You hear about it in almost every street corner. It has now become the new currency and it is probably replacing our bank systems. This leaves most of us bedazzled as to what bitcoin really is. Where did it come from and why has it become so popular? You need the answers to this technology question to decide whether to invest in it.

What is Bitcoin?

Bitcoin is a form of digital currency (or cryptocurrency as it is popularly known) which was created in 2009. It is a virtual currency, unlike our paper currencies like the dollar, euro, yen, etc. It is an online cash and its transaction records are stored online by agencies and blockchains.

Bitcoins are rapidly becoming popular with many businesses. Many large retailers around the world have already subscribed to it is usage. In recent times, it has now been accepted globally and is now highly valued. Unlike traditional currencies that are regulated by government authorities like the central bank, bitcoins are independent of these organizations.

Bitcoin is created by many businesses and people through advanced computer technologies that decipher technical mathematical problems. The process is simple. When the computer software successfully figures out these mathematical problems, they reward the bitcoin mines with bitcoins.

History of Bitcoin

Although bitcoin gained popularity recently, it has existed for a long time. In 2008, an anonymous group under the pseudo name of Santoshi Nakamoto published a white paper titled ‘A peer to peer electronic cash system’ proposing that bitcoin should be used for business.

In 2009, it was made available for public use and blockchain started recording and verifying mining processes (processes through which new bitcoins are made) as well as transactions made with bitcoins. It was the year 2010 that bitcoin was assigned value as people started making attempts to trade with them. With time, its value rose to over $1000 per bitcoin. However, in 2013 its price plunged drastically to approximately to $3000. It gradually rose with time till it became about $8000 as of today.

Crypto: Commodity or Currency?

Due to its nature, many are confused as to whether bitcoin is a currency or commodity. In 2015, bitcoin was classified as a commodity by the CFTC (Commodity Future Trading Commission). A body tasked with regulating commodities in the US and like other cryptocurrencies, they have been considered to be commodity under the exchange act. Also, they are considered as currencies because they fit properly into some of the description of currencies in the following ways:

• Bitcoin circulates as a medium of exchange
• Bitcoin is generally accepted and have gained prevalence
• Bitcoin is used as a form of barter trade

In general, bitcoin can be said to be both a commodity and a currency; just like many commodities that have served a similar purpose in the course of history like diamonds, gold, and salt.

How was Bitcoin Created?

Bitcoins are created through a painstaking process called mining. This is done with is the use of specialized computers to solve a complex computational problem; so as to process and record all bitcoins or transactions. When done successfully, bitcoins are awarded to the computer which is for the owner to keep. The mathematical process becomes more complex to unravel as the days go by.

Why was Bitcoin Created?

Like many other things in life, bitcoin has a reason for its emergence. It was not just stumbled upon by a group of people who thought “hey, we could make a nice form of currency”. The emergence of bitcoin was purposeful and well thought of. According to the crypto experts, Santoshi Nakamoto (anonymous pseudonym), had the following goals:

• Remove third-party intermediaries that are needed for conducting online monetary transactions. The cost of these services requires lots of money which is then passed on to the end-users.
• Eliminate the financial limitation of transferring money online. There are certain limitations on the amount of money a person can transfer per day. With bitcoin, such limitations are eliminated.
• Create a decentralized monetary system whereby money is sent from peer to peer without any regulatory third-party. Since bitcoin is not owned by anyone, it is controlled by all bitcoin users in the world, this goal was achieved.

How is Bitcoin Different from Fiat Currencies?

Bitcoin as we have discussed earlier is a decentralized peer to peer monetary system. This makes it stand out from the traditional paper currency. Other ways in which bitcoin is different include:

• Bitcoin is not regulated by a central government financial institution like the central bank or other banks for that matter.
• Bitcoin’s transfer process is easier, faster and does not incur charges which are placed on end-users.
• Bitcoin doesn’t flow through the banking system but from one company to another.
• Bitcoin’s decentralization makes it widely accepted throughout the globe.
• Bitcoin’s anonymous users can transfer and receive bitcoin without personal information required.

How Does Bitcoin Work?

Since bitcoin is not managed by a regulatory system but by people who process transactions called miners. The next question that originally comes to mind is ‘how does it work?’. All bitcoin transactions are recorded in a public log called blockchain (a list of blocks that are fused using cryptography which is a method for solving codes

Bitcoin miners ensure that all bitcoin transactions are legit and documented by cataloging all bitcoin transactions within a time frame into a block and fused with a sophisticated cryptography. This process makes it impossible for an owner to send the same bitcoin twice

How to Get Bitcoins?

You can get bitcoins through the following ways:

• Buying Bitcoin with real cash
• Receiving Bitcoin as a means of payment
• Finding Bitcoin through the process of bitcoin mining

Crypto Markets: Security and Privacy

Bitcoins are to some extent relatively secure as it will be almost impossible for someone to steal your bitcoins by faking your identity. This is because when you create your bitcoin wallet, you are given two keys, a public key, and a private key.

Public keys are used for transactions, especially when bitcoins are being transferred to you. Private keys are a set of numbers that must be closely guarded, this is because it is your identity. Without these set of numbers, it will be impossible to get access to one’s bitcoins. However, in the circumstance when your private keys come into the knowledge another, your bitcoins can be stolen. Also in technical sense, your identity cannot be faked, because your personal information is not a requirement to complete a bitcoin transaction.

Conclusion

Bitcoins are rapidly becoming a global currency accepted in various countries around the world. It has made monetary transaction easier and still has more prospects in the future.