We’ve all heard about it on the news but how many of us understand what Bitcoins really are? I know the concept has me somewhat befuddled when trying to figure the idea of cryptocurrency out. I decided to devote my next couple of articles to the Bitcoin crazy starting with its history.
According to bitcoin.org, Bitcoin is a consensus network that enables a new payment system and completely digital money. It is the first decentralized peer-to-peer payment network that is powered by its users with no central authority or middlemen.
Are you still as confused as I am? Looking deeper into this digital money, think of it as cash for the Internet. Bitcoin is actually the first implementation of a concept called “cryptocurrency” or digital money. The idea was first described in 1998 by Wei Dai suggesting the idea of a new form of money that uses cryptography to control its creation and transactions, instead of depending on a central authority
The first Bitcoin specification and proof of concept was published in 2009 in a cryptography mailing list by Satoshi Nakamoto, whose true identity is still unknown. It is unlike traditional currencies because there is no central bank, nation, state or regulatory authority backing it up.
The “coins” are made by computers solving a set of complex math problems. To spend them, user buy bitcoin and conduct transactions with them using exchanges such as San Francisco-based Coinbase. Instead of a central banking authority validating transactions, Bitcoin transactions are recorded on a public ledger called the blockchain.
So what is a blockchain you might ask? A blockchain is a digital ledger or database that offers a secure way to make and record transactions, agreements and contracts or anything else that needs to be recorded and verified as having taken place.
However, controversial as it may sound, a digital ledger is not kept in one place like the more traditional ledger book, a blockchain database is shared across a network of computers. This network can encompass just a handful or users or hundreds and even thousands of people. Most people using this data base will not see a blockchain performing and this immediate reaction means there is little to no window of opportunity for someone to alter a transaction before it is recorded on to the ledger.
Is a blockchain secure? An explanation for this question I located at www.theguardian.com, which is a business network relating to global development. It is the simplest explanation I have found and says, “A blockchain database consists of blocks and transactions. Blocks contain batches of transactions that are “hashed” and encoded. Each block contains the hash of the block before it, which links the two and forms the chain. This process validates each block, all the way back to the original, and is integral to the database’s security.
When a transaction takes place, its details are encrypted and a unique multiple-character transaction number is generated. Instead of other users in the blockchain being able to see the exact details of the transaction, this number is recorded in the ledger as a placeholder. All the users of the network will be able to see that the transaction has taken place but only the parties involved in the transaction can access and view its details.
All this makes any fraudulent activity easier to spot. An external hacker would have to gain access to every computer that holds a copy of the blockchain database, and at the same time, in order to tamper with it.
No one owns the Bitcoin Network. It is simple controlled by all Bitcoin users around the globe. While improvements are continuously being made in software, no one can force a change in the Bitcoin protocol because all of the users are free to choose what software and version they wish to use. In order to stay compatible, all users need to use software complying with the same rules. Bitcoin can only work properly with a complete consensus among all users; therefore, all users and developers have a strong incentive to protect this consensus among users.
So if you are still as confused as I was after reading many, many articles found on the Internet, I have determined that simply put Bitcoin is digital currency that a person will never be able to see or hold and must just rely on a network of other users to know that it is there and how much a person has.
Would I buy into it? Not for a minute. I feel as if I work too hard for what I have and I like to be able to see my money and hold it in my hand even if it is for a short time before it is spent.