What Is Bitcoin? Five Things You Need To Know
If you haven’t heard of bitcoin, you may have been hiding under a rock. But, just because you’ve heard of it, does that mean you know what it is? With the price of a bitcoin hitting over $9,000 today, it may be time to learn a “bit” more. If bitcoin is still a mystery to you, here are five things you need to know.
Bitcoin Is Relatively New, But Already Mysterious
The first mention of bitcoin came in a whitepaper by Satoshi Nakamoto. The whitepaper explained how “a purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.” Both the whitepaper and the open source code to use bitcoin were released in 2009.
But, who is Satoshi Nakamoto? Not one is quite sure. According to Diginomics, he claimed to be born on April 5, 1975, and “reside in Japan.” However, according to the same Diginomics article, a review of that April, 1975, date led to more questions, including its accuracy. This is because “on April 5th, 1933 U.S. President Franklin D. Roosevelt signed two executive orders: 6101 [regarding the creation] of [the] Civilian Conservation Corps, and 6102 which forbade the hoarding of gold coin, gold bullion, and gold certificates by U.S. citizens.” Then, “in the year 1975 gold ownership was re-legalized for citizens of the US.”
Satoshi Nakamoto has never been positively identified.
Bitcoin Is A Cryptocurrency
That’s nice, but what the heck is a cryptocurrency? A cryptocurrency is basically an alternative currency that uses cryptography, or secret codes, to do three things. For bitcoin, the three things are: make sure bitcoin transactions are secure, control how new bitcoin units are created, and to confirm that assets have been successfully transferred once a transaction has occurred.
Bitcoin Is Rapidly Gaining Value
The value of bitcoin has rapidly increased, especially this year. According to Coindesk, the value of bitcoin was just under $1,000 on the first day of this year. As of this writing, the value is over $9,600. For those who got involved early and have saved their bitcoin, the increase could translate into massive wealth.
Bitcoin Transactions Are Recorded In A Blockchain
Essentially, a blockchain is a public ledger where bitcoin transactions are recorded. Cryptography keeps the blockchain secure. The blockchain, according to Fortune, is “a cloud-based, secure financial ledger, of which Bitcoin is the most famous example.”
Since blockchains are cloud-based, the chances of them being lost forever are minimal. And, the cryptography used keeps them secure. In fact, “blockchains are billed as much more secure than existing financial infrastructure, whose vulnerabilities have been highlighted in recent days.”
Bitcoins Are Protected By Private Keys
If you have bitcoin, it is protected by private “keys.” In fact, these keys are so private that if the key is lost, so is the bitcoin. According to Bitzuma, “a Bitcoin private key is simply an integer between 1 and 1077. This may not seem like much of a selection, but for practical purposes, it’s essentially infinite.”
When a transaction is completed, it contains both a digital signature and a private key. If the digital signature is valid, then it can be accepted into the Bitcoin network. From there, the private key set of numbers is irreversibly turned into a public key (another set of numbers), which is irreversibly turned into an address (again, a set of numbers). The address is used by the payee of the bitcoin to receive the currency. But, only the bitcoin for the transaction is available, since the sender’s other balance is protected by the private key.
Bitcoin and blockchain appear to be here to stay. And, while you might not yet be comfortable with transacting business in that environment, it is important to understand the basics. That way, when you next hear about “blockchain disruption,” you can be ready to learn and keep yourself firmly planted in the 21st century.
[Featured Image by 3Dsculptor/Shutterstock]
