What’s Up With Bitcoin?

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Written by Oscar Scholin, Journalist

Lately, Bitcoin has been all over the news: Bitcoin just hit $20,000, Bitcoin is back down, Bitcoin is recovering, etc. So, what even is Bitcoin?

 

Bitcoin was the first decentralized digital currency, also known as a  “cryptocurrency,” founded January 3, 2009, by Satoshi Nakamoto, a person or group of people who worked under this name in Japan. The goal of Bitcoin was to provide a system of currency that was strictly peer to peer, without a single administrator or a centralized bank. So, if there is no bank, how does it work?

 

People can buy or sell Bitcoin through online exchanges and send or store that Bitcoin in a “Wallet”. These wallets, either online as a website, or on a computer as an application, or on a physical device such as a USB device (known as a hardware wallet), contain specific addresses made up of random characters, which are bound to that specific wallet. With that address, people can send Bitcoin to and from their wallets or ask for donations or payments from others.

 

However, without a bank to facilitate those transactions, something else must take its place. The heart of Bitcoin is the blockchain. The blockchain is essentially a record of all processed transactions. To process those transactions and create the blockchain, individual people known as “miners” run a piece of software on their computer or computers, which solves a series of complex mathematical equations to encrypt and create the blockchain. One very interesting fact about the blockchain is that it is virtually impossible to hack. The reason for this difficulty is that every person has an individual copy of the blockchain embedded in their wallets. Thus, if the hacker wanted to hack one block and attempt to change it, when compared to the data of other users, that change would be seen as invalid and would then be nullified. Therefore, to physically alter the blockchain, one would need to hack 51% of all the Bitcoin users in the world (millions) in order for that change of that specific block to be accepted by the community.

 

One of the novelties of Bitcoin is that it really is a currency built for the community. Anyone with a computer can look up how to run a mining program and begin collecting their payment for mining. However, to actually make a decent enough profit by mining, one would need a fairly beefy and expensive machine, as giant corporations that have thousands of mining machines working for them are competing with the Average Joe mining on her computer.

 

Trading Bitcoin is a whole other element of cryptocurrency. One of the main problems of Bitcoin is its volatility. Compared to a regular fiat currency such as the United States Dollar, Bitcoin is very unstable. However, that volatility is also a strength: one can make a lot of money by carefully buying and selling Bitcoin as the market goes down and up to make a profit.

 

Another important aspect of cryptocurrency is its diversity. Bitcoin, although the first cryptocurrency , is only one of thousands of cryptocurrencies today. Ethereum, Lite Coin, Dash, and Zcash are just a few of the many cryptocurrencies. That diversity allows for even more profit in trading and in mining, as not everyone is forced to mine or trade the same currency.

 

As Bitcoin is so volatile, many novice traders or people uneducated in the workings of Bitcoin may be tempted to exclaim “Oh no, the sky is falling! Bitcoin is dead! Oh no!” However, one thing that is true about Bitcoin is that as long as people continue to trade, mine, buy, and sell Bitcoin, it will not die.

 

The goal of Bitcoin is to decentralize currency everywhere, enabling the people themselves to be in control and to do away with the need for traditional centralized banks, which act only in the interests of the very few and the wealthy. Bitcoin still has a ways to go before it is widely accepted everywhere, as some countries such as South Korea and Russia are attempting to tighten government regulation of if, but it has already been legalized in Japan, and Venezuela is seeking to create its own oil backed cryptocurrency, the Petro, there is speculation that the United States is going to come out with its own cryptocurrency soon. Thus, cryptocurrency is far from being dead; rather, it has great potential for the future and is going to play an integral part of the future of money.