I wrote these articles in what felt like the early days of Bitcoin, as an educational series. At the time Bitcoin was very new and sometimes quite controversial. I was fascinated by the theory of proof of work in a monetary system and stayed active in the community for a few years.
Where Bitcoin Started, and what it is.
Bitcoin is a digital currency, otherwise known as a crypto-currency. It was founded in 2008 by a person or group of people using the name Satoshi Nakamoto. The elusive developers of the digital currency are still unknown. Rumors have circled for almost six years, but nothing substantial has ever been discovered.
Digital currencies like Bitcoin differ from traditional currencies. Transactions are processed without the need for a central banking system. Bitcoin is not only free from bank and debit fees but also partially anonymous.
Part of the attraction with crypto-currencies is that they are created and stored electronically. There is no ownership of them, and no central authority controlling them. Money can cross borders with ease and can be accessed and transferred instantly.
The speed and security make Bitcoin a logical payment solution for the future. Why use a middleman, like a bank, that takes a fee for handling transactions?
Where do they come from?
Bitcoins are produced on a worldwide computer network of peer-to-peer machines sharing data in almost real-time. Meaning no currency ever needs to be physically printed. Specialized hardware and software are used to solve complex mathematical problems; the solutions to these problems provide the foundation of the block chain. The block chain is the storage systems and public ledger for transactions.
This is a complex process called Bitcoin mining. When the Bitcoin algorithm was created by Satoshi Nakamoto, a finite limit on the number of coins that could ever be mined was set to 21 million. There are around 13 million Bitcoins circulating currently; this means eight million are left to be extracted.
How are Bitcoins stored, where are they?
Each Bitcoin transaction is stored in a database called the block chain. Allowing holders of the currency to stay informed on whom owns what, providing an almost real-time public ledger system. Details of each transaction are placed in a block of transactions, which once verified are stored in the blockchain.
Specialized Bitcoin mining hardware provides the power to verify these blocks. Keeping the ledger from being altered or coins from being spent multiple times.
Advantages over fiat currency.
Bitcoin and other crypto-currencies are unique, given they are removed from government control. Traditional fiat money systems are controlled solely by banks and government agencies. They are open to inflation or devaluation, given that traditional money can be printed multiple times. No such thing can realistically happen with Bitcoin, giving the currency some security advantages over those who own traditional money investments.
Where can they be spent?
Bitcoins are now being accepted in retail outlets along established currencies like the euro and dollar. Bitcoin is no longer just a currency used for video games and web hosting. It’s taken by Overstock.com, Dell.com, hotel and travel sites; much more added every day.