Confused as to what all the fuss is about with Bitcoins? We’ll fill you in.
Most of us have heard phrases like “Bitcoin” tossed around occasionally, perhaps you’ve heard even more confusing phrases such as “Mining” – but what on earth do they mean?
Bitcoin is a digital currency created in 2008 by Satoshi Nakamoto, a secretive internet user, that uses decentralised technology for secure payments and storing money that doesn’t require banks or people’s names.
Hmm, okay. Wait, what? We hear you! Let’s break it down:
We’re all familiar with this concept, economists estimate that only 5 percent of the world’s currency exists as physical cash. The rest exists only on computer hard drives, in electronic bank accounts around the world. By today’s estimates, the balance is 95% electronic vs 5% physical money.
Instead of bank servers, Bitcoin runs on the blockchain, which is a decentralised ledger kept running by “miners” – voluntary members of any community – whose powerful computers (often dubbed “mining rigs”) crunch transactions along with solving complex mathematic algorithms to generate new Bitcoins, which they are rewarded with. You can actually view this ledger in real time at https://blockchain.info/
Why use it?
People see value in money that’s free from government control and without bank charges/currency conversion fees; as well as the blockchain, to verify transactions. Your own Bitcoin wallet is truly your own, and cannot be removed by any third party as long as you keep it secure. Bitcoin has been seen as a tool for private, anonymous transactions, and it’s the payment of choice for drug deals and other illegal purchases but is quickly becoming more popular for standard transactions.
How much is a “Bitcoin”?
As of July 2017, there were around 16.5m bitcoins in circulation. In March 2017, the value of a Bitcoin, at £969.34, exceeded that of an ounce of gold for the first time. As such, not many transactions involve whole Bitcoins. A typical Coffee at a Coffee shop accepting Bitcoin payments is actually around Ƀ0.0010. Not a whole lot on paper!
Who creates Bitcoins?
This is the clever bit, as I briefly touched on earlier, the technology that runs Bitcoin’s operation and secure transactions is the exact same technology that “mines” new bitcoins by solving complex algorithms! However, it’s not as simple as printing your own money, as the more algorithms solved, the harder it is to generate new Bitcoins. We’re almost at the point where even modern CPU’s (Central Processing Units) and GPU’s (Graphics Processing Units) are only generating just more than enough Bitcoins worth the amount of power the units consume. Rest assured, however, as technology grows faster and more efficient, we’re unlikely to see the end of new Bitcoins for a while yet. It’s estimated that there can only be 21 million Bitcoins made and that number will be reached around 2140.
Can I buy Bitcoins?
Sure! You need to visit a Bitcoin exchange, which is almost exactly like any other currency exchange. There are loads out there but I’ve personally used Coinbase. You can purchase (let’s say) £20 worth of Bitcoins and put them into your Bitcoin Wallet, you can then transfer your Bitcoins to someone else’s Bitcoin wallet for a product or service. Any government or bank body with complete access to your bank statements can see you made a payment of £20 to Coinbase.. but from beyond that, they have no idea! It’s almost like you withdrew cash from an ATM, there’s no way of tracing where it went. You can also convert Bitcoins back into GBP’s – just like depositing cash at the bank, nobody knows where it came from!
Are they secure?
Imagine Bitcoins as unique numbers, and that’s what your Bitcoin wallet contains. So lets say you transfer your bitcoins to someone else’s wallet; what’s to stop you from making a “copy” of those numbers and sending them to someone else? Unlimited money! Sadly not, the security of Bitcoin comes from the fact that the whole Blockchain sees that a particular transaction happened, and that money moved from one place to another place. It’s as if every time you paid in cash in the real world, the serial numbers were scanned to a single ledger, so that you could trace the money as it moved around, making it near impossible to introduce fake new money. However, if you stored your wallet on a USB stick and somebody else stole the USB stick from you, you will also have lost your Bitcoins too. It’s rumoured that the creator of Bitcoin generated thousands of them back in 2008, but since they didn’t know how far Bitcoins would take off, he/she discarded their hard drive. Today those Bitcoins would be worth hundreds of millions of pounds!
So, we hope you learned a thing or two about the worlds fastest growing currency! We don’t blame you if you plan on steering clear for the time being but leading analysts predict that most people will have completed a Bitcoin transaction by 2030.
Fancy mining your own Bitcoins? Maybe you’d just like a modern PC refresh instead… Whatever your plans are until 2030, feel free to get in touch to discuss any IT problem you’d like solving!
All the best,