Inner workings of Bitcoin not fully clear

Bitcoin has carved out a name for itself as the world’s most popular cryptocurrency since arriving on the scene ten years ago.

However, the workings of the premier digital cash system remain something of a mystery to the general public. Bitcoin is a decentralised virtual currency created from computer code in the wake of the 2008 global financial crisis.

Unlike a traditional currency such as the dollar, euro or yen, bitcoin has no central bank and is not backed by any government.

Instead, the unit is controlled and regulated by its community of users, who argue that this makes it more efficient than traditional currencies.

There are some 17.3m bitcoins in circulation, while the total number can never exceed 21m. Bitcoin uses so-called peer-to-peer blockchain technology to create and trade instantly, across the globe.

A blockchain is an extremely secure ledger for recording transactions that is open to all who use it.

Transactions happen when heavily encrypted codes are passed across a computer network. The network as a whole monitors and verifies the transaction in a process that is intended to ensure no single bitcoin can be spent in more than one place simultaneously.

And, just like conventional currencies, bitcoins can be exchanged for goods and services. Like other virtual units, bitcoin can be produced, or “mined”, by banks of computers solving complex algorithms.

However, large-scale currency mining can be very expensive because it requires cuttingedge technology and vast amounts of electricity. Bitcoin can be purchased also with traditional currencies over online trading platforms.

But serious security questions linger after hackers managed to steal bitcoin from some online “wallets” in countries including Japan and South Korea. —

Bitcoin uses ... peer-to-peer blockchain technology