When I first heard of Bitcoin I was confused which made me uninterested in the topic. As the cryptocurrency gained traction I decided I needed to have bitcoin explained to me. This piece helps those new to the movement understand, this is Bitcoin Explained.
Bitcoin Explained: What is Bitcoin?
In 2009 the cryptocurrency Bitcoin was released to the world. Since then, Bitcoin has proven to have capacity and value in the marketplace. It has increased our ability to exchange with one another.
As a decentralized system bitcoin works through autonomous computers and functions outside any one institution. Imagine a worldwide network of computers that is one hundred times more powerful than Google and you have bitcoins computation power. Unless the Internet is shut down all at once, everywhere, the operating system will always be functional.
One of the allures of this technology is it cuts out the middleman i.e. the banks, yet maintains an infrastructure that allows strangers to deal with one another. Unlike other currencies on the market the Bitcoin ledger is fully public and universal. Bitcoin alleviates blind trust in using banking institutions and instead relies on cryptographic proof as a means to instill trust. This transparent ledger of accounting is known as the Blockchain. The Blockchains common ledger ensures all transactions are visible which maintains the integrity and accuracy of the currency.
In the most simplistic of terms our current economic system, the dollar is an IOU. When we use dollars we are agreeing upon the valued amount a good or service holds. We then exchange a paper note for that good or service. Our belief in this system is what gives the money value. The entire system hinges on societies willingness to accept the paper payment to settle a debt.
Once the dollar was formally backed by hard money, specifically gold and silver. The value of these metals comes from the scarcity of the metal versus the demand for the precious metal. Bitcoins, like gold and silver are market driven. The value fluctuates with the supply and demand for bitcoin. Dollars or metals are simply a means of exchange in which both parties know the relative worth and value of the items being exchanged.
The current middleman, the bank, will allow accounts to be over drafted if money is not in an account. The Blockchain instantly verifies that the funds are available. Funds are pulled if available and if not available then the transaction is denied. In this way bitcoin essentially functions as cash as all money being rendered must be immediately available. There are no overdraft fees, merchant processing fees or charge backs. Once bitcoin is sent, only through a secondary transaction can the money be agreed to be refunded. A new payment must be issued back to the payor essentially acting as a “refund”.
The reason you do not have bitcoin yet is because you don’t fully trust it. Instead your trust is in a debt based fiat system that is all but bankrupt and on the edge of collapse. Federal reserve notes require a lot more trust because currently money can be printed from thin air with nothing backing it which can lead to hyperinflation.
Bitcoin Explained: Where does bitcoin come from?
Mining is a term you will often hear when talking to others about bringing bitcoin into existence, yet, mining it is a misnomer. “Mining” is a term used for simplicity. A bitcoin springs into existence when a “miner” solves and confirms a random mathematical problem, the reward is the bitcoin which is released to the miner. The problems are increasingly more and more difficult to solve, taking more computing power to find a bitcoin and the bitcoins themselves also grow in scarcity.
To earn the block and the associated bitcoins the winning computer must match a hash in the algorithm which changes every ten minutes. Those computer systems with the fastest hashing power have a better chance of solving the algorithm and mining the bitcoin.
Mining bitcoin makes me think of the Mario Brothers game. With his hammer Mario goes through the game breaking through bricks and rock to attain the coins that lie on the other side. He races through the game working to get all the coins he can possibly mine. Once the coins are attained Mario celebrates winning the level by pulling the flag pole signaling the conclusion of that mission. The fireworks go off and he levels up. Each consecutive level increases in difficulty. The grand finale comes when he has solved all the games problems and he retires with the princess to live happily ever after free from the tyranny of the dragon.
The open sourced software that the creator Satoshi Yakamoto invented has a self correcting mechanism which tweaks the algorithms difficulty so that bitcoin will be consistently mined every ten minutes until the year 2140. In the program Yakamoto also stipulated that every four years would be a halving year. So in 2009 every ten minutes fifty bitcoin entered the economy; when 2012 rolled around twenty-five bitcoin would be added to the economy every ten minutes and next year in July of 2016 twelve and a half bitcoins will be mined every ten minutes. The halving process will continue until every bitcoin has been uncovered.
When a block is confirmed this is when the reward is given aka the bitcoins are released. The block is then sealed and added to the chain. None of the information within that block can be changed or deleted. The Blockchains on going permanent ledger of all transactions is continuously being built.
Since transactions cannot be changed or deleted bitcoins can not be double spent. Each transaction has a time-stamp of the purchase which is recorded and irreversible. If someone tries to double spend the system deems the transaction as illegitimate due to the chronological structuring and verification built into the Blockchain.
To send or receive bitcoin you must have a public key consisting of letters and numbers that identifies a wallet. A wallet can be attained and used without giving any personal identifying information of the holder of the said wallet. This key or address is how people buy and sell goods outside of the monetary system. One of the largest forums for wallets in the Bitcoin community comes from CoinBase. Signing up for a wallet is easy, click this link to get your wallet today.
Bitcoin Explained: How do I get bitcoin?
At one time a personal computer could easily attain bitcoins through mining. Now that the computations are increasing in difficulty the individual is having a rough time mining any bitcoins. Mining pools are becoming popular as they pool the individuals resources and divvy out the intake according to each members contribution to the computation power. For more information on this topic visit BitcoinMine.Club
If you are not mining bitcoin then you must sell a good or service and accept bitcoin as payment. Another option is to purchase bitcoin from an exchange. There are many exchanges, the largest is Coinbase which has an app that is easily downloaded to your phone and linked to a bank account. To download your wallet click this link.
Bitcoin ATM’s are popping up all over the world which allow patrons to insert cash and receive bitcoin or vice versa. The ease of entry is ever increasing and doing business with bitcoin is easier now then ever before.
Bitcoin Explained: What is the future of bitcoin?
This cryptocurrency has the ability to change the way the world does business. The unbanked around the world, those without verifiable account balances or credit histories can now acquire the freedoms of doing business which they were previously kept from. People who can’t set up a bank account, get a credit card or live in places banks don’t want to be are now bankable. Anyone with a cell phone (and yes, those without bank accounts often have a cell phone) can make transactions quickly and easily from their device.
Think of the impact this will have in countries where women or minorities are unable to have a bank account and cannot freely do business because of this fact. People everywhere now have a means to transact with others. The website BTCjam.com offers bitcoin backed micro loans so that those with bitcoin can help finance businesses and projects of people worldwide. Bitcoin creates so much opportunity for people everywhere.
Bitcoins are becoming widely accepted by individuals and businesses alike. You can buy just about anything you might need using bitcoin. Companies like Overstock, Amazon, Virgin and Expedia now take bitcoin as payment. If you use Bitcoin to buy Starbucks to save 20% or use it at Target and save 10% for example. Some businesses give you a discount for using bitcoin. Companies like Gyft sell gift cards to over 200 different retailers all of which can be purchased with bitcoin.
No one can read the future and tell us exactly what the next few years hold for bitcoin. As it currently stands the European Union has decided that bitcoin will be untaxed. In the United States bitcoin is seen as a commodity. Its use and acceptance is reaching the tipping point. We live in exciting times.
For those that are new to bitcoin I hope this article was informative and cleared up some of the questions you may have had. If you found the article informative share it with your friends and family that may also have questions about this cryptocurrency.
To join the Bitcoin revolution or to have Bitcoin Explained further, click this link: BitcoinMine.Club