What is Bitcoin, anyway?


From Bitcoin's own website:

Bitcoin has the characteristics of money (durability, portability, fungibility, scarcity, divisibility, and recognizability) based on the properties of mathematics rather than relying on physical properties (like gold and silver) or trust in central authorities (like fiat currencies). In short, Bitcoin is backed by mathematics.


So what is Bitcoin, anyway?

Bitcoin is a relatively new currency (think dollars, euros, or yen), and was introduced by anonymous creators in 2009. First, how much is one bitcoin worth? As with all things: however much someone is willing to pay for it. Here's a graph of how much people have been willing to pay for one bitcoin over the last few months.


Bitcoin price has been fluctuating recently, and hit a maximum of over $1200 on December 4.

Unlike other currencies, Bitcoin is digital. You can't hold a Bitcoin in your hand. So how do you know how many Bitcoins (or "BTCs") you have? Well, it's a matter of public record! Every time someone pays someone else in Bitcoin, the transaction gets logged in a digital ledger (essentially a list of every single transaction) known as the "block chain."

So the list of who has how many BTCs is publicly available. But many Bitcoin addresses (long chains of numbers and letters) are anonymous -- everyone knows how many BTCs they have, but almost no one knows who owns the address.

In addition to an address, each Bitcoin user also has a private key, which he/she needs when making Bitcoin payments. These keys are additional long chains of numbers and letters, but they are not publicly available.

When Person A makes a payment to Person B in Bitcoin, the transaction gets added to the block chain. But how does Person B (and everyone else) know this is a real payment, as opposed to some fraud who's only pretending to be Person A (perhaps using their Bitcoin address)? Just like a bank verifies the authenticity of checks, Bitcoin transactions get verified as well, but mathematically.

Many individuals, known as Bitcoin "miners," verify transactions. Miners do this using cryptographic hash functions, which are functions for which:

  • Given an input, it's easy to calculate an output
  • But given an output, it's really hard to find any input.

The miners get paid for verifying transactions with -- you guessed it -- more Bitcoin! By verifying transactions, they're "mining" for Bitcoin, much like a 49er would mine for gold. But the rate at which miners are rewarded exponentially decays over time, so that the total number of BTCs in circulation is tightly controlled.

So Bitcoin involves mathematics and cryptography rather than centralized institutions (like mints and banks) to create currency and prevent fraudulent transactions. Over the next few years, we'll see if digital currencies like Bitcoin catch on.

12 comments:

  1. Good-day viewers that is reading this article, i want to share to the world how this great man save me from HERPES VIRUS 1/2 3years back i was battling with this terrible and disastrous disease which was so detesting,well on my aid of looking for solution all my effort conceived nothing, I was devastated but one day out of great enthusiasm i saw this intrigue testimonies about Dr Ojoka so afterwards i contacted Dr ojoka on his emails: (drojokarootandherbal@gmail com) I explained myself to him and i obeyed all his instruction without protesting any further he assured me that all will be fine and that was it,i was totally cure when i used the herbal medicine that was sent to me,Thank so much sir Dr Ojoka for your help, Dr ojoka also cures several disease such as DIABETES, HIV AIDS, HEPATITIS B & C And many more, incase you are going through this same infection yours can also be cured, contact his mobile or What App : +2348144172934
    check his blog: https://perfectherbalcure.blogspot.com/check his blog: https://penisherbalenlarge.blogspot.com/

    ReplyDelete
  2. This is a brilliant blog! I'm very happy with the comments!.. Smart Home

    ReplyDelete
  3. This is a topic that’s near to my heart… Thank you! Exactly where are your contact details though?|


    토토
    스포츠토토

    ReplyDelete
  4. I like this website its a master peace ! Glad I found this on google .
    스포츠중계
    토토사이트
    토토

    ReplyDelete
  5. 토토사이트
    토토

    Say, you got a nice article.Really thank you! Fantastic.

    ReplyDelete
  6. Your blog provided us with valuable information to work with. Each & every tips of your post are awesome. Thanks a lot for sharing. Keep blogging.. Diet Pills

    ReplyDelete
  7. Some truly superb blog posts on this website , thanks for contribution. 토토

    ReplyDelete
  8. Wow, cool post. I’d like to write like this too – taking time and real hard work to make a great article… but I put things off too much and never seem to get started. Thanks though. Gadgets

    ReplyDelete
  9. Best work you have done, this online website is really cool with great facts. Sports & Outdoor Gadgets

    ReplyDelete
  10. I enjoy reading your blog! Thank you for writing such an informative post. Excellent and appreciative blog. Continue to update.
    ทางเข้าเล่น igoal

    ReplyDelete
  11. We were able to use the useful knowledge from your blog to our advantage. Each and every one of your post's recommendations is excellent. Many thanks for sharing. Continue to blog

    ReplyDelete
  12. Nice blog! Your blog provided us with valuable information to work with. Each & every tips of your post are awesome. Thanks a lot for sharing. Keep blogging..
    best lawyers in virginia for protective order
    1st violation of protective order in virginia

    ReplyDelete