Bitcoins may change the way we transfer money overseas or buy goods both locally and overseas. As part of my online UDEMY course Money Laundering in a Digital World I have created a basic overview of Bitcoin.
Bitcoin is a decentralized digital currency
The Bitcoin was concocted by Satoshi Nakamoto and introduced early
They are digital coins that you send through the Internet.
Uses peer-to-peer technology to facilitate instant payments mostly to
purchase goods and services.
In November 2013 there were 93,000 Bitcoin transactions per day,
and the average transaction size was US$2,000 (the average mobile
money transaction was only US$35 in June 2012)
As of November 30 2013, approximately 800,000 bitcoins have been
Obtaining A Bitcoin
The main ways to get Bitcoins are:
Exchanges, where you can buy and sell Bitcoin for flat currency
Transactions between individuals using Bitcoin Wallets
Bitcoin owners store the digital currency in the cloud so they don’t have to
worry about safeguarding it from, hackers, on their own computers.
Bitcoin functions using public-key cryptography, in which a user generates a
pair of cryptographic keys: one public and one private.
Only the private key can decode information encrypted with the public key;
therefore the keys' owner can distribute the public key openly without fear
that anyone will be able to use it to gain access to the encrypted information.
The private key, however, must be kept secret and secure.
The public key can be used as an "address" to which other users can send
Bitcoin Wallets Continued
Anyone wishing to use Bitcoin can create one or more Bitcoin
addresses, which are collected and tracked in "wallets".
Anyone can send bitcoins to the public address provided by the owner
of the wallet, while the private key must be entered by the wallet owner
to send bitcoins.
Securing and protecting the private key is the essence of wallet
security. If the private key for an address is not kept secret, the bitcoins
may be stolen; theft has been documented on numerous occasions.
Versatility of Bitcoin Wallets
Wallets allow a user to complete transactions between addresses by
requesting an update to the blockchain, the public transaction log.
Wallets come in a variety of forms: apps for mobile devices and
computers, hardware devices, and paper tokens. When making a
purchase with a mobile device, the use of QR codes to simplify
transactions is ubiquitous.
Integral to Bitcoin is a public transaction ledger and log known as the
Blockchains shows who owns how many bitcoins currently and
records the participants in all prior transactions as well.
Blockchains keep a record of all transactions
The blockchain prevents double-spending (copying one bitcoin and
spending it in multiple different places) because the record shows that
once a bitcoin has been spent, the previous owner no longer controls
The blockchain is maintained not by a central body but by a
distributed network of computers that run a program to solve
cryptographic puzzles relating to information in the blockchain.
Users who devote computing power to maintaining the blockchain this way
are called "miners" because they are awarded in bitcoin when they are first
to solve such puzzles - mining is how new bitcoins are generated
The mathematical calculations performed by miners' computers serve to
verify that each transaction is valid and add the information to the
As more bitcoins come into circulation, the puzzles involved in mining them
become increasingly difficult, and the rewards are halved at regular intervals,
until 21 million bitcoins have been created and production stops.
As Bitcoin achieves wider recognition and more people compete to mine the
coins, competition for the limited number of bitcoins awarded for solving the
cryptographic puzzles becomes more steep and more powerful computers
are needed in order to compete - a fact which has spawned a technology
boom in sales of Bitcoin mining technology.
Bitcoins are more anonymous than a bank account.
You can make your own “wallet” on your computer without giving any
personal information to set up your account.
The number of wallets you can create are unlimited.
No high-ranking authorities can oversee the transaction record or confiscate
Trying to figure out which accounts belong to whom and not having
accessibility to the “private key” to approve the transaction would be a
problem according to some experts
who have a degree in electrical engineering.
Bitcoin Pros Continued
The supply of Bitcoins will essentially be limited once they all
have been created or mined.
At this juncture, no overseeing legislature can produce further
Bitcoins. This is one reason why many people would like to see
Bitcoins succeed. Those fueling anti-government sentiments feel
Bitcoins are akin to the collapse of a conflictingly controlled
The flow of Bitcoins will eventually cease. At this time, no highranking authorities can produce additional Bitcoins or otherwise
influence the Bitcoin supply.
Those critical of the bureaucratic system will value this trait;
however, those who feel a regulative authority is important to
maintain fiscal stability will find this characteristic worrying.
There is no guarantee that Bitcoins will be around in the future or
whether they will retain any value.
Currently, the Bitcoin phenomenon is literally a group of hobbyists who
get a thrill out of the uniqueness of it all.
There are some collectors of Bitcoins who hope to profit if Bitcoins
eventually pan-out to the extent where merchants will accept Bitcoins
as a standard currency.
Ultimately, users will grow tired of the whole concept if they are not
frequently able to use their coins to purchase things.
Bitcoin Cons Continued
If Bitcoins eventually got into the hands of governments, they could
pass regulations and restrict Bitcoin usage.
Bitcoins are a perfect tool for unscrupulous characters like terrorists
and drug smugglers who want to exchange currency anonymously
with a system that is not vulnerable to government intervention.
Bitcoins are deficient of many secure methods used by regular banks.
For example, if you lose your wallet details you lose your funds your
Bitcoins disappear back into cyberspace where they originated.
If another person gets hold of your private key, undoing any
unauthorized transactions will be impossible.
Hot Bitcoin Wallet-Software that sits on your personal computer and
ties into the bitcoin network, allowing you to send and receive bitcoins
Mobile Bitcoin Wallet-Sit on mobile device allowing a person to make
transactions in stores
Online Wallet- Website that manages wallets, petting you store, send
and receive bitcoins without installing software on your computer
Websites and Real World Shops- Handful of systems that allow shops
to connect to the bitcoin system and allows them to accept payments.
Bitcoin Exchange- An online exchange where you can trade bitcoins
for other currencies including dollars, yen and euros. These are linked
to real world banking systems and move converted bitcoins directly to
‘Cold Bitcoin Wallet’ - Bitcoins stored on a computer not connected to
the internet. Safeguards from persons hacking into your computer.
In Person Exchanges- Meet in person with one person handing over
cash and the other person transmits a bit coin to the other person via
the bitcoin network.
Physical Bitcoins - You store the cryptography key on a physical coin
or a finger ring.