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Created on 26.04.2018

What you need to know about “Bitcoin”

You will undoubtedly have heard of “Bitcoin”. Here’s everything you ever wanted to know about it but never dared to ask:

What is Bitcoin?

Bitcoin is a cryptocurrency; in other words, a currency that does not consist of physical bank notes and coins, but of a sequence of encrypted data blocks.

Every transaction in a cryptocurrency – including every Bitcoin transaction – is held online in a block. Every transaction has a unique digital signature. As soon as the transaction is verified by everyone else in the system, the block is attached to the “chain” and the money changes hands. The “blockchain” is a logbook which can be viewed by everyone else and cannot be erased. It is a kind of virtual set of accounts in which every transaction is entered and can be checked and tracked by everyone at all times.

The name Bitcoin is an invented term made up of “Bit” (the smallest unit of computer memory) and “coin”. 

What has mining got to do with it?

The word “mining” is often heard in association with Bitcoin. This refers to computers – and of course the people using them – which are continually looking for new blocks to make them available for the blockchain. It is a bit like a game where computers compete against one another to look for new blocks and the first to find a block wins. The winner receives a Bitcoin payment as a “reward” for the new block. However, the “miners” require increasing computing power to achieve their goal. It is now almost impossible for private individuals to take part in this “game”.

What value does a Bitcoin have?

A Bitcoin does not have an inherent, specific value. Its value is based solely on the confidence placed in being able to use Bitcoins as a means of payment. The availability of Bitcoins is also restricted. This means that the value of Bitcoin can increase rapidly but also fall – it’s very volatile. As a result, investment in Bitcoins is a speculative undertaking.

What is Bitcoin actually used for?

More and more shops, hotels and other businesses are accepting Bitcoins as a method of payment.

Bitcoins can be bought and sold online or at Bitcoin machines using conventional currency (such as Swiss francs or US dollars). SBB, for example, offers ways of purchasing Bitcoins. Bitcoin is not traded on the stock exchange.

To pay using Bitcoins in shops, you require a smartphone with an electronic Bitcoin wallet installed on it. A wide range of options is available, and you can find a good overview of these online. A shop that accepts Bitcoins as a method of payment provides you with a QR code for you to scan, and you may then have to enter the amount yourself.

Bitcoin transactions incur very low fees. This means that payments can be made very inexpensively– even worldwide transactions.

Key and wallet?

You also need a Bitcoin wallet if you want to transfer Bitcoins. Every Bitcoin user has a personal cryptographic key to manage their Bitcoins. Users must protect the key – and therefore their Bitcoins – against loss and theft themselves. If the key is lost so too are the Bitcoins linked to it. Bitcoin wallets are available as both online and offline applications.

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