What is Bitcoin? It’s a decentralized digital currency based on a peer-to-peer network that allows payments to be sent between people without any middleman. It has no central authority, no government, and no banks. And the code governing Bitcoin is open source—so anyone can see what it contains.
The most famous use of Bitcoin is for purchasing drugs on the Internet, where it’s sometimes called “the currency of choice for the dark web.” But Bitcoin has many other uses as well. One of them is mining.
In a sense, Bitcoin itself isn’t very interesting. It’s what you do with it that matters. You can use Bitcoins to buy things or you can use them to make money by selling things in return for Bitcoins. That’s why people call it “virtual currency.”
Bitcoin, which was introduced in 2009 by an unknown programmer named Satoshi Nakamoto, is the most popular form of cryptocurrency. It works like this: computers around the world are connected to the Internet. Every computer has an address, a string of letters and numbers. A computer that wants to make a payment will tell another computer its address, and it will then send the other computer some bitcoins for that address.
The bitcoin system is what’s known as a peer-to-peer system: no one can be sure who owns a particular Bitcoin account. All you have to do to use bitcoins is have your own computer show your Bitcoin account the right address.
If you want to start mining Bitcoins, you need a computer that’s always on, because it has to keep track of all the other computers in order to be sure there are only as many bitcoins as there are computers. Even if you have your computer mining bitcoins, it doesn’t matter if it’s off or running slowly because there are still other computers looking at addresses.
Some people have gotten rich running their computer to solve equations, and some people get rich by being the people who run their computers to solve equations. When you make a website that helps people send money to each other, it’s giving them a service. When you mine a cryptocurrency, you’re helping to create it.
Cryptocurrency is one of the most interesting inventions of the past 50 years. It has two essential properties: Anyone can mine it; there are only 21 million of them. Mining is something computers do automatically, and it’s so easy that you can host a web server and do it for nothing; in fact, anyone can do this for free with an ordinary home computer.
Bitcoin mining is a waste of time. It is not worth it, from a purely financial point of view. If I were to invest a million dollars in this, I would be losing money every day, and all the rest of my life.
The problem with bitcoin is that there are so many other people trying to get the same thing. In recent years, there has been a massive build-up of computing power devoted to bitcoin mining. The result has been a dramatic increase in the number of transactions that can be processed every second. And it’s all for nothing: you get no prize for mining bitcoin.
Bitcoin, the first and most successful cryptocurrency, doesn’t work like a bank account. It is completely decentralized. There are no banks involved to process transactions or keep accounts secure. Instead all of Bitcoin’s transactions are kept in a public ledger called the blockchain. This ledger is distributed all over the Internet, so any computer can download a copy of it and check if another person has spent its money.
In this way Bitcoin has two main benefits over normal currency: it is borderless and transparent. If you have some Bitcoin, anyone can see it by just looking at your public ledger of all Bitcoin transactions that ever happened. Everyone can see if you have any Bitcoin and everyone knows what that set of Bitcoins looks like.
Bitcoin also makes it easy to make payments between people who don’t know each other. The trick here is that the public ledger stores not just the current state of Bitcoin ownership but also records every transaction in history (called the blockchain). So if Alice sends Bob some money, Bob’s computer can check Alice’s public ledger and see that she previously owned those Bitcoins; then he knows Alice will send him back some Bitcoins on demand. And if Alice now wants to split with Bob half her share of their pooled bitcoins, her computer will do a similar check that Bob also
Bitcoin, the first and best known cryptocurrency, is a digital currency that allows anyone to send money to anyone else without going through a bank or any other kind of third party. Bitcoin transactions are made with no middleman: no banks, credit card companies, or governments need be involved.
The way it works is like this.
1. You go to coinbase.com/buy-bitcoin
2. You buy some bitcoins for fiat money (the local currency) by depositing money directly into your account at coinbase.com/account.
3. You transfer those bitcoins from your Coinbase account to your own computer in the form of a .zip file that contains the public key (a series of numbers and letters) that lets others know you own the bitcoins and the private key (a series of numbers and letters) that unlocks them. Or it can be a wallet program that stores the information on your computer.
4. You transfer the private key to a friend who also has a bitcoin wallet app so they can use it to access your bitcoin and make payments to each other or to you if they choose, but only if you have given them permission to do so by opening the corresponding address in your Coinbase account and transferring funds there from their bitcoin wallet program.
Bitcoin, the most popular cryptocurrency, was started in 2009 by someone (or a team) calling themselves Satoshi Nakamoto. It’s got no central authority: no government, bank, or corporation controls it. It’s not tied to any country or nation-state. There’s no representation of it in the stock market, no bonds on which its value is based. Bitcoin is completely decentralized.
To understand why this matters, you’ve first got to understand a little about the way money has historically worked. When there is only one kind of money—the sort we have now—there are two ways to make it: you can either earn it by producing goods and selling them for money, or you can borrow it from someone else who already has some and lend it out again when you need more. To do that you have to have a bank account; without a bank account you have to find someone who will take your money as a deposit and then lend it out again once they get the chance.
If your trading means you aren’t making anything that can be used to buy things like food or shelter, then earning money through production is the way to go; if you want to keep spending the same money on other things then borrowing money is better.
Bitcoin lets people do