Understanding the Bitcoin Phenomenon
Cream Careers, Oct. 26, 2018, 9:26 a.m.
The going rate of bitcoins continues to rise. As of September 2017, one bitcoin was equal to nearly US$4,000 and $4,900 Canadian, according to the CoinDesk calculator. Considering bitcoin is such a highly valued yet volatile form of currency, many people have questions as to how bitcoins were created and how they are used.
Bitcoin is a relatively new currency that was created in 2009 by an anonymous person (or group) using the alias Satoshi Nakamoto. Bitcoins are produced and traded in the virtual world. In a relatively short period of time, bitcoins went from being worth pennies to thousands of dollars. Unlike other forms of currency, which are controlled by a central authority of a particular country, bitcoins are completely virtual.
How to get bitcoins
Bitcoins are not acquired in the same way as other currencies. Bitcoins can be bought and sold in marketplaces called ‘bitcoin exchanges.’ These online trading areas enable people to buy and sell bitcoins using various currencies, says CNN Money. Similarly, people can send bitcoins to one another using mobile apps or a computer, much like one would make digital transfers at a bank.
Bitcoins are not based on gold or another backing currency, but rather on mathematics. Instead of a federal reserve deciding on when to print and distribute money, bitcoins are created as a reward for mining. ‘Mining’ involves a special open source software that is designed to solve math problems. As a reward for solving these problems, people are rewarded with bitcoins. This creates an incentive for people to mine.
Bitcoin mining is designed to require exertion and take time so that the rate resembles the rate at which commodities like gold would be mined from the ground, offers Bitcoinmining.com. According to ABC News, available bitcoins are hidden amid a complex encrypted computer program. Users’ computers work around the clock to solve a complicated mathematical problem in order to release new coins. The system requires more work to get coins as time goes by.
How are bitcoins stored
Bitcoins are stored in a digital bitcoin wallet. Only 21 million bitcoins can be found by miners so the value of the system is preserved. To date, not all bitcoins have been mined. Every bitcoin transaction is completely transparent, which means they can be traced back to creation. The ‘block chain’ is a public ledger where every bitcoin transaction that has ever taken place is registered.
Even though bitcoin transactions are recorded publicly, the names of buyers and sellers are never revealed. Only a wallet ID is recorded. This enables bitcoin users to buy or sell anything without it being traced back to them. While many legitimate businesses now accept bitcoins, bitcoins also are highly valued for black market ventures like purchasing drugs and illegal weapons.
Bitcoins are changing the way people see money and store their private wealth. The concept decentralizes money and makes the bitcoin exchange a relatively transparent process.