Bitcoin has become the most famous and popular form of cryptocurrency. The creation of this cryptocurrency has incorporated currency, technology, economics, social dynamics, and math. And though a lot has been learned about bitcoin cryptocurrency, there is still a lot more to learn about this form of payment.
The Bitcoin Backstory
In 2009, bitcoin was invented by a person who called himself Satoshi Nakamoto. Its invention created an electronic cash system that was 100% decentralized with no central authority or server. After two years of cultivating the technology, Nakamoto turned over the domains and source code to others in the bitcoin community and vanished.
What is bitcoin?
Bitcoin is a digital currency that has no printed bills or points. There is no government or banking institution, or other authority in control of bitcoin. Bitcoin’s main function is to connect buyers and sellers through encryption keys, mined through powerful supercomputers connected to the Internet.
How is bitcoin mined?
Those that mine bitcoin use record-keeping and advanced math in the process. When someone sends bitcoin to another user, the network records the transaction. It also records all others made during the same period of time in what is called a block. The miners inscribe these transactions into a gargantuan digital ledger. These blocks are known as the blockchain, an accessible record of all bitcoin transactions ever made.
Once the transactions are stored in the digital ledger, bitcoin miners use specialized software to convert these blocks into a hash code. These miners compete simultaneously with other minors, and only the one with the first hash gets paid. When a new hash is generated, it goes to the end of the blockchain and then publicly distributed. The successful miner who creates the hash is paid approximately 12.5 bitcoins, roughly worth $100,000.
What determines the value of a bitcoin?
The value of bitcoin is determined by what people pay for the bitcoin. This has been compared to how stocks are priced. Bitcoin is in more limited supply because when established in 2009, the creator dictated that only 21 million bitcoins can be mined. As of now, a little over 18 million bitcoins have been mined. Because Nakamoto disappeared, economic theories have been floated, but no one knows why he put this limit or chose 21 million. As the mining of bitcoin nears 21 million sense, the cost can fluctuate like a stock. The cost of bitcoin could be high.
How do I buy bitcoin?
First, you use a bitcoin platform and set up an account. Then you use your bank account or another accepted payment platform to deposit into a virtual wallet. Once your account is funded, you can use bitcoin in exchange for traditional currency.
To date, over 100,000 merchants accept bitcoin or other cryptocurrencies as valid forms of payment. You can also sell it off when it increases in value and make a profit. Though bitcoin doesn’t have transaction fees, there are generally fees when you use an exchange to buy or sell.
What are the risks?
If you don’t use it immediately and hang onto it, the risks can be fairly high. Unlike the dollar, the bitcoin value can swing widely from day to day, so while the value may be great one day, it could be low the next day. Because there is complete anonymity and no way to trace users, buyers, and sellers, if there is hacking on an exchange site, bitcoin theft or fraud is possible. It is nearly impossible to recover losses because once the transaction is registered on the blockchain, it’s final and unchangeable.
Also, there is a question about whether you can trust exchanges. Even the more established ones have had issues with keeping up with demand and site outages. Therefore bitcoin can be deemed fairly risky.
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