Bitcoin is just one of many cryptocurrencies which are being traded and earned around the world every minute of every day. What exactly is cryptocurrency and will it be the money of the future?
Seemingly not just a fad, many financial experts think that Bitcoin and other currencies like it, including Litecoin and Ripple, is the money we'll all be spending one day soon.
What is Cryptocurrency?
A cryptocurrency is a subset of digital currencies, which have no physical representation, and use encryption to secure transactions. They're stored in a virtual wallet, and can be used in transactions either online or in-person, using mobile apps. Bitcoin is both the first and still the most well-known cryptocurrency. It was created in 2009 as 'a peer-to-peer electronic cash system' by the still unknown Satoshi Nakamoto.
It's important to remember, though, that cryptocurrencies such as Bitcoin are not 'cash systems', but currencies. That is, they exist separate to all the global currencies traded around the world every day, and their value is independent of these.
Cutting out the middle man
Cryptocurrencies are intended as a way to cut out the middle man, so to speak, when paying for goods and services online and in-person. When paying with Bitcoin, there are no transaction fees (as there are with third party sites like PayPal) and no need to even give your real name.
Of course, for a currency to be worth anything, it's got to have actual monetary value. Bitcoin certainly does: one Bitcoin is, at the time of writing, equivalent to over $11,000. It's also traded extensively on various digital asset trading platforms and market exchanges, such as US-based GDAX.
To earn and spend Bitcoins, you'll need to sign up for an account with a cryptocurrency wallet such as Coinbase or Blockchain, where you can store your Bitcoins.
'Mining' for Bitcoins
Bitcoin can be bought on one of the many trading platforms. However, they are valuable, expensive, and involve a complicated process. ‘Mining’ for Bitcoins is a process in which ‘miners’ are rewarded for validating previous transactions.
When a Bitcoin is passed from one person to another, a notification of this transaction is broadcast to the entire Bitcoin network. While the network now knows about this transaction, it hasn't yet been 'confirmed' - this is where miners come in.
Unconfirmed transactions are pending and could be forged. Bitcoin miners stamp a transaction as legitimate, which marks it as completed, and in turn are paid for their work in Bitcoins - or whatever cryptocurrency they're working in.
For a miner to legitimately confirm a cryptocurrency transaction as unforged, they need to apply a complex mathematical formula to each pending transaction (which is also known as a 'block') in order to produce a hash. This hash is like a digital seal, which proves that the current block has not been tampered with. A miner's job is difficult, and miners are constantly competing with one another to confirm transactions and earn their currency.
The future of cryptocurrency
The popularity of Bitcoin is growing every year, with over 16 million units of Bitcoin currently in existence around the world – equivalent to over 134 billion dollars.
Some people are concerned by the lack of regulation surrounding Bitcoin, although for its proponents this is an important part of its USP. Unfortunately, the anonymous nature of Bitcoin transactions has made it a favourite medium for illegal transactions.
Certainly, the cryptocurrency craze is showing no signs of slowing down. Even hotshot Hollywood producer Christopher Woodrow has announced plans to launch a cryptocurrency called 'MovieCoin', intended as a way to open up the financing of films to regular people.
While it's true that many leaders in the tech and finance spheres seem to think that Bitcoin might be here to stay, the truth is that only time will tell.
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