Bitcoin is a digital currency which by its nature is a decentralized, low-cost, global peer-to-peer (P2P) payment processing method that runs via a replicated database architecture which confirms and bundles transactions in sequential blocks of data (blockchain) and securely enables the exchange of digital assets between two wallet addresses.
• Bitcoin may be funded by any fiat currency through a bank account, credit card, or bitcoin-enabled ATM. Just as pennies and dimes could equal one or more dollars, a single bitcoin may be divisible into smaller portions of value.
• Since bitcoin is decentralized in nature, no central banking authority manages the issuance or transferal of the bitcoin virtual currency; instead the blockchain-oriented P2P network uses a cryptographic algorithm protocol (commonly referred to as mining) to process transactions, which, in turn, also generates new bitcoins.
• In theory, transaction fees are close to zero unless a third party intervenes, and the prevailing rate seems to hover around 1%, substantially less than the average merchant discount rate of 2% at the retail point-of-sale and 3% or higher online.
• To pay using bitcoin, a user must activate a “bitcoin wallet.” A virtual currency wallet is a digital file accessed through desktop software, an app, or a web-based program that links respective payment sources and warehouses payment card and/or bank account information. It also has the functionality to create the public key from which the wallet address is derived, and the corresponding, mathematically related private key (used for the encryption in digital signatures).
• The public wallet addresses are similar in concept to different funding sources in a tangible wallet (cards, cash) and the private keys are analogous to a PIN code.
• Both the public and private keys are generated by the embedded bitcoin code when a new address (payment source) is generated. A private key is generally a string of 64 characters that acts as a digital signature to authorize a transaction.
