Bitcoin – An Introduction for Beginners

Ever since its inception in 2009, many a person has asked the question; what exactly is Bitcoin? Here’s the quick, dumbed-down and easy answer – Bitcoin is the Internet’s form of currency or money. Just like every country has its own version of money, Bitcoin is the Internet’s version of money. That being said, let’s get to the slightly more technical part of exactly what Bitcoin is all about.

Bitcoin is often referred to as crypto-currency and that is quite essentially what Bitcoin is all about. We use the word crypto-currency for a simple reason; Bitcoin is basically a cryptographic protocol that creates unique bits of digital possessions that can be spent only once and are tradable from one person to another. Bitcoins are not simply unique in nature because they are a digital form of currency, rather every Bitcoin also has a unique digital signature, similar to the serial number on physical currency notes. This is the feature that ensures every Bitcoin is spent only once, making double-spending an impossibility.

Now, to the next part – How are Bitcoins made? A more appropriate question would be, how are Bitcoins mined? Yes, that’s what the process of Bitcoin creation is called, mining. Bitcoins are mined through the use of an open-source computer program that solves a complex mathematical problem in an effort to create a ‘block’, which are actually encrypted Bitcoin transactions. You receive Bitcoins for every such problem you solve and the transactions are permanently recorded into a public ledger that is referred to as the ‘blockchain’. And by public ledger, we mean that the transactions are open to view by anyone and everyone. However, an important factor to keep in mind is that only the transactions are publicly available. The entity or person behind the transaction retains its privacy, making Bitcoin a pseudonymous form of currency. Essentially, your transactions are public but you retain your privacy behind a string of numbers and letters.

Bitcoin mining is also characterized by a few important factors such as processing power requirements and increasing difficulty with progression. Confused? Here’s the explanation. In order to mine Bitcoins, you require a computer to process math problems, the solution of which helps you earn Bitcoins. However most common computers are not equipped with the kind of processors that can easily compute these problems. So most people resorts to either buying specialized machines that are created for the sole purpose of mining, or rig up several computers in order to collectively achieve the processing power required to mine Bitcoins. Another characteristic of Bitcoin mining, is that it gets progressively harder to mine them. The complex problems that the computer is required to solve get increasingly harder as more and more Bitcoins are created. Therefore, each problem you solve, is replaced by an even harder problem that requires either more time to solve or more processing power. Additionally, the amount of Bitcoins rewarded are periodically cut in half.

There is also a limit to the total amount of Bitcoins that can be mined. This limit is 21 million Bitcoins; once these many Bitcoins have entered circulation, Bitcoin mining will stop completely.

Now, you must be asking yourself, what is the point of spending this much processing power, time and money into mining Bitcoins? The answer is simple. When Bitcoin was first introduced, by pseudonymous creator, Satoshi Makamoto, they were worth initially worth USD 0.30 per Bitcoin. This number maintained a fluctuating path of highs and lows to settle at USD 380 to USD 682 per Bitcoin, varying from exchange to exchange.

Bitcoin is currently viewed as a digital currency with massive positive implications for the future by some people, while others maintain it is unsafe economically unviable and the future of Bitcoin will end in a pitfall. As to who is right, only time can tell.

By: Vipin Jain

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