This article explains the concept of a cryptocurrency and answers some frequently asked questions on Bitcoins. It also captures my thoughts on the future of Bitcoins and if one should invest into virtual currencies.


What is a cryptocurrency?

A cryptocurrency is a virtual digital currency that uses cryptography to secure peer to peer digital transactions, create additional units, and verify the transfer of units, without the control from a central bank or a third party. Each transaction is stored into a decentralized digital ledger, also known as a Blockchain.

With the help of cryptocurrency, you can trade virtually with anyone, without any interference or control from any third party. Another significant feature with cryptocurrencies is that you can transact anonymously. As of Jan 7, 2018, there are over 1384 cryptocurrencies available over the internet.  Out of all these cryptocurrencies, Bitcoin is the largest cryptocurrency followed by Ethereum, Ripple, Bitcoin Cash, Cardano, and Litecoin.

The main difference between real money and virtual currency is that virtual currency transactions don’t have any transaction fees. Moreover, they are not subject to bank regulations.


What is Bitcoin?

Bitcoin is a decentralized virtual currency created in 2009 by an unknown person or group of people with alias Satoshi Nakamoto. It uses peer-to-peer technology which means that data can be exchanged between two parties without the involvement of a central authority. 


How can I purchase Bitcoins?

A user must install a virtual wallet onto a personal computer or a mobile device to purchase Bitcoins. The wallet keeps track of all Bitcoin transactions for the user. The user then deposits the real money to an account that allows the user to buy or sell Bitcoins. The transactions are like trading stocks through an exchange such as Bitstamp or MtGox. Bitcoins can also be purchased from third parties who deposit Bitcoins directly into the virtual wallet.


Where are my Bitcoins?

Bitcoins are stored in a virtual bank account or a digital wallet, which either exists in the cloud or on user’s computer. Unlike bank accounts, Bitcoin digital wallets are not insured by the FDIC.


What is the identity of a Bitcoin owner?

Bitcoin owners are identified by a string of characters such as a digital address. This digital address is also known as Bitcoin address.


Is your identity linked to your Bitcoin address?

Yes, your identity can be associated with your Bitcoin address. If you post your Bitcoin address and your name online, then your name gets associated with your Bitcoin address on the internet. If you create any content online, for example, post comment on an online forum, create a new blog etc. and provide your Bitcoin address, your personal details get tied to your Bitcoin address. Moreover, if you trade Bitcoins on an exchange or transact with Bitcoin, your personal details that you provide to the exchange or merchants will be associated with your Bitcoin address.


What are the risks from Bitcoin Transactions?

Since Bitcoin transactions don’t record buyer’s and seller’s name or physical location, these transactions can be used to buy or sell illegal products or services anonymously. Law enforcement agencies don’t like the anonymity with Bitcoins.


What is the future of Bitcoins?

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Should I invest into virtual currencies?

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To learn about Blockchain, Cryptocurrencies, Artificial Intelligence, Augmented Reality, Smart Homes, and other technology trends, read frequently asked questions with my book, Emerging Technology Trends - Frequently Asked Questions.


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