What Is Bitcoin?
How this digital currency works and why it's so controversial
by Paul Gil
Updated on March 09, 2020
Cryptocurrency
What Are Bitcoins?
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Bitcoin is a virtual currency that gained recognition after its price-per-coin rose above $13,000 in early 2018. The cryptocurrency (one of many) is at the center of a complex intersection of privacy, banking regulations, and technological innovation. Today, some retailers accept bitcoin, while in other jurisdictions, bitcoin is illegal.
Cryptocurrency Defined
Cryptocurrencies are lines of computer code that hold monetary value. These lines of code are created by electricity and high-performance computers.
Cryptocurrency is also known as digital currency. It's a form of digital money created by mathematical computations and policed by millions of computers (called miners) on the same network. Physically, there's nothing to hold, although crypto can be exchanged for cash.
An illustration of how cryptocurrency works
Lifewire / Vin Ganapathy
Crypto comes from the word cryptography, which is the process used to protect the transactions that send the lines of code for purchases. Cryptography also controls the creation of new coins. Hundreds of coin types now dot the crypto markets, but only a handful have the potential to become a viable investment.
Governments have no control over the creation of cryptocurrencies, which is what initially made them so popular. Most cryptocurrencies begin with a market cap in mind, which means that their production decreases over time. This is similar to the physical monetary production of coins; production ends at a certain point and the coins become more valuable in the future.
What Are Bitcoins?
Bitcoin was the first popular cryptocurrency. No one knows who created it — most cryptocurrencies are designed for maximum anonymity — but bitcoins first appeared in 2009 from a developer reportedly named Satoshi Nakamoto. He has since disappeared and left behind a bitcoin fortune.
Because bitcoin was the first major cryptocurrency, all digital currencies created since then are called altcoins, or alternative coins. Litecoin, Peercoin, Feathercoin, Ethereum, and hundreds of other coins are all altcoins because they are not bitcoin.
One of the advantages of bitcoin is that it can be stored offline on local hardware, such as a secure hard drive. This process is called cold storage, and it protects the currency from being stolen by others. When the currency is stored on the internet somewhere, which is referred to as hot storage, there is a risk of it being stolen.
On the flip side, if a person loses access to the hardware that contains the bitcoins, the currency is gone forever. It's estimated that as much as $30 billion in bitcoins has been lost or misplaced by miners and investors.
Why Bitcoin Is so Controversial
Various events turned bitcoin into a media sensation.
From 2011 to 2013, criminal traders made bitcoins famous by buying them in batches of millions of dollars so they could move money outside of the eyes of law enforcement and tax collectors. Subsequently, the value of bitcoins skyrocketed.
Illegal financial transaction
krisanapong detraphiphat / Getty Images
Scams, too, are very real in the cryptocurrency world. Naive and savvy investors alike can lose hundreds or thousands of dollars to scams.
Bitcoins and altcoins are controversial because they take the power of issuing money away from central banks and give it to the general public. Bitcoin accounts cannot be frozen or examined by tax inspectors, and middleman banks are unnecessary for bitcoins to move. Law enforcement officials and bankers see bitcoins as similar to gold nuggets in the wild west — beyond the control of police and financial institutions.
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Think of a block as a dataset that links the past to the present. Technically, individual blocks record changes to the overall state of bitcoin ownership within a given time interval. In aggregate, blocks record the entire history of bitcoin transactions as well as ownership of all bitcoin at any point in time. Only changes to the state are recorded in each passing block. How blocks are constructed, solved and validated is critical to the process of network consensus, and it also ensures that bitcoin maintains a fixed supply (21 million). Miners compete to construct and solve blocks that are then proposed to the rest of the network for acceptance. To simplify, think of the mining function as a continual process of validating history and clearing pending bitcoin transactions; with each block, miners add new transaction history to the blockchain and validate the entire history of the chain. It is through this process that miners secure the network; however, all network nodes then check the work performed by miners for validity, ensuring network consensus is enforced. More technically, miners construct blocks that represent data sets which include three critical elements (again simplifying):bitcoin сети mikrotik bitcoin The payment is a small amount of ETH that the person who wants to run the contract needs to send to the miner to make it work. This is similar to putting a coin in a jukebox.value bitcoin monero ico monero blockchain покер bitcoin миксер bitcoin bitcoin loan андроид bitcoin валюта bitcoin bitcoin blender bitcoin проверить bitcoin график maining bitcoin genesis bitcoin ethereum online
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