What the heck is bitcoin?

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Bitcoin. Unless you’ve been living under a rock the past few days, then you would have come across it at least a couple of times a day. The name has been bombarding the internet as of late, thanks to the massive spike in its value. At the time of writing, Bitcoin touched the $15,000 $17,000 mark.bitcoin | cryptocurrency | coindesk

The year started with Bitcoin being valued at less than $800. By September, the rate had shot up to $3,500 and a couple of weeks back, it went past $10,000. This was bound to get quite a few heads turning, even if that meant you had no clue what bitcoin is.

What exactly is bitcoin and where did it come from?

Bitcoin is a type of cryptocurrency, also known as a digital currency that allows users to transact anonymous and secure. Being a peer-to-peer digital currency meant that there’s no middleman. In other words, there are no banks involved with transactions. The fact that no government had the power to control the creation of bitcoin helped gain its popularity in the beginning.

A white paper titled, Bitcoin: A Peer-to-Peer Electronic Cash System surfaced online in 2008. The 9-page paper introduced the concept of the cryptocurrency to the world. But it wasn’t until 2009 that bitcoin actually came into existence. Satoshi Nakamoto mining the first bitcoins. For those of you wondering, Satoshi Nakamoto is the person behind the bitcoin concept. But the name is only an alias. To this day, nobody really knows the true identity of Satoshi.

Mining for bitcoin

Mining is an integral part of the cryptocurrency.This is where you solve certain mathematical problems to get bitcoins in return. This happens via specific types of software and hardware. During the initial days, you could mine for bitcoins with your own computer.

As time went by and popularity grew, more people started mining. The mathematical problems started becoming more difficult to solve. This meant that miners needed a lot more processing power. So miners started building their own rigs with high-end graphics cards.

Today, there are quite a few commercial products designed specifically for bitcoin mining. But the process remains resource as well as heat intensive. Hence, the concept of pooled mining. This is where a group of miners get together to solve those math problems.

Some might argue that mining is no longer worthwhile. This is because of the sudden explosion of interest in digital currencies. Of course, this depends on the time and cost you’re willing to bear for the task. Then again, you’re probably better off buying as opposed to mining them.bitcoin mining

How can you use bitcoin?

Interestingly enough, the first ever transaction to take place was in 2010. A man named Laszlo Hanyecz purchased 2 pizzas for 10,000 BTC. Of course, at the time bitcoins were valued next to nothing. Today, the same bitcoins used to buy those pizzas would be worth roughly $100,000,000 (~ LKR 15bn).

In the early days, there weren’t any organizations willing to accept BTC as payment. By June 2011, Wikileaks started accepting bitcoin. Fast forward a few years, companies like Expedia, overstock and Microsoft have embraced bitcoin.

via GIPHY

So how does one start using bitcoin? It’s actually simpler than you think. First, you would need to register yourself on a cryptocurrency exchange such as coinbase or cex.io. This usually requires an email and a password only. Then, you set up a payment method by connecting bank account or credit/debit card. Afterwards, all you have to do is, well, buy. No, you don’t have to buy an entire bitcoin. You can put in something like $50 and you’ll get a percentage of it.

Once you make you buy then its a matter of confirming the transaction. One thing to note here is that the transaction doesn’t get realized immediately. Often it takes days. All this takes place within something called a bitcoin wallet. This wallet has an electronic address (like email). Its this address that is used to send/receive bitcoins.

bitcoin | cryptocurrency
The first ever bitcoin transaction, where 2 pizzas were sold for 10,000 BTC in 2010 (Image Courtesy: blog.blockchain.com)

Of course, there’s a lot more that happens under the hood. But that’s a story for another time.

Is it risky?

The transactions themselves are pretty secure. In fact, its one of the main reasons why this cryptocurrency is popular. But what is risky, is the chance of your cryptocurrency exchange getting hacked.The Recent surge and the hype surrounding bitcoin attracted many cyber attacks to these exchanges. One recent report claims as high as 74% of all bitcoin-related sites have suffered a DDoS attack. Even NiceHash, the largest crypto-mining exchange was hacked a couple of days back with over $70 million in bitcoin stolen.bitcoin | nicehash | cryptocurrency

This is where the hot wallet vs. cold wallet argument comes into play. A hot wallet is when you have all your bitcoins in your account, on the exchange itself. A cold wallet is where your bitcoins are stored in a local hardware. The Finney phone, which I briefly talked about previously actually comes with a cold wallet.

The cold wallet provides better security for your digital currency. But losing it would mean that you lose your bitcoins forever. This isn’t the case with a hot wallet. Although, it’s less secure when compared to a cold wallet.

Should you put your money on bitcoin?

All the hype surrounding the cryptocurrency can be tempting. After all, how often do you see a massive rise in value as bitcoin did? But before you get all excited, its best to research and read more about the subject first. Coindesk isn’t a bad place to start.bitcoin | cryptocurrency

It’s hard to predict where bitcoin will go from here. It may continue to surge or might even see a massive drop. One thing we can be sure of is that there’s a lot going on in the world of cryptocurrency. We’re only scratching the surface.

While we didn’t cover every aspect of the subject, we hope the above provided a general idea. Feel free to let us know your thoughts in the comments below.

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