What The Hell is Bitcoin?

After recently breaking the $2,000-per-coin-barrier, Bitcoin has become a successful cryptocurrency in the trade market. But what does it all mean?

(BitcoinClix/Lede In Illustration)

On Monday it was reported that if you bought only $100 of Bitcoin in 2010, you would be worth over $70 million today. In the exchange market, the Bitcoin is currently being traded as high as $2,483 and recently went over the “$2,000-per-coin barrier” last week. As the bitcoin has seen a 400% increase in its value since it was first brought onto the trade market, it’s probably a good time to ask what is bitcoin even used for? First, we need to address what bitcoin really is and how it works.

Where did bitcoin come from?

Bitcoin is an online currency that was created in 2009 by an anonymous programmer or group of programmers who identify under the name Satoshi Nakamoto. The main purpose of the bitcoin is to allow people to make transactions without the presence of banks (the middle-men), meaning there are no transactions fees, and it has been successful since. The bitcoin value has fluctuated in the past years, but it’s evident that it has increased enormously since starting at only a value of one cent. Since bitcoin transactions can be done in just about any country (since it’s all done through the internet), it’s only prone to increasing its market.

How does it all work?

Many people choose to purchase bitcoin because it’s quick. Since it is an internet currency, people can send out money or receive money instantly via their smartphone or computer whether these transactions are international or not. In order to purchase and/or sell bitcoins, you need to sign up to Bitcoin exchanges like coinbase.com. Coinbase is the most common bitcoin exchange and accepts all currencies from Euros to US Dollars to Yen.

Coinbase can be downloaded onto your computer or onto your smartphone as an application. What services like Coinbase do is create a “digital currency wallet” for you. It kind of works like a PayPal Wallet, where you have a balance sitting there in which you can deposit those funds into your bank account, send out money elsewhere, or make an online purchase. This makes it easier for bitcoin users to manage their funds when buying or selling online. The downside to this is that somebody can accidentally delete their funds or they can be stolen by hackers, but now that’s rare since many digital currency wallets are available and now provide secure insurance policies.

Where do bitcoins come from if it’s all digital?

When it comes to paper money, the government takes full control of when to print and distribute money. Bitcoin does not have a government, so how do bitcoins get created and distributed into the online trade market? Bitcoins get created by “miners”. Miners are just ordinary people like me and you, but what these people do is earn these bitcoins by using specific software in order to solve complex math problems. When they successfully solve these problems they are rewarded with a certain amount of bitcoins. Once they have these bitcoins they are automatically part of the bitcoin market in which they can save them or sell them.

Can anybody become a bitcoin miner?

The bitcoin market relies on this concept of mining and this is where it gets quite complex. In order to start mining, you need to download mining software such as Bitcoin Miner onto your PC. Since mining takes so much personal time and energy from your computer, your PC must have the qualified specs in terms of processors and graphics cards (yes, most miners have the highest quality in PC specs). This means that if you plan on mining, you need to invest quite a bit of cash to successfully mine.

Mining is more of a gamble than anything else, meaning that miners are showcasing their “proof or work” by spending countless hours solving these equations.

What do these complex math problems entail?

When running a bitcoin software on your computer, odd looking codes defined as “hash functions” (or “hash values”) pop up in the program and it’s up to the miner to solve these functions.

Coindesk states,

a hash function is a mathematical process that takes input data of any size, performs an operation on it, and returns output data of a fixed size.”

They also state that,

“In a more concrete example, this can be used to take a sequence of letters of any length as input — what we call a string — and return a sequence of letters of a fixed length. Whether the input string is a single letter, a word, a sentence, or an entire novel, the output — called the digest — will always be the same length.”

For more on hash values and how they work during the bitcoin mining process, click here.

Finally, is bitcoin worth it?

As previously stated, back in 2010, bitcoins were quite cheap and now a single bitcoin is worth a couple thousand bucks. If you want to mine and you have the money and the time to invest into something new, then yes is worth it.

But unfortunately, there are still many unanswered questions about this cryptocurrency. Yes, Bitcoin is an open-source currency that requires no banks but how is this beneficial to anybody but to the people who already have money? Bitcoins are now worth quite a bit of money for an average adult to invest in, and if you want to become a bitcoin miner then you must also invest in a top-of-the-line PC. Given this, the average adult probably doesn’t have the time nor the money to mess around with the bitcoin exchange market.

It’s safe to say that the bitcoin market has become extremely successful for its investors, but after such high increases in its value, how many people can really contribute to this market?

Follow Lede In on Twitter.