Once something only nerds knew about, Bitcoin is getting more exposure outside the technology realm. Duncan Elms and Marc Fennell produced an excellent video that explains Bitcoin better than anything I’ve seen so far.
You can watch at the bottom of this article.
Bitcoin (BTC) is an online digital currency created by a developer or group of developers using the name Satoshi Nakamoto in 2009. The goal was to build an entirely new economic system designed for the digital age and not controlled by any government or centralized organization.
It’s an electronic cash system that uses peer to peer networking along with digital signatures and cryptographics to generate currency.
Like gold, Bitcoins are generated using a process called mining.
Leave the sifting pans in the antique stores, though. This is digital mining and to participate, you need an Internet connected computer. Your computer is given a mathematical problem to solve. The solution is a 64 digit number. If your computer successfully solves the problem, you unlock a block of 25 Bitcoins.
Note: the video says solving the problem unlocks a block of 50 Bitcoins, but that was recently halved and will half again in 2017 and every four years until all 21 million Bitcoins have been mined. There will never be more than 21 million bitcoins. So far, over 10 million Bitcoins have been mined.
Bitcoin is designed to be a self stabilizing economy on the tech side. Once humans started to find value in Bitcoins, stabilization has been elusive.
One of the reasons non-techies are beginning to hear about Bitcoin is because Bitcoins can be exchanged for other currencies. The value of a Bitcoin on currency exchanges has been extremely volatile.
Wednesday the value of a Bitcoin reached $266 in U.S. dollars. At the time I’m writting this a couple days later, a Bitcoin is worth $113.95. Imagine if a $5 was worth $5 last week and this week it’s only worth $2.50. Trading government-backed cash for Bitcoins isn’t for the risk averse.
The largest Bitcoin exchange is Mt. GoX. You can purchase Bitcoins using your local currency, and you can store them at Mt. GoX. That comes with a whole new kind of risk as digital bank robbers go after Bitcoins stored on the Web. It’s kind of like the wild west with no sheriff in town.
One of the ways people spend Bitcoins is on The Dark Web. Using technology called TOR, people hide their identities to spend money in a digital marketplace called The Silk Road. Everything from pornography to illegal drugs can be purchased with Bitcoins.
In the future Bitcoin is likely to be used for more wholesome purchases. Wordpress, the software this site is powered by, already accepts Bitcoins as cash.