Written by Brian S. (KIS'19)
Edited by Jaemin Y. (KIS'19)
━━ February 26, 2018 ━━
Lately, cryptocurrency has become the craze. The response to bitcoins have been very split: people either love it or hate it. The former says that bitcoin is the currency of the future, while the latter says that it is just a trend that will die out. And then there are also people who are not up-to-date with the newest technology and have no idea what a bitcoin is or why there is such a dramatic response to this. I’m not going to dispute whether bitcoins will succeed or fail or whether people should invest in them – I’m here to state the facts and reveal what bitcoins really are.
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The Guide to Bitcoins
How did it all start?
Like every hero or villain, bitcoins, too, have an origin story – a fascinating one. For a long time, no one knew who their creator was. Using the pseudonym Satoshi Nakamoto, the creator never revealed himself. In reality, Satoshi Nakamoto was located as an elderly Japanese-American man living in California, and when he was interviewed, he claimed that he had no connections with bitcoins at all. Another person thought to be behind the creation of the bitcoin is an Australian man Craig Wright. He claimed that he was the creator of the bitcoin, and as proof, he provided a code identical to the code used for the first bitcoin transaction. Many people, however, were skeptical that he was actually Satoshi Nakamoto. The post that he has made about being the creator of bitcoins has been deleted since then. Along with that came an apology letter about not being courageous enough to reveal himself. Today, there remains “at least 13 potential candidates as being responsible for the creation of Bitcoin” (Bernard). Some things that we can guess about the identity of Satoshi Nakamoto are that they speak English, could be British and could be more than one person. For now, his identity remains unsolved.
The Tech behind Bitcoins
The true reason why Satoshi Nakamoto is such a genius is his creation of the blockchain, a new way to share information. Blockchains are the reason why bitcoins work the way they do. This quote from William Mougayar explains blockchain at a very basic level.
“The traditional way of sharing documents with collaboration is to send a Microsoft Word document to another recipient and ask them to make revisions to it. The problem with that scenario is that you need to wait until receiving a return copy before you can see or make other changes because you are locked out of editing it until the other person is done with it. That’s how databases work today. Two owners can’t be messing with the same record at once.That’s how banks maintain money balances and transfers; they briefly lock access (or decrease the balance) while they make a transfer, then update the other side, then re-open access (or update again).With Google Docs (or Google Sheets), both parties have access to the same document at the same time, and the single version of that document is always visible to both of them. It is like a shared ledger, but it is a shared document. The distributed part comes into play when sharing involves a number of people.”
One benefit of blockchains is that it cannot be controlled by a single person and it is transparent. Since a single person is unable to change the blockchain, this prevents its corruption. Also, since everything is shared on a network, the blockchain will not fail on only one front. Any computer can join the blockchain, and once a computer joins, the blockchain is downloaded onto the computer, spreading out the blockchain even more and thus making it more decentralized.
“Mining” Bitcoins
So, now for the most important part of bitcoins: how do we get them? When bitcoins were first created, Nakamoto reportedly created 21 million of them. This means that there will ever be only 21 million bitcoins in circulation at a time. Not only is there a finite number of bitcoins, but as more and more bitcoins are mined, they will also become harder and harder to mine. One way to think of this is like mining for gold: the Earth has a finite amount of gold, and the more you mine the gold, the more difficult it will become to find.
The term “mining” can be somewhat misleading when talking about bitcoins. When computers mine bitcoins, the computer is essentially solving a very complicated math problem. Mining computers receive a block and turn them into a problem. Once this problem is solved, a certain number of other computers must verify that the solution is correct. Then, this process repeats until someone is able to solve one hundred questions. Afterwards, this person has rewarded twenty-five bitcoins.
A Bitcoin’s Journey into Society
Now that you have mined your own bitcoins, how do you use them? Why do bitcoins even have value anyways? You could ask this exact same question for the dollar. Why do dollar bills have any value at all? They’re just green pieces of paper. The only reason why dollar bills are valuable is that we said so. We, as a collective society, have acknowledged that green, rectangular pieces of paper hold value. The same concept can be applied to bitcoins; bitcoins have value because enough people in society have agreed that they will hold value.
That being said, we can now move onto the next question: how do we use bitcoins? Today, bitcoins are accepted by many companies as a legitimate form of currency. One of the ways that bitcoins can be spent is through online transactions. Today, there are “millions of products, all available for purchase with bitcoins” (Bitcoin). Another way to use bitcoins is at restaurants and cafes. At some dining areas, instead of using conventional payment methods like credit cards, you have the option to use bitcoins.
Things to be Careful for
Bitcoins come with an added warning: be even more careful with them than you do with normal currency. Since bitcoins are entirely stored online, once they are stolen from you, they will not come back. To prevent this, one thing that you can do is to have a secure wallet. Some ways that you can do this is by backing up or encrypting your wallet. To learn more about keeping your wallet safe, you take a look at this link. Another precaution to have while using bitcoins is that the price of bitcoins can change drastically in a short period of time. Finally, one last precaution to take is to make sure that whatever you buy with your bitcoins is actually what you want to buy as bitcoin transactions cannot be reversed, and therefore, your purchase cannot be refunded.
Now that you have learned the basics of bitcoins, go out there and make the best of cryptocurrency!
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Bibliography:
- Bernard, Zoë. “Everything You Need to Know about Bitcoin, Its Mysterious Origins, and the Many Alleged Identities of Its Creator.” Business Insider, Business Insider, 2 Dec. 2017, www.businessinsider.com/bitcoin-history-cryptocurrency-satoshi-nakamoto-2017-12/#dorian-nakamoto-nick-szabo-and-craig-wright-arent-the-only-ones-who-been-pinned-as-the-inventor-of-bitcoin-11.
- Bitcoin - Open Source P2P Money, bitcoin.org/en/.
- Clayton Elliott @clay, et al. “What Is Blockchain Technology? A Step-by-Step Guide For Beginners.” Blockgeeks, 22 Dec. 2017, blockgeeks.com/guides/what-is-blockchain-technology/.
- “How Bitcoin Mining Works.” The Economist, The Economist Newspaper, 20 Jan. 2015, www.economist.com/blogs/economist-explains/2015/01/economist-explains-11.
- “Why Do Bitcoins Have Value?” Investopedia, 26 Jan. 2018, www.investopedia.com/ask/answers/100314/why-do-bitcoins-have-value.asp.
- Kharpal, Arjun. “For Real? Australian Entrepreneur Says He's Bitcoin's Inventor.” CNBC, CNBC, 2 May 2016, www.cnbc.com/2016/05/02/bitcoin-inventor-satoshi-nakamoto-finally-revealed.html.
- Volastro, Anthony. “CNBC Explains: How to Mine Bitcoins on Your Own.” CNBC, CNBC, 24 Jan. 2014, www.cnbc.com/2014/01/23/cnbc-explains-how-to-mine-bitcoins-on-your-own.html.
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