Bitcoin Explained
You may have previously heard the term “”bitcoin”” (BTC), but do you know what it is?
Wikipedia defines bitcoin as a form of money that uses cryptography (techniques for secure communication in the presence of third parties) to control its’ creation and management – rather than relying on central authorities. In plain words, it’s digital currency that has no government-based backing; a code that is traded between two parties.
It was introduced in 2009 by a person or a group of people under the pseudonym of Satoshi Nakamoto – with initial users being mainly cryptography fans that were sending bitcoins to each other for low or no value. Satoshi’s identity still remains a mystery.
The first transaction was performed in February 2010, when a user bought 2 pizzas for 10,000BTC. Another user tried to action 10,000BTC for $50 – but no buyer was found!
In June 2010, the price grew 1000%, rising from $0.008 to $0.08. In February 2011, the value has gone up to $1 per bitcoin. After mainstream coverage and several market surges and crashes over the following couple of years, it broke the $1000 threshold on 27 November 2013 due to receiving recognition from a series of major businesses and authorities across the world.
So how does it work? When one user sends bitcoins to another user, the transaction needs to be validated by others in the network and added to the public ledger of transactions, using a series of calculations performed by people who use their computers connected to the network to carry out these calculations.
Once a user – “”the miner”” – successfully performs such calculations to verify bitcoin transactions between users, they get rewarded with new bitcoins. This will continue until 21 million bitcoins have been mined.
At this stage, the future of bitcoin is not very clear due to its’ price volatility, although some mainstream services like OkCupid, Baidu and Reddit are now accepting bitcoin as a form of payment. Sir Richard Branson has also recently announced that his space tourism company Virgin Galactic will soon be accepting bitcoin. Does bitcoin have the potential to eventually replace cash? Will people be able to apply for bitcoin payday loans? We will have to wait and see what happens!
Sources: Wikipedia, abc.com.au