Have you ever watched the headlines, scratched your head and wondered what Bitcoin and cryptocurrency really is? We have what you need.
So what are cryptos?
Crypto-currencies are virtual currencies that can be used to purchase goods and services, but rely on a ledger and cryptography to secure and verify transactions rather than a trusted third party.
What is Bitcoin?
Bitcoin is the name of the original cryptocurrency. It was designed to allow users to make digital payments without depending on financial institutions such as banks. It also means that its users can send or receive money anonymously.
Where does Bitcoin come from?
In 2008, a developer known only as Satoshi Nakamoto uploaded the Bitcoin white paper to a crypto mailing list, laying out his vision for the first cryptocurrency.
The same person is believed to be responsible for deploying the source code and protocol that Bitcoin is based on. There is still no definitive answer as to who Nakamoto is or whether it was someone working alone or a group of people working together.
How it works?
Bitcoin is built on a publicly distributed digital ledger known as a blockchain. This makes it possible to compile and share a record of all transactions on a peer-to-peer network. The same ledger protects the system from the problem of “double spending”, which is the risk that a digital token or digital coin can be spent twice.
Under the bitcoin protocol, every ten minutes a “block” of all transactions made on the network during the previous ten minutes is compiled and verified through what is known as “Proof of Work” mining.
The proof of work mechanism requires computers on the network to participate in a race to solve a computational problem. Think of it as an elaborate “guess the number” game where the higher your computing power, the higher your chances of winning.
The first computer to solve the problem is allowed to verify the block and add it to the blockchain, earning Bitcoin as a reward.
Under the Bitcoin protocol, the computational problem to be solved becomes more and more complex as more and more computers try to solve it.
The idea behind Proof of Work is to make the network more secure and protect it from attacks, spammers or individuals playing with the system.
Critics point out that it is extremely energy intensive, which has prompted recent concerns about Bitcoin’s environmental impact.
To learn more about this story, watch the explainer video in the media player above.