Bitcoin and Cryptocurrency

 When you want to buy something normally, using your normal bank card, this is what happens:

  • I give my card details to the shop, the shop asks the bank if I'm good for the money.
  • The bank checks its records to see if I've got enough money in my account.
  • If I do, it let's the shop know.
  • It updates its records to show the movement from my account to the shop's, and it takes a little cut for its trouble.

Now if you wanted to remove the bank from that system, who else would you trust to keep those records and alter them in any way? I wouldn’t trust any single person. But I might trust everyone. The idea is that you don't have a central record of transactions, instead, you distribute many, many copies of this ledger around the world; each owner of each copy records every transaction. So, to buy something using cryptocurrency:

  • I give the shop my details, the shop asks all the bookkeepers if I'm good for the money.
  • The bookkeepers all check their records, to see if I have enough.
  • ­­If I do, they tell the shop and then everyone updates the records to show the movement of money.

There's no way a forged transaction can make it in – if I try to alter a ledger, it won't match all of the other copies, and it gets rejected. Oh, and one of them that are working to make sure that everything is in order will be given a reward of some newly created cryptocurrency. This is how some cryptocurrencies work and remember, all of these bookkeepers, all of these ledgers, they're not actually people, they're computers. Lots and lots of computers.

What is Bitcoin?

Bitcoin is the first decentralized currency. It works without a central bank or without a single administrator. It is a democratic currency and provides its users true anonymity. Bitcoins can be used to exchange for a variety of other currencies, products, and services. The currency itself is sought out and bought by many people like a commodity. Since it's inception, 9 years ago, the value of Bitcoin has increased hugely.

In 2011, one Bitcoin was worth $0.30 in March 2017, it surpassed the price of gold. Today it is worth near $10,000. Satoshi Nakamoto released Bitcoin as open source software in January 2009, no one knows who Satoshi Nakamoto is, he can be one person or many.

Among Bitcoins benefits are the fact that transactions between users take place directly, without an intermediary and therefore with little or no fees. The transactions are verified by cryptography and recorded in a public, decentralized ledger called a blockchain. Bitcoins are created by mining for them, this involves solving complex computing problems, as more coins are mined, the problems become harder and harder, requiring more computing power. This helps limit the number of Bitcoins available. J.P. Morgan compares the rush for the remaining Bitcoins to an arms race.

Entire companies now exist solely to mine Bitcoin with banks of servers. As the computations grow more complex, they need more and more electricity. They are consequently driving the costs of minting Bitcoin to all-time highs. Already the Bitcoin miners in Ice Land are causing unforeseen problems. The small nation generates all of its power from renewable sources, but energy chief Johann Snorri Sigurbergsson says that Bitcoin miners will soon need more energy than all the households of Ice Land put together – and more than the island is able to produce. Satoshi Nakamoto buried 21 million coins online in 2009; almost 17 million have been mined to date. No one can accurately predict what will happen when the remaining 4 million have been mined. Given its history, it's likely that Bitcoins value will sky-rocket.

author default image - Managing Institutional Investments In Digital Currency

Buy, sell and invest in digital currency instantly with zero fees. A managed cryptocurrency portfolio with full custody solutions. Click here to create an account.