For some years now, people have been exchanging a new form of currency called Bitcoin. You may have seen ads or news articles talking about the value of a Bitcoin, online stores that accept Bitcoin as payment or even new Bitcoin ATMs, leading you to ask “what is Bitcoin?”
What is Bitcoin?
Bitcoin is a digital currency created in 2009 by Satoshi Nakamoto – using cryptography to ensure the security of transactions, Nakamoto was able to create a safe, decentralised, digital asset which has increased in value from part of a cent in 2009 to thousands of dollars within a few years.
How do I acquire Bitcoins?
You can trade them through a digital wallet or e-wallet online. People can also assist with the creation of Bitcoins, known as mining, and are rewarded with some of the currency in return for their resources.
What is a Bitcoin worth? Can you have part of a Bitcoin?
At time of writing the Bitcoin (or btc) is worth around $7,400 each. You can have Bitcents (0.01 Bitcoins) or denominations down to 0.00000001 btc known as a Satoshi.
Where can you use Bitcoin?
Bitcoin can be used anywhere where the vendor is willing to accept Bitcoin as payment; this includes Subway and many local smaller stores, as well as online e-commerce stores.
Can I mine Bitcoins too?
You can, but you’d need a super fast, super fancy computer with a large fan. The outlay to buy such a machine is likely to prevent Bitcoin mining from being a get-rich-quick strategy in 2017.
Who is Satoshi Nakamoto?
Satoshi Nakamoto has remained anonymous since creating Bitcoin and rumours abound as to his/her/their identity.
Australian, Craig Wright came forward last year claiming he is the mysterious Nakamoto, but not everyone is convinced.
Fascinated by Bitcoin? Read on to find out more!
The Rise of Digital Currency
Digital currency is not a new concept – it is almost as old as the internet, with earliest references to digital currency from the early eighties. Toward the mid-late noughties, we saw renewed interest in digital currency as internet usage continued to increase globally at a staggering rate. Coupled with consumer frustration with central banks following the global financial crisis, people were looking for currency that was decentralised, ie. not controlled by an intermediary like the central bank.
In this time, we saw several attempts at creating a digital currency however one of the biggest hurdles to overcome with digital currency was being able to ensure the currency was not spent multiple times.
With cash or an asset like gold, the transaction is complete when the asset physically changes hands. Once the money has left the buyer’s hands, they no longer have it and cannot spend it again. In digital currency, there needed to be a way to ensure that coin cannot be used multiple times.
Use of a Public Ledger
In accounting, the way to keep track of your transactions is through a ledger – which is precisely the principle that the founders of Bitcoin employed to counter the issue of double spending.
With the creation of a ledger, the next issue that arose was who controls the ledger? Can those with the power create more Bitcoins whenever they want? How will they monitor and record all transactions of the coin?
If the whole argument for a digital currency was to eliminate an intermediary, then who was to control the ledger?
Simple solution: everyone.
In creating an open source ledger available to everyone, Bitcoin eliminated the need for any source of centralisation and the issue of double spending.
Bitcoin Mining and Blockchain
This digital ledger is also known as a Blockchain and can be used across several computers while making it near impossible to alter retroactively.
Bitcoins can only be created at a finite rate with a defined maximum as 21 million Bitcoins to be created by 2140. To create new Bitcoins, the creator Satoshi Nakamoto designed the system to require a ‘proof of work’ to create the next coin. Anyone could volunteer to use their computer to do the complex maths problems to create a Bitcoin and be rewarded with a number of Bitcoins in return.
Like a goldrush, people realised they could earn money by mining these Bitcoins. With an increase in demand to help create the Bitcoins, the proof of work became more and more difficult in order to reach an equilibrium.
Now the maths problems required for proof of work to create one coin are so complex that Bitcoin miners need special hardware to cope with the complexity; it is getting harder to mine Bitcoins now that they are worth thousands of dollars.