You might have heard about the recent upsurge in the interest of digital currencies such as bitcoins and other virtual currencies. But what exactly is it? What are its uses? And how does it differ from traditional currency?
Let’s start by defining a virtual currency. A virtual currency is one that is not issued by any government, although it can be backed by one or more countries. Like a physical currency, a virtual currency can be traded, bought and sold virtually anywhere in the world. Unlike a physical currency, a digital currency is not backed by any government or central bank. It exists only as long as the users maintain it and everyone who owns it collectively agreed to maintain it.
In contrast to a physical currency, a virtual currency is not backed by anything. It exists only as long as the users maintain it collectively. It is an agreement between entities. One of the most popular virtual currencies is bitcoins. It was created out of a need for something better than the classical Internet money we all know about today. The Internet has had no redeeming qualities except for being a convenient worldwide money transfer tool, and bitcoins fulfill that need better than anything else available.
Before we go any further, let’s define payment systems. A payment system is a system that uses real goods or services as a form of payment for someone else’s goods or services, instead of just money. Payment systems allow you to receive payments in a variety of ways, whether it’s a check, an electronic transaction, a physical card, or even a phone call. PayPal, Neteller, WorldPay and Moneybookers are among the most popular, secure and profitable payment systems.
To be able to trade in these systems, you need someone to “mine” the currency. This is a person or group of people that perform the mathematical work that goes into creating new units of currency. Their job is to keep up with the demands for more bitcoins. They do this by purchasing large amounts of them at the beginning and selling them to people interested in buying them. When the price increases (because people are willing to pay more), they purchase even more, keeping the overall supply up.
So, how does this exchange take place? Basically, during a transaction you give your currency ( bitcoins) to someone, who then gives you back your newly minted currency. In this way, the value of each unit of currency changes, while keeping a constant supply.
Now, a payment system is pretty much the same thing, only it involves a different currency. A payment system is used during a transaction to complete a transaction. For instance, when you go to the grocery store and want to buy some milk, you don’t have to wait for a long time until your thirsty kid gets his or her milk. You simply go to the counter, hand him or her your money, and he or she goes to the refrigerator to get the milk. The whole transaction occurs instantaneously, because the Internet and the money transfer systems we use today make this kind of transaction possible.
So, in conclusion, you should know that bitcoins are not just a recent technological innovation. People have been using them for a very long time. Although they haven’t been widely accepted by the mainstream financial institutions as of yet (due to the problems that governments have had dealing with them), there is no doubt that they will one day replace paper money as the worldwide currency. So, if you want to make better use of your money, and if you want it to be more secure, you should definitely learn to use bitcoins, and reap the many benefits they bring.