Without looking at anything, take a guess on what year Bitcoin was created. My guess would have been 2015, maybe 2014. The answer: 2009!?!? For almost 10 years, Bitcoin has been floating around and, as far as I know, doing nothing but confusing people and testing the outer limits of my mental gymnastics/intellectual imagination. Today I am attempting to conquer my digital currency fears while risking running into a brick wall with my ability for abstract thinking. Nevertheless, the goal: understand enough about Bitcoin to write the most rudimentary explanation of it. (Quick editorial note – my education in this started at a very low level, capitalization: apparently the concept of Bitcoin is capitalized; when writing about the unit of currency, bitcoin, you do not capitalize it. An overly complicated answer to a simple question…starting to panic but forging ahead).
Google dictionary defines bitcoin as: a type of digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank. The concept was first introduced in 2009 by Satoshi Nakamoto, whose true identity has never been identified, and was laid out in a paper, Bitcoin: A Peer-to-Peer Cash System. Quick aside: I have lots of thoughts on the concept that we have no idea who actually came up with this other realm and want to dig into that more, but will move on because there is a lot of ground to cover.
I am a very visual person and my mind desperately wants to see a bitcoin and track its progress. While the image to the right seems to be the universal visual representation, there are no physical bitcoins (looks like the toothfairy is going to have to stick to the Sacagawea golden dollar for the forseeable future). Because there are no tangible bitcoins, there is a public ledger, housed in the cloud, that records all balances and transactions.
The Term Cryptocurrency
Deep breath. I am doing okay so far, but things are about to get cloudy on the issue of creation and circulation. Before free-falling into the mental abyss of bitcoin mining, a quick detour to look at the term “cryptocurrency.” I keep reading that Bitcoin is a type of cryptocurrency, yet before today I had never heard the word (and if I was forced to guess, I would have assumed that it was something Carmen Sandiego was globetrotting to find in an effort to locate her most recent villain). Wrong. According to google dictionary, cryptocurrency is “a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.” While bitcoin is the most important type of cryptocurrency, investing.com’s current list has 1,904 different types of cryptocurrencies in existence. Understanding the concept of cryptocurrency – and its almost $300 billion dollar market – might be the most important take-away of today’s project, but for now I am going to mentally simplify to: digital currency; created and transferred via encryption; no central authority.
But back to my favorite cryptocurrency and how it comes into existence. This is where my linear brain starts to get snagged. There is no physical bitcoin and no central authority putting it into circulation, so…how…what…where…huh? It seems bitcoin is released into circulation through “bitcoin mining.” In the Bitcoin protocol – think the original white paper linked above from the never-identified “Satoshi” – 21 million bitcoins exist, but they have not all been mined yet. For the old souls amongst us, I am visualizing gold mining: there is a finite amount of it, it exists, but we are digging to find it. Similarly, bitcoin miners are “digging” to unearth all 21 million bitcoins (this should be accomplished by 2140). Okay, but what are bitcoin miners doing? Above we talked about the ledger that records all bitcoin transactions and balances. There is no one person in charge to ensure transactions are accurately monitored and recorded. Rather, bitcoin miners serve the purpose of securing the network and recording each transaction. They do this by solving computational problems which, when solved correctly, give the next line, or block, in the ledger, aka blockchain. As a reward for finding the next piece of blockchain, miners are paid in bitcoin. For the more tech savy reader, I imagine that was a painful oversimplication. However, I’m understanding some broad strokes: bitcoin is put into circulation via miners that are more or less regulators solving problems to accurately update the ledger; they are paid for their work with more bitcoin.
How do you Get Started with Bitcoin?
A lingering big question: if I wanted to start using bitcoin, how would I do that. Step 1: get a digital wallet – this is necessary for storing your bitcoin. There are a variety of options for this and you can get more details on the best bitcoin wallets here. Once you have a digital wallet, you can purchase bitcoin from a variety of places, but coinbase.com seems to be one of the most popular. You can also earn bitcoin by having people pay you for services in bitcoin. Finally, there are a number of exchanges where you can convert your bitcoin to cash. Currently, 1 bitcoin is worth $6,715.94.
This is the broadest of strokes, and while I am not ready to traffic in bitcoin, I do feel like I can converse about it. Plus, I am adding Banking on Bitcoin to my Netflix queue to hopefully get some more depth on this. Until then, I would welcome and encourage any comments from Bitcoin – or other cryptocurrency – users. Intrigued to get a better understanding of who is using this and how? Plus, best practices or clarifying details on this world would be much appreciated! I think this cryptocurrency stuff might be just the thing to purchase my first flying car, and I want to make sure I’m ready.