Bitcoin is a type of digital currency typically referred to as a cryptocurrency. Prior to its creation, in the late 90s and throughout the 2000s, there had been attempts to create a digital cash system, and for one reason or another, these systems all failed. B-Money and Bit Gold were developed to fill this purpose but were not entirely realized, and in 2009, Satoshi Nakamoto, whose identity remains a mystery and whose name may even refer to a group of people, succeeded in developing the Bitcoin technology.
History of Bitcoin
Cryptocurrencies actually predate the invention of Bitcoin, as people were looking for a way to move money using cryptography in the early 80s. The first use for this technology became what was known as DigiCash, a company that later became bankrupt. It was in this early era of digitizing currency that PayPal was created. It saw great success, as it was bolstered by the burgeoning Ebay company as a means of buying and selling items on the auction-style website.
The key to Bitcoin was that it solved the problem of accurately recording transactions using cryptography, spurring a rash of other cryptocurrencies to follow. Bitcoin differs from world currencies in that they are distributed and kept account of by a system that can only be changed by people who have gone through an authentication process. In other words, to send money to someone in Madrid, for example, a transaction must take place that can only happen when those numbers are digitally processed through a bank using a system that cannot be easily manipulated, and therefore, everyone trusts it.
How Bitcoin Works
Bitcoin operates using open source software that allows users to transfer currency from one person to another. Available to every user is what is known as the blockchain, or the ledger of every transaction that has ever taken place using Bitcoin. When person A buys a product or service from person B, the movement of Bitcoin from one person to another must be verified by other users called miners.
A complex mathematical system exists to confirm the transaction from person A to person B and also to make sure that there is no double spending. Miners are people whose computers are set up to run the billions of calculations needed to confirm the transaction, and there are nearly always multiple miners competing to finish this process first, as the winner is awarded 12.5 Bitcoins or BTC. The number of Bitcoin dispensed from mining will drop by half every four years until 2140 when it will arrive at zero, and the number of total Bitcoin that can ever exist is 21,000,000 BTC. A person can own divisions of Bitcoin down to one hundred millionths, a unit called a Satoshi.
Once a transaction has been confirmed, it cannot be changed or deleted, and the record is added to the continually updated blockchain copy that every user possesses. This process is different than the trust-based system of using centralized banks, as it is based solely on the certainty of the mathematics of encryption, third-party verification, and a record that everyone shares and has access to. Bitcoin can be traded between countries and typically has no or nominal fees associated with transfers.
The second-most popular cryptocurrency, Ethereum, also uses a blockchain system and encryption but has an added feature, called Monero, that allows for privacy. In total, there are several hundred cryptocurrencies in existence, many of which have little value and only exist for speculative purposes. Most of these fall into a few groups or families of cryptocurrency and some boast a greater rate of transaction speed than Bitcoin.
Getting Started with Bitcoin
The first step in using Bitcoin involves setting up your wallet. This can be done online through a variety of providers, such as Copay through Bitpay, SpectroCoin, or GreenAddress. Users can opt for a hardware wallet that operates like a smart card and generates a key, or digital signature, offline, or if users prefer, they can print a paper wallet to store the key offline to be scanned when a user should wish to buy goods or services. Your online Bitcoin wallet will provide you with your personal Bitcoin address that you will use to send and receive Bitcoin.
You provide your Bitcoin address to someone wanting to send you money in much the same way you would give your email address to someone who would want to send you money through PayPal, and you can also purchase Bitcoin online using your credit card or PayPal. On May 22, 2010, a developer famously purchased a pizza using 10,000 Bitcoin, and today there is a growing market of merchants who accept Bitcoin as a means of payment. Itunes can be bought using Bitcoin, and there is even a Jeep dealership in Kansas that made headlines for taking Bitcoin.
Worldwide Use of Bitcoin
Bitcoin has been heralded as an investment vehicle by billionaire Michael Novogratz, who said that fully 10% of his $2.3 billion fortune is invested in Bitcoin and Ether because of its potential for growth. The value of a single Bitcoin was nominal when that first pizza was purchased — today just one Bitcoin is worth $16,500. Its value has skyrocketed from $1,000 on January 1, 2017, as awareness of the cryptocurrency has spread and gained entrance with mainstream companies like Expedia and Citibank.
Another large influx of Bitcoin users has come from countries like Zimbabwe where the region’s own fiat currency has suffered from hyperinflation. The government brought in multiple currencies as a result, causing widespread confusion for its citizens and a financial subsystem where microloans ruled the day. Bitcoin became an obvious solution since most people own smartphones and can readily buy and sell in the currency and because it can also be easily transferred into different currencies and across national borders inexpensively.
Along with Michael Novogratz, Bill Gates has famously said that Bitcoin is a ‘technological tour de force’ and that ‘Bitcoin technology is key’. Wireless provider AT&T has, in recent months, filed a patent allowing a person’s Bitcoin account to be connected to their vehicle via mobile, and parts of the blockchain now operate from space, as the uses for Bitcoin expand ever onward and upward and even out of this world.