WHAT ON EARTH ARE THEY?
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.
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