What’s the deal with Bitcoin?
By Zac R. – Work Experience Week
Bitcoin is a decentralised virtual currency used online. It is the world’s first example of a cryptocurrency, and uses encryption techniques to generate units of currency. The key difference between Bitcoin and other currencies is that Bitcoin solely exists online and is based on mathematical proof. A bitcoin can be used to purchase items online that do not require a central authority (i.e. a bank) to manage them. It was released on January 9, 2009.
The Creator of Bitcoin
Bitcoins are not tangible, and are not printed on notes or coins. They exist solely in the digital realm, and are “created” by a series of computers set up to solve complex mathematical problems through a process known as “Bitcoin mining.” Despite the fact that there is no physical ‘mining’ involved (so you can put your shovels away!), Bitcoin mining is the key process that has brought this new form of currency into circulation.
Bitcoin’s original creator is an anonymous person (or group) that goes under the name of Satoshi Nakamoto. The origin of this person or group is unknown, with many suspects from all over the globe being thought to be the creator of the internet currency.
History of Bitcoin
Like its mysterious creator, much history of the Bitcoin is speculative. In October 2008 Nakamoto made a paper on The Cryptography Mailing List at metzdowd.com titled Bitcoin: a Peer-to-Peer Electronic Cash System. He claims to have started working on Bitcoin in 2007, but this is also unable to be confirmed. When the currency was released on January 9, 2009 Nakamoto mined the first block of bitcoins ever called the genesis block which gave him a reward of 50 bitcoins. The block also had the message “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”. This is a reference to an article published on 03/Jan/2009 in The Times.
In mid-2010, Nakamoto handed control of Bitcoins’ source code to Gavin Andresen, and related domains to other major bitcoin community members. The first major bitcoin transaction was made by a Florida programmer called Laszlo Hanyecz payer 10,000BTC, which at the time was about $50 USD, to get 2 Papa John’s Pizzas delivered to his house. This was done indirectly as he paid someone in England to buy the pizzas. On August 6, 2010 a major vulnerability was spotted. It let users bypass bitcoins restrictions and create an indefinite number of bitcoin. This was patched soon after.
The Blockchain and Mining
Bitcoin uses a public ledger called The Blockchain. The chain has no central authority and all maintenance is performed by a network of communicating nodes. The nodes validate transactions, add them to their copy of the ledger and then broadcast these to the other nodes. Approximately 6 times per hour a new group of accepted transactions called a block is created and added to the blockchain.
Mining is a record-keeping service. Miners make sure the Blockchain is consistent, complete and unalterable by verifying each block. Each block has a cryptographic hash of the previous block using the SHA-256 hashing algorithm linking it to the previous block. To be accepted by the rest of the network a new block must contain a proof-of-work which miners need to found a number called a nonce. This is time-consuming to generate as miners must test many different nonce values until they find the correct value.
Every 2016 blocks (Usually takes 14 days) the difficulty target is adjusted based on the network’s recent performance. This keeps average time between new blocks at 10 minutes. When a block is create the miner finding it is rewarded with newly created bitcoins. As of July 9, 2016 the reward is 12.5BTC. The bitcoin protocol states that every 210,000 (Approximately every 4 years) the reward will halve until it hits a reward of 0BTC in 214o. After that it will just be a way of keeping records. The total number of Bitcoins in 2140 will be 21 million.
Bitcoins have 4 types however 3 are used to just make it easier for small transactions. First, a single Bitcoin is currently worth $3307.55 AUD – currently more than the price of an ounce of gold! Next is a milli-bitcoin or mBTC, they are equal 0.001 bitcoin. A micro-bitcoin or µBTC is equal to 0.000001 bitcoin. The smallest value is called satoshi, a reference to the creator and is equal to 0.00000001 bitcoin (one hundred-millionth of a bitcoin).
Bitcoins are able to be purchased in full or in part. However payments may be made for items using the online currency.
Talk of the Bitcoin in Mainstream Media
Radio-sensations Hamish and Andy, had recently blown the idea of the bitcoin public when they invested in the currency well before its value had soared. Unfortunately, their only pitfall – they had forgotten the password to their Bitcoin account, and now had over $1000.00 AUD sitting in an online account they couldn’t access! Hamish and Andy had people trying to guess it – they even had a hypnotherapist in at one point to hypnotise one of the producers into remembering the passcode!
This radio segment would have been one of the main reasons that Bitcoin became a mainstream topic in Australia.
So why invest in Bitcoin?
So why invest in this obscure cryptocurrency? Here are 5 reasons:
1. It’s fast, cheap and easy to set-up
2. You don’t have to deal with annoying banks, and you don’t need to trust banks to handle your money responsibly! Your money is in your own hands!
3. It’s entirely managed online
4. Its value is currently increasing in money
5. It’s anonymous – meaning hackers can’t steal your private information!
Just make sure that you don’t forget your password like Hamish and Andy!
– Written by Zac, Work Experience Week