BIT­COINS

WHAT ON EARTH ARE THEY?

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YOU’VE al­most cer­tainly heard of Bit­coin, the cryp­tocur­rency that made some peo­ple mil­lion­aires last year. But, if you’re like most peo­ple, you won’t re­ally know ex­actly what it is or how it works (we cer­tainly didn’t!). So, we’ve buried our heads in some books and googled loads of new words to dis­cover just what these com­pli­cated cryp­tocur­ren­cies are, as well as to find out how they might af­fect the world in 2018. WHAT IS A DIG­I­TAL CUR­RENCY?

Every time you buy some­thing on­line, money is moved from your bank ac­count to who­ever you’re pay­ing – but not be­fore the bank takes a tiny amount, as a fee for help­ing you move that money and keep­ing it safe. But, what if you didn’t want the bank to take that bit of money and you just wanted to give it over on­line di­rectly? That’s where Bit­coin comes in!

Bit­coin is a dig­i­tal cur­rency. That means there’s no real-world ver­sion of it, like there is when it comes to pounds or dol­lars.

HOW DOES IT WORK?

The prob­lem with a dig­i­tal cur­rency is that it’s pretty tricky to keep a record of who paid what. For ex­am­ple, you could buy a nice scarf from an on­line shop with some dig­i­tal money. How­ever, since it’s dig­i­tal money, couldn’t you just copy and paste it, then send it to an­other shop and buy an­other scarf? This is called the ‘dou­ble spend­ing prob­lem’, and it was the in­ven­tion of Bit­coin that solved this tricky dilemma.

To prove that you’ve spent your dig­i­tal cur­rency and that the shop has re­ceived it, you record every trans­ac­tion in a big ledger – or as it’s called in cryp­tocur­rency, a blockchain. A trans­ac­tion in blockchain looks pretty much like this (BTC is short for Bit­coin): BLUE MOON

The blockchain is a HUGE list of every Bit­coin trans­ac­tion. Any­time any­one spends any­thing in Bit­coin, a record is made of it in the blockchain. Ev­ery­one can see this ledger, and the only way it can be changed is when you’ve paid some Bit­coin to some­one else.

It’s all anony­mous, too, so rather than it say­ing Sally and Jeff, the blockchain looks more like this (but with loads more num­bers and let­ters): BLUE MOON

HOW IS A BIT­COIN MADE?

Here’s where it gets a bit more com­pli­cated, so strap in – Bit­coins are cre­ated when a pow­er­ful com­puter solves a com­plex maths puz­zle us­ing spe­cial soft­ware. This is called Bit­coin min­ing. When that puz­zle is solved, a Bit­coin is cre­ated, and the per­son who solved the puz­zle (miner) is given some of it for their trou­ble. One day, there won’t be any more puz­zles to solve, and all 21 mil­lion Bit­coin will have been mined.

TRULY VALU­ABLE?

So, now you know what Bit­coin is, why is it valu­able? Well, the main rea­son that you hear about peo­ple buy­ing and trad­ing it, is be­cause there are other peo­ple buy­ing and trad­ing it, too! This makes Bit­coin re­ally risky. If ev­ery­one de­cided that it wasn’t re­ally worth buy­ing any more, then the value would drop. At the time we wrote this, Bit­coin was very valu­able, as lots of peo­ple want it (1 Bit­coin is worth £4,500!). But, by the time you read this, it may not be!

WHO MADE BIT­COIN?

Satoshi Nakamoto is the name used by the per­son who in­vented Bit­coin and put the first blockchain in place. But who – or what – is Satoshi Nakamoto? Is it one per­son, or a group? Or maybe they’re some­thing else en­tirely (a ro­bot?!). We may never know…

THE FU­TURE OF CRYP­TOCUR­RENCY

While Bit­coin might be gone by to­mor­row, the blockchain tech­nol­ogy that pow­ers it cer­tainly won’t be, and many ex­perts pre­dict that it will shake up the en­tire bank­ing in­dus­try in the near fu­ture. As for cryp­tocur­ren­cies, it’s more dif­fi­cult to say but, per­haps some­time in the fu­ture, we’ll be pay­ing for things with a more sta­ble form of dig­i­tal money. There are al­ready hun­dreds of dif­fer­ent cryp­tocur­ren­cies avail­able to buy so, whether or not it’s Bit­coin we’re us­ing, we’ll have to wait to see!

Your av­er­age Bit­coin min­ing PC

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