrency after Bitcoin. Namecoin is another digital currency, but more used in decentralized Domain Name System (DNS) settings that can make Internet censorship difficult. Namecoin does so by creating a top-level domain (TLD) outside of the control of the Internet Corporation for Assigned Names and Numbers (ICANN), which coordinates domain name spaces, among other things.
Bitcoin in the News
While Bitcoin has been around since 2009, it has recently gained much news coverage. The shutdown of the “black marketplace,” Silk Road, seems to have spurred a spike in Bitcoin prices. Coupled with the launch of the world’s first Bitcoin ATM, it seems that Bitcoins are becoming more accessible to the public.
You should treat your Bitcoin wallet like a real one. Securing and protecting your wallet should be a top priority.
Securing your computer is also important to protect your Bitcoin account:
Trend Micro™ Smart Protection Network™ protects users by safeguarding possible points of infection. Below are some Trend Micro products and services that use the power of the Smart Protection Network to combat Bitcoin-related threats:
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