What is Bitcoin?
Bitcoin is a decentralized digital or virtual currency that is created and stored electronically, no one controls it. It’s a Peer-to-Peer Electronic Cash System stored in a digital wallet. Every Bitcoin transaction is recorded on a public list called the blockchain. Think of Bitcoin as a universal currency. More and more companies and individuals alike are adopting Bitcoin into there everyday life as well as accepting Bitcoin as a payment method for goods and/or services.
Over the past couple of years, you may have heard about the exciting and unpredictable market of Bitcoins, but other than that, you probably know very little about them. Most likely, you have been exposed to them through major news outlets reporting on the scandalous nature of a completely anonymous online currency, but even then, you are only touching the tip of the iceberg of the intricacies and power Bitcoins hold.
Where Bitcoins Come From
Bitcoins are generated through the process of “mining” them with your computer or mining machine. Essentially, your computer is generating a sequence of characters and checking whether or not that sequence aligns with the one required for portions of a Bitcoin. Afterwards, the required string is changed. It is best to think of it as a lock and key. When mining, your computer is constantly generating new keys and testing them on a lock. If the key fits, the door is opened and Bitcoins and returned, however, as soon as that happens, the lock is changed to an entirely new key.
The reason specific sequences, or keys, are required is to promote a sense of scarcity in the market of Bitcoins. Hundreds of sequences can be generated every second by a computer and if each sequence rewarded Bitcoins, there would be an abundance and the currency would be useless. However, in this system, the amount of Bitcoins granted per workforce is lowered, making it more valuable.
Currently, the mining process is a densely mathematical process that, at its roots, can boil down to a lock-and-key system of trial and error. The public ledger that monitors all interactions of the system is what makes the Bitcoins mined through that process usable for all involved.
Another important component of the Bitcoin economy is the blockchain. Most simply, the block chain is a long list of interactions involving every Bitcoin in existence. As a shared public ledger, the entire Bitcoin community has access to it and the network relies on its information to process every transaction. This ledger is enforced with cryptography locking it to being modified unless with official Bitcoin transactions. The wallets that are installed on computers rely on this ledger to accurately represent the balance of Bitcoin an individual has.
Blockchains are downloaded by users in a process called synchronization. In this process, your computer verifies all previous transactions that have occurred since the creation of the Bitcoin. This includes mining and spending occurrences within the network.
Wallets can only be accessed on the machine that it was installed on. This is because each wallet is assigned a hidden piece of data called a private key that identifies it as that instance of the wallet. Because everyone has a unique private key, it acts as a signature verifying who is interacting with whom in the network. Luckily, this makes it very difficult for anyone to “steal” Bitcoins from someone else. Unfortunately, this also means that in order to protect your amount of Bitcoin, it is necessary to back up your wallet to external data storage sources in case of a hardware failure on your computer.
There are many advantages to expanding into Bitcoins as a consumer. You are able to pay anyone on Earth money without having to transfer currencies or paying processing fees. As long as both parties has a functioning wallet on their computer, they will be able to send and receive money. Next, there are little fees associated with Bitcoins. Miners receive a small portion of each transaction involving the Bitcoins they mined, but aside from that, there are no taxes taken out on part of the Bitcoin community. In addition, those who value personal privacy will find solace in Bitcoin as there is little association between identity and spending.
Like all currencies, however, there are some disadvantages to using Bitcoins. First of all, Bitcoins are still not a mainstream source of payment. This means that most retailers have no ability to send or receive Bitcoins making them difficult to use in some instances. In addition, Bitcoins are notably volatile. There is no guarantee that a Bitcoin now will retain its value in ten years. However, on the other hand, a Bitcoin could multiply in price many times over. It is difficult to predict the market. Finally, Bitcoin is still in a beta stage, meaning there will be many new features implemented over time. This means that it is not a fully matured source of currency and as such, errors and bugs in the system are occasionally found.
Overall, the Bitcoin is a fascinating new use of technology. It will be interesting to see how the process of mining and interacting matures over the coming years. Think of it this way, we are the pioneers of Bitcoin and what we do today is going to make a difference for our children and their children. Bitcoin is for everyone, not just the technically savvy. As they become more popular, people around the world are beginning to see how they work and the value the process can bring to businesses and individuals alike. What are you waiting for, get involved today!