Bitcoin. Whether you think it will destroy the economy or it’s the currency of the future, it is a very present force in today’s world. However, not many of us know exactly how this cryptocurrency works. Here is what you need to know about Bitcoin if you ever get your hands on a time machine.
Back in 2009, Bitcoin was created by an anonymous programmer who goes by the alias of Satoshi Nakamoto. He proposed the idea of a currency where consumers paid merchants directly for goods rather than having their money go through a bank first. The purpose of this was to get rid of the additional fees that came along with a middleman such as a bank, as well as to give the users direct access to their own money. As simple as this may sound, there was one major problem with this system of trading directly between buyer and seller. How would participants prevent themselves from getting scammed? There was no way to ensure that the person making a purchase actually had the money they said they had, and no recourse for the buyer if the seller did not provide the goods sold once the money was exchanged. Users could end up giving away a product for free or paying for something that they don’t get. Nakamoto solved the issue of scammers by introducing the idea of a public ledger. On this ledger, the balance of any user’s account is available for reference, and it is constantly being updated by supercomputers around the globe so the information is never outdated.
Today, people all over the world use Bitcoin to make purchases, but very few of us know how they actually do so. The relative newness of the system, its vocabulary, and its heavy reliance on technology make it intimidating. However, this has not stopped Bitcoin from growing in popularity with an increasing number of investors. Longtime Bitcoin user, Trent Nail, asserts that “Bitcoin is a lot simpler at the surface and a lot less of an investment than many people make it out to be.” Nails breaks the process of a Bitcoin exchange down to basic terms to make the system easier to understand.
Each Bitcoin user has something known as a “wallet,” which is where all of their bitcoins are kept. Each wallet has a password known as a “private key” that keeps other people from accessing the bitcoin in that wallet. Each wallet also has a “public key,” which is simply a code that allows users to see someone’s account balance on the aforementioned public ledger. Simply put, to make a transaction, a buyer would need to submit his or her private key for confirmation of intent and ability to make a purchase. Then, “miners,” which are supercomputers around the world, confirm ownership and validity of the Bitcoin being transferred and verify the transaction. Once verified, the bitcoins are sent over and a successful purchase has taken place.
Why go through that whole process of using secret keys and computer verification to buy something instead of going to a store and giving the clerk some valuable paper? Well, a large advantage that Bitcoin has over other currencies is that there is a limited supply, only 21 million bitcoin. This means that there is no way for the money to lose its value through overproduction, and users can make more economical purchases. That’s right, a little added bonus for all you Amazon shoppers is that you can get a slight discount on many products when buying with Bitcoin! Beyond that, Bitcoin has skyrocketed in value since its early days. Technically, Bitcoin was worth $0 in 2009 during its very first year of existence, since it was not traded on any exchanges at that time. Its first recorded price was in 2010. During that year it never topped $1, its highest price was just $0.39. Today, one bitcoin is worth around $8200! Which is why many who use it view it as in investment or “property” more than currency.
Almost ten years since its inception, Bitcoin is very much the system it set out to be. Its creators were able to successfully implement a framework where there was no need for a middleman and create a safe spending experience for users. Moreover, Bitcoin is doing a great job of satisfying its users with more and more people and more vendors joining each day. The everyday items that can be purchased with the digital currency have multiplied over the years. Overstock.com, CheapAir, and Newegg all accept it, so users can buy anything from furniture, to plane tickets, to Xbox games with Bitcoin.
As the Bitcoin platform continues to grow, more people will become educated and less intimidated. One day, maybe you’ll even decide to try it out in order to get a bit of a discount on that sweet new iPhone XV you oh so badly need.