There’s a lot of confusion about what Bitcoins are, but they are essentially digital cash. A Bitcoin is the equivalent of a dollar, euro, or any other global currency.
Unlike paper money, however, it doesn’t have any physical form. This makes it easy to trade between countries without having to go through the pesky process of converting one country’s currency to another with ever-changing exchange rates.
So what’s all the fuss about? Bitcoin appeared around 2009 as a new form of digital currency and was developed from the off as open-source by a clever chap called Satoshi Nakamoto. We are told his true identity is ‘shrouded in mystery like he’s some Marvel superhero. I suspect this means he’s a super nerd, but there’s no question; he’s undoubtedly a pioneer…
So what’s it all about?
Bitcoin is a type of currency, just like any other, and it is treated as such. Wallets that are safe to use are used to conduct the transactions. It is not, however, under the jurisdiction of any government or financial organisation at this time. Yet. It is widely used in worldwide e-commerce operations and is well acknowledged.
The assumption is that it will be owned and administered by the members of the community. Decentralised and administered by peer-to-peer members, Bitcoin is a decentralised digital currency that allows users to participate in new transaction activity while archiving old activity in what is known as “blockchains.”
It means that a complete ‘copy’ of all transactions is stored locally and used to verify new activity between participants, thereby preventing any one person from malformed, adding or creating fake transactions within the blockchain. This ‘consensus’ approach protects the security of Bitcoin transactions.
Bitcoin works in not a dissimilar way to PayPal in that you have a digital wallet with a unique address where people can send you Bitcoins. You can install a wallet on your device or download the entire Bitcoin wallet and participate in the network as a node.
Bitcoin’s value is very much an effect of supply and demand, with risky investors gambling on the highs. Currently, a single Bitcoin (shown as 1.0000000) is worth £7,510 or $9,780. You can purchase Bitcoins at any of the eight decimal places, so for example, 0.0100000 would cost you £75, and 0.1000000 would cost you £751.00, no surprise where Bitcoin got its name!
OK, where do I buy Bitcoins?
Unless you have some Bitcoins coming your way via a payment, you will need to purchase Bitcoins in your real currency. Purchasing is all about trust as it is not regulated; however, that’s sort of how eBay started, where users trusted each other to pay for and send items, and they’ve done rather well for themselves.
The Bitcoin coal face
Bitcoin mining, as it is known, is the process of generating Bitcoins, and a small payment in the form of units of Bitcoins are paid for the time and effort your hardware is used and your level of participation. This is done via several methods, from using your own PC’s CPU or GPU to using ASIC miners (Application Specific Integrated Circuits); these are designed for the specific purpose for which they are built, which is generating Bitcoins.
Unless you have significant investment to purchase powerful ASIC miners such as those from butterflylabs.com, which can run at 600GH/s (Hash’s per second), you will have to look at USB ASIC Miners such as the popular BlockErupter, which generate 336MH/s. Using the BlockErupters, you can create your USB hub style rig running lots of them concurrently.
However, the reality is that it may be too late in the game to make any serious money from Bitcoin mining. The complexity (Hash rate) of the BlockChain is now such that even joining and contributing to a Mining Pool, where miners work together and share the profits, will likely see more spent in electricity than in any real financial return.
Also, there is a maximum limit of 21 million Bitcoins, and at present, it is nearing 12.4 million, and as the more miners join, the quicker this limit will be reached. It is now more likely you will make money buying Bitcoins themselves than generating them.
The future of Bitcoin…
Bitcoin, a form of digital money, is making its way into mainstream culture. Bitcoin can be used to buy goods online, pay friends back for dinner, or invest in the stock market. Digital currency has an astronomical market capitalization and is accepted by many major companies.
Bitcoin has turned out to be quite profitable; however, it also has its drawbacks. It’s not an easy concept to understand and the cryptocurrency’s volatility make it risky to put all your eggs in one basket.