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This article was written by J. Assita Camara.
For most people the term “bitcoin” conjures up images of microchips and nameless programmers in front of glowing computer screens. While those assumptions aren’t entirely wrong, it turns out that Bitcoin is much more complicated than that. The story of the six-year-old Internet-based currency’s origin sounds like it belongs in a spy movie. Bitcoin has the potential to transform the way we use money forever.
Who Created Bitcoin?
The very first bitcoins were launched in 2009 by Satoshi Nakamoto, a person whose real identity remains a mystery to this day. What we know for sure is that as the bottom was falling out of the global economy in the late aughts, Nakamoto surfaced with a blueprint for an alternative financial system that wouldn’t need the one thing he believed our current one requires: trust.
While the reigning financial system relies on the ethical cooperation of banks, financiers and government officials in order to function, the system that’s being built around Bitcoin only seems to need an unbreakable code and a public ledger that’s collectively maintained by people known as miners.
After helping to launch Bitcoin, Nakamoto disappeared. Even people who communicated with him regularly over the three year period he was active aren’t positive that his identity was real or that he was even a single individual. After Nakamoto’s invention emerged from a small corner of the Internet in 2008, he faded back into anonymity in 2011.
The coding behind this new technology is so infallible that one Internet security specialist told The New Yorker he believed that it had to have been created either by a group of people or a “genius.”
What Are Bitcoins And How Do They Work?
Bitcoins are essentially digital currency created by software. The way bitcoins are “made” belies their origin as a form of money that was born on the Internet. Typically currency is printed and administered by third party institutions. Rather than vesting that kind of authority in a single organization, the authority to generate, distribute and manage bitcoins is spread across an online network that is open to any interested party that wants to participate. This means that unlike the dollar or the Euro, Bitcoin is decentralized. One positive thing is that there is a lower entry barrier for people to participate in this new financial system.
The individuals who help “print” and distribute bitcoins are known as miners. According to Wired.com, miners unlock or “mine” bitcoins by competitively solving complicated math problems. When a miner cracks a math problem they are rewarded with new bitcoins. The process of solving these puzzles also serves the function of verifying Bitcoin transactions and preventing someone from using the same bitcoin more than once. The more mathematical puzzles miners solve, the more complicated the puzzles become. As the math problems have become more difficult miners have formed groups called bitcoin pools to make the process of solving them faster and more efficient.
People who want to use bitcoins but don’t have the time or the ability to mine them can get their hands on them the same they would any other currency: by buying it. Prospective users can purchase the currency on exchanges like Bitstamp, Coinbase or Bitfinex. According to The Washington Post, there are even Bitcoin ATMs where physical currency can be traded for bitcoins.
If the entire Bitcoin system is averse to the idea of banks, how do people who use the currency store them? Just where exactly do you put money that you can’t see or touch? The answers to those questions are simple: Bitcoin users put their money in Bitcoin wallets. These wallets allow the people who possess them to store, send and receive bitcoins. Wallets are programs that can be downloaded to the hard drive of a computer, a mobile phone or exist as a cloud service on the Internet.
People can use their Bitcoin wallets to purchase just about anything they would buy with physical currency from any business that accepts bitcoins as a form of payment. Consumers who purchase things using bitcoins have more anonymity than consumers who choose to use physical currency.
As of this writing one bitcoin is worth $238 but given Bitcoin’s volatility that rate is certain to change.
What Is Bitcoin?
Find out what Bitcoin is and how you could potentially benefit from it.
Why Are Bitcoins Important?
Bitcoins matter because they are potentially game-changing. This Internet currency offers an alternative to a financial system that isn’t as infallible as most people once believed. The global economic crisis exposed many of the current financial system’s shortcomings which include a reliance on parties who aren’t guaranteed to act in everyone’s best interest. The idea of a monetary system that can’t be compromised by corrupt politicians or bankers is certainly an important one in our day and age. Ultimately Bitcoin is a chance for anyone with an Internet connection to be part of a historic form of economic innovation. That is reason enough to pay attention to how this dynamic currency develops.
Have you ever used this internet-based currency?