Have you heard about Bitcoin? Well, your answer is a definite YES! But unfortunately, you just heard and never explored what it really is. You might have heard that Bitcoin is a digital cryptocurrency that is used for online purchase or trade. But here, we will explore Bitcoin deeply and know how it works.
Wait a minute! What is a Bitcoin?
Bitcoin is a virtual digital currency that doesn’t possess any physical existence. It is stored on your system in the form of an encrypted code. It is intangible–meaning you cannot touch it or pass it on to someone else hand-to-hand. And most importantly, it’s not a coin like the ones appearing in the pictures. Bitcoin senders and receivers are anonymous. No one knows where these coins are coming from and who is receiving it.
A Quick Backstory
Bitcoin was invented at the start of 2009 by a developer (or group of developers) called Satoshi Nakamoto. He aimed to develop a decentralised electronic cash system that can be operated without any external interference, and to put it bluntly, away from the traditional banks. In 2011, the source code was made public, and other developers in the community started contributing to Bitcoin. Nakamoto describes Bitcoin as a peer-to-peer version of electronic cash.
But why not the traditional currencies?
At this point, this question might strike your mind. Why should we use Bitcoins while we have traditional currencies? The answer is simple! Let’s assume that John wants to send money to Sara who lives in another country. They need to rely on some third party like PayPal, Payoneer etc. that guarantees the exchange to be effective. And this third party charges a handsome amount for this transaction to be processed. Bitcoin is not owned or issued by some government or authority who controls it. It is decentralised and no bank is in charge. The payment goes right from the sender’s wallet to the recipient’s without any third party involvement. So, it keeps transactions cheap and fast.
See article: How Our Mobile Phones Are Replacing Credit Cards
How it works?
As it is a decentralised process, no company keeps the records of your transaction. This currency is based on cryptography, complex mathematical problems to keep the data secure. Not only the currency is encrypted, but the track is also protected. The sender always sends the Bitcoins to a Bitcoin address. Being decentralised, the data is not placed on a single server. Instead, it is distributed over all the systems that are connected with the Bitcoin community. And so, it is almost impossible to hack the data and get all the Bitcoins.
How can I get Bitcoin?
You have two choices. You can either buy a Bitcoin by exchanging your respective currency with a Bitcoin. The worth of Bitcoin varies with time, and you cannot predict the trend. There are several digital currency exchanges like Kraken and Coinbase where you can sell, purchase and stock your Bitcoins. Secondly, you can mine Bitcoins and get rewarded for each puzzle you solve.
Bitcoin wallets are just like your physical wallets that keep your Bitcoins. You can access them from your computer or a smartphone. You can start by setting up your account in any of the digital wallets and link that account to your personal banks to deposit any amount. As soon your account gets funded, you are ready to exchange Bitcoins. Mind that these digital wallets don’t use your name or cell number, so the transactions are entirely anonymous.
Who are the Bitcoin Miners?
There are “Bitcoin Miners” who solve complex mathematical puzzles using their high power computers. The picture below might give you an intuition of what the word “high power” really means here. These miners keep the record of the transactions in the form of a block. This newly recorded block and the previously created are recorded in a digital ledger. Miners convert this block into a sequence of code, better known as “hash.” Creating a new hash consumes massive power, and all the miners compete to build it. The one who generates a new hash is currently rewarded with 12.5 Bitcoins. This latest hash is publically updated and sent to each server.
What is the value of a Bitcoin?
The worth of a Bitcoin changes every day just like gold. The trend depends on how much people take an interest in it and how many Bitcoins are explored every day. According to the protocol designed by Nakamoto, a total of 21 million Bitcoins can be mined that will happen in the year 2140 probably. Of these 21 million, 16 million Bitcoins have already been explored. Julian Hosp, co-founder of crypto firm TenX, says
I think we’re going to see bitcoin hitting the $60,000 mark, but I also think we’re going to see bitcoin hitting the $5,000 mark.
Every 10th minute, 25 new Bitcoins are added to the system. The trends of its value are very ambiguous. At the start of 2017, a Bitcoin worth just $985 and by the end of 2017, it achieved a record rate of $17,549. That’s simply mind-blowing! But as of today, the price crashed to just $10,755. See the chart below to have a detailed insight of the trends.
Where can I use Bitcoin?
You can use your Bitcoins to purchase from numerous merchants. Most of the merchants have started accepting Bitcoin. An online drug selling website, Silk Road, majorly receives payments through Bitcoin. Taking the advantage, the black market is strengthening as the payments are entirely anonymous. You can also sell your Bitcoin by exchanging money or a worthy product. But you need verify if your country has declared Bitcoin illegal.
The Bad side of it!
No doubt, Bitcoin is one of the top rising cryptocurrencies these days, but you can never be sure about the rise. The trends are really unpredictable. Maybe, one night you buy a Bitcoin for $1000 and the very next morning, it worth a mere 50$. So you should only invest in Bitcoin if you can bear the shock. As it is decentralised, so you cannot claim anyone if the Bitcoin disappears from the scene one day. Thus, the choice is yours! Moreover, most of the countries have banned Bitcoin as it has disturbed their official currency. So, you might not be able to spend it in your country if your government doesn’t like it.
Twin Bitcoin Billionaires!
The Winklevoss brothers, Tyler and Cameron Winklevoss, own a significant proportion of the entire Bitcoins. Yes, you guessed it right! These are the same twins who sued Mark Zuckerberg over the rights of Facebook. Recent surges in the price of Bitcoin have boosted their worth to $1 billion. That’s a pretty cool payback of the $11 million investment they made 4 years back. The investment was made from $65 million that they won in a lawsuit against Facebook in 2011. They bought 120,000 Bitcoins, claiming ownership of 1% of the total Bitcoins at the time. Back there in 2011, worth of a single Bitcoin was $120 and as of today, it’s $11,175. Surprisingly, Winklevoss brothers haven’t sold a single Bitcoin yet, and they observe the trends silently.
Though Bitcoin has its advantages being cheap and fast, still there is a need for a proper track to monitor the transactions. Else, it would affect the local and international economy severely. Comment below and let us know your opinion about the future of Bitcoin. Do you really think that this digital cryptocurrency will take over traditional currencies one day?
You might also want to watch this video to know more about Bitcoin: