Most of the information I'm going to relate is either from Wiki's fine article ( https://en.wikipedia.org/wiki/Bitcoin ) or from my own observation.
"Bitcoin" at it's basics is a digital currency developed by a person and/or person's who called themselve/s Satoshi Nakamoto ( https://en.wikipedia.org/wiki/Satoshi_Nakamoto ). On 18Aug2008 the domain name of bitcoin dot org was registered and on 31Oct2008 the term "bitcoin" appeared in a white paper discussing the introduction of this cryptocurrency. The software allowing transactions was released 3Jan2009 and the first transaction was recorded by Nakamoto in that month. Since that time bitcoin has been a publicly available software program and a publicly available currency of sorts.
Bitcoin itself is, obviously, not a coin at all but the record of a bitcoin transaction. It's ownership is not tied to a person but rather to an address that is designated as that particular bitcoin. These addresses are protected by a private key which should keep the bitcoin safe from hacking. The transaction can only occur IF a. there is a legitimate bitcoin address and b. if the corresponding private key is legitimate. The creaters and supporters of bitcoin have said that this makes bitcoins safe and the coding almost unbreakable.
The method of obtaining bitcoins, known as mining, is complex and would be better off explained by wiki here.
Wikipedia wrote:Mining is a record-keeping service done through the use of computer processing power.[d] Miners keep the blockchain consistent, complete, and unalterable by repeatedly verifying and collecting newly broadcast transactions into a new group of transactions called a block. Each block contains a cryptographic hash of the previous block, using the SHA-256 hashing algorithm,:ch. 7 which links it to the previous block, thus giving the blockchain its name. Miners may aggregate mining resources in a mining pool.
To be accepted by the rest of the network, a new block must contain a so-called proof-of-work. The proof-of-work requires miners to find a number called a nonce, such that when the block content is hashed along with the nonce, the result is numerically smaller than the network's difficulty target.:ch. 8 This proof is easy for any node in the network to verify, but extremely time-consuming to generate, as for a secure cryptographic hash, miners must try many different nonce values (usually the sequence of tested values is 0, 1, 2, 3, ...:ch. before meeting the difficulty target.
Every 2,016 blocks (approximately 14 days at roughly 10 min per block), the difficulty target is adjusted based on the network's recent performance, with the aim of keeping the average time between new blocks at ten minutes. In this way the system automatically adapts to the total amount of mining power on the network.:ch. 8
Between 1 March 2014 and 1 March 2015, the average number of nonces miners had to try before creating a new block increased from 16.4 quintillion to 200.5 quintillion.
The proof-of-work system, alongside the chaining of blocks, makes modifications of the blockchain extremely hard, as an attacker must modify all subsequent blocks in order for the modifications of one block to be accepted. As new blocks are mined all the time, the difficulty of modifying a block increases as time passes and the number of subsequent blocks (also called confirmations of the given block) increases.
According to Wiki's continuing article the "miner" who finds a new block is rewarded by being granted bitcoins and transaction fees associated with that block. The most current listed reward is 12.5 newly created bitcoins awarded as the new block is added to the block chain. Again, I'll quote from wiki here, this is something they explain a lot better than I can.
Wikipedia wrote:The successful miner finding the new block is rewarded with newly created bitcoins and transaction fees. As of 9 July 2016, the reward amounted to 12.5 newly created bitcoins per block added to the blockchain. To claim the reward, a special transaction called a coinbase is included with the processed payments.:ch. 8 All bitcoins in existence have been created in such coinbase transactions. The bitcoin protocol specifies that the reward for adding a block will be halved every 210,000 blocks (approximately every four years). Eventually, the reward will decrease to zero, and the limit of 21 million bitcoins[e] will be reached c. 2140; the record keeping will then be rewarded by transaction fees solely.
In other words, bitcoin's inventor Nakamoto set a monetary policy based on artificial scarcity at bitcoin's inception that there would only ever be 21 million bitcoins in total. Their numbers are being released roughly every ten minutes and the rate at which they are generated would drop by half every four years until all were in circulation.
So not only is the only way to get new bitcoins through the mining process, bitcoin itself was designed to have a finite number in total. When that number, expressed at 21 million bitcoins, is reached the only money to be made through the generation will be in the collection of transaction fees and the trading of bitcoins for other currencies.
Bitcoin itself is, again, obviously not something you can carry in your billfold or purse. It is stored in a virtual wallet, or wallet. This wallet stores the addresses and keys for your owned bitcoins for you and allows you use of the bitcoins you "own". There are several types of wallets available, including physical, hardcopy wallets used for spending bitcoins offline.
I'm going to end my background there. I greatly encourage anyone who wishes a greater understanding to read the wiki article I referenced and look into their sources for the page, they have some very good reference material there to study. I just wanted a brief background and synopsis here for people to see when they were doing their research. I am going to continue into the reasons I started this thread.
I see some very good and very bad aspects to bitcoins and bitcoin transactions as I see them. I'll go through the good first.
Bitcoins are a "virtual" currency, meaning they are created, stored and used in an online environment. That means they cannot be lost in the physical sense, can't be accidentally washed and destroyed in your jeans, can't be stolen from your car while you're parked at a ballgame or stolen from your house during a robbery.
Bitcoins are decentralized, meaning they are not issued or regulated by a government or nation. This should make them proof against things like political turmoil, hyper-inflation caused by wartime or other market issues, cannot lose value against a recession, etc.
They are created to be used in an environment that is expanding at an exponential rate, mainly the internet. Major virtual companies have adapted the use of bitcoins in their transactions online allowing people who shop or trade online another avenue to buy and sell items that they would otherwise spend physical money on.
They can used to trade against a local currency for cash. If you are a traveler and find yourself in need of funds in, say, France, you would be able to trade bitcoins in an exchange for local Francs without the need for having physical money with you or opening yourself to fraud by using your bank accounts in a questionable environment.
My analysis actually shows the good to also be the bad, and I'm not quite sure that they balance out. Let me explain.
While bitcoins may not be lost or stolen in the physical sense, they can still be lost. For example Wikipedia listed one instance where a trader lost around 7,500 bitcoins when he accidentally erased his harddrive containing the two keys necessary to using and proving ownership. The estimated value of those bits were $7.5 million. That's a pretty big oopsy.
While there is some assurance that the two key process makes bitcoins unbreachable in the current sense I feel that there is almost nothing unbreachable except for something stored away from internet access. So the people who store their wallets online may well find themselves the victim of a hack at some point. Criminals tend to be smarter than people realize and with the kind of money at stake I predict it's only a matter of time.
While a decentralized currency may very well protect you from governmental overreach or protect you from inflation per se it also creates a liability for the same reason. Bitcoins are self-regulated within the program itself and their generation and transaction ledger are done within the program. By the constant refreshing of the storage there is some guarantee of protection. However; governments also have the right of passing laws and using their resources to protect their currencies whereas there is no government protecting bitcoins and that, in my mind, makes for a large liabilty in the long term. There is no regulation on price inflation, no regulation on use or on theft of the product.
Speaking of theft what happens if your bitcoins are stolen? Answer: probably nothing. Whoever is in possession of the two keys, public and private, that prove ownership of those bitcoins.....owns them. And, again, there is no agency to go to for protection against that. And, more importantly, no agency responsible for helping you to retrieve your "property" since it doesn't exist. I am not sure on how the law works in this case but I wonder on how you would be able to ever be able to safeguard yourself against this. If the keys are stored online or on your harddrive there is a chance, however slim, of being hacked. If you store them on a physical wallet, like a flashdrive, there is the possibility of that physical item being stolen. Having the physical item stolen would allow you to report a theft to the police and possibly have it found but how much you want to bet that a smart thief would have already transferred the keys to another device and made off with your currency? A new key is generated at every transaction, which is another safeguard, but is another liability since that means if someone takes your coins, even if you recover your keys, the coins are no longer yours and your keys are no longer valid.
I have seen several people advertising investing in bitcoins and, IIRC, the number being thrown around right now is somewhere in the area of $15,000, yes, $15k per bitcoin. There are already almost 10,000 bitcoin millionaires and one bitcoin billionaire. How does this translate to real life? IDK. All of it is speculation against other currencies and is driven by other market forces, no matter how you slice it. If there is a strong demand, price will rise. BUT..... if, say, the United States decided to outlaw the use of bitcoins within its physical borders and was able to enforce that..... I can see that market crashing. Hard. Like lose everything you had into it hard.
Again, I encourage anyone so interested to do their own research into bitcoins before investing or even thinking about investing. I am not a currency trader and I am not offering advice, merely offering an opinion based on what I see.