Most of us have probably heard the phrase Bitcoin or more generally digital currency in the past few years. However, it can be tough to wrap your head around all of it, in our so swiftly advancing technological world. Today we’ll try to answer some of the questions you may have surrounding bitcoin.
What is bitcoin?
According to their website, Bitcoin is “the simplest way to exchange money at a very low cost.” What’s very interesting is that Bitcoin and other financial exchange competitors have the opportunity to disrupt the current financial industry. Here’s how they plan to do so:
Bitcoin operates on a shared pubic ledger called block chain, which keeps a record of every Bitcoin transaction that occurs to assure there is nothing illegal involved. The network is secured by cryptography, which is an algorithmic tool that allows for high levels of security. This makes it impossible for one user to utilize another users “wallet” and creates wallet encryption, so that all wallets require a password to enter.
Any transaction involves the transfer of Bitcoin value from one user to another. Interestingly, Bitcoin does not technically exist the some way that money does, as it is only represented by what’s called a unique signature. Once a transaction occurs, Bitcoin will have “miners” who work for Bitcoin to verify such transactions, which takes roughly 5 seconds and up to 10 minutes.
How does a Bitcoin transaction work?
Every Bitcoin transaction involves an input, an amount and an output. One user goes into Bitcoin and buys a few bitcoins using US dollars. That user will then select a portion or all of that bitcoin and will send it to another user, which is the output. The input and output each have a unique address that is verified by miners within the blockchain.
Confused yet?
Good, same here. So everyone on Bitcoin has a public key, which is a sequence of letters and numbers that operates similar to an email address. Everyone must use this key to receive or send Bitcoin from user to user.
Next, users will all have a private key, which I like to think of as the password to your bank account. No one else should know this (duh!) that way only you have access to your funds.
Why Should I know about Bitcoin?
Good question – and the answer is the same reason that you should have learned about the Internet in the 1990s – for more clarity type “Jeff Bezos” or “Mark Zucherberg” into Google. HA! But seriously, Bitcoin is still early stage and no ones knows exactly it will become in the future. It is certain that those who can understand it and monetize it in the future will put a lot of money money (or Bitcoin) in their wallet down the road!
Also check out this popular book for a primer on Bitcoin:
Bitcoin: A Simple Introduction