Video source: bitcoin.org

What is a Bitcoin?

Interested in new technology, I came across the Bitcoin topic some time ago. Bitcoins are a decentralized peer-to-peer (transferred from person to person) digital currency which means there is no central authority like banks or governments behind the currency and the transaction process is done by a network of private computers. The users of these computers, the “miners” get recompensed with transaction fees and newly created Bitcoins.

But the systems of all the worldwide Bitcoin miners have to solve a complex math problem first and the algorithm leads over time to the case that future Bitcoins can only be created at an ever-decreasing rate which is why over time more and more computing power is needed to generate a Bitcoin. You can say, the more systems trying to solve the task, the harder the task of creating a Bitcoin becomes to solve and the less they get for this process. Also the total number of Bitcoins is capped at 21 million which means Bitcoins can´t be created beyond this amount.

Bitcoins currency usage

People who want to use Bitcoins as a payment method or to store an amount of Bitcoins, need to create a digital “Wallet”. The user of the “Wallet” can create one or more Bitcoin addresses. There are public addresses and private keys. The public addresses can be forwarded to other persons who can make a payment on this address and the owner of the address will receive the amount after the process went through the mentioned calculation and Blockchain.

The private keys however should only be used by the wallet owner to send Bitcoins. That means the private key should be secured and protected. There are different forms of wallets. It´s possible to manage a wallet on the own system, there are mobile phone apps, hardware devices, web services and tokens on paper.

Bitcoin processing

Bitcoin transactions are handled and processed by the earlier mentioned network of systems as well. Cryptography is used for digital signatures and to control the transactions and this is why the currency is also called Cryptocurrency. If a Bitcoin transaction is confirmed, the Bitcoin transfer is stored in a public journal, the so-called Blockchain.

Bitcoin History

The concept of Bitcoins was first introduced in the year 2008 in a paper of a developer with the pseudonym “Satoshi Nakamoto”. In 2009 Bitcoin system became ready to operate with some early technical problems. The value of a Bitcoin raised from about $0.30 to $32 in 2011, and dropped soon back down to $2. Since the end of 2012 there was increasing media attention and many news articles started to mention the Bitcoin concept and some mainstream services like WordPress.com started to accept Bitcoins as a payment method.

In 2013 some other very well know services like Baidu, OkCupid, Humble Bundle, Reddit and Foodler began to accept Bitcoins as well. In November 2013, the price of one Bitcoin on the Mt. Gox exchange raised to US$900 after the United States Senate committee hearing, at which the committee was informed that virtual currencies were a legitimate financial service with the same benefits and risks as other online payment systems. Some say that a reason for the rise could have been that eBay´s Chief Executive John Donahoe mentioned that their payment system PayPal may one day incorporate Bitcoins.

Bitcoin Future

Nobody has a crystal ball but some people start to think that Bitcoins can be a good alternative to the fiat currencies, while others mention that Bitcoins are highly speculative and maybe even manipulable. Speculative is somewhat right as the value of the currency had some up and downs like a roller coaster ride, which means it is still a volatile currency.

Critics mention that those up and downs are bubbles that did and still can burst, while supporter of the currency say that all signs point to an even furthermore increasing value and that the system could go mainstream. Listen to both you can say, yes at the moment it is a highly speculative system. For technology and economy interested people anyway interesting to follow. Let´s see what will happen.