What is a Bitcoin?
A Bitcoin is a special type of global digital payment system based on a common unit of exchange – the Bitcoin. The system shares both characteristics of both currency and a commodity.
The Bitcoin ecosystem consists of the following entities
A Canadian $20-dollar bill is identified by the serial number printed on it and chances are you a have a few of them in your wallet. A Bitcoin on the other hand only exists as a transaction ledger entry identified by its digital address.
Miners have the right to create new Bitcoins by finding and publishing blocks in the Block Chain Ledger to contain Bitcoins. By design, finding new blocks is computationally difficult. Miners also approve transactions.
Exchanges buy Bitcoins from a Miner at a wholesale price and sell them at a retail rate to their customers. A transaction fee is credited to the miner who supplied the Bitcoins.
Transactions record every exchange of Bitcoins and the conversion to and from currency between two parties called the redeemer and transaction creator. To prove that the redeemer owns the bit coin, they must present the encryption keys used to encipher the owner details. Transactions are essentially serviced by a crowd sourced transaction service provider. The transaction processor first validates the coins in the transaction. If all is well, the transaction is recorded in the block chain ledger by the exchange who first finds the block to contain the ledger entry. Hence there may be any number of miners may be working on closing the same transaction. Only the miner who closes the transaction and records it in the block chain receives the transaction fee.
The details of a specific Bitcoin transactions are encrypted using public key encryption. The private key identifies the owner of the transaction. To spend a Bitcoin, both the Bitcoin address and Private Key are required.
The Block Chain
A globally distributed ledger called the block chain keeps track of when a Bitcoin is created, spent or exchanged for currency. Transactions are recorded in real time and ensure that they are paid for by Bitcoins which have not been spent (aka double spend problem). There is no single ledger but rather any number of ledgers. The task at hand is to track transactions involving Bitcoins in real time.
A Bitcoin wallet is like a debit card which stores Bitcoins in the equivalent of a savings account and a payment system. The wallet may be a desktop or mobile phone application. The wallet is topped up by purchasing bit coins from an Exchange or Bitcoin ATM using PayPal or Visa.
Physical delivery is also possible at Bitcoin ATMs. There are 20 Bitcoin ATMs located in Southern Ontario including one at 30 Yonge Street in BCE Place in Toronto