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What is Bitcoin? Everything you need to know about the booming cryptocurrency thats all the rage
The basics of Bitcoin: Heres everything you need to know about how the virtual currency is made, and what keeps it secure
Bitcoin has been up and down in the last year but is a currency starting to come into the mainstream.
A surge towards the end of 2017 was followed by a crash soon after – but many predict that it has long-term potential.
As a technology though, cryptocurrencies are booming – thanks to their decentralised nature and encrypted security.
If youre still not sure about exactly what it is, weve taken a look at the 21st century currency below and explained everything about it.
Bitcoinwas the first of what have become known as cryptocurencies.
These are forms of digital money that use encryption to secure transactions and control the creation of new units.
The plan was to make a form of currency not controlled by governments or businesses, that you could trade globally with no cost and without having to reveal your identity.
The popularity ofBitcoinhas spawned many copycats – sometimes called altcoins.
To make things more confusing, there are also second generation virtual currencies like Ethereum and Bitcoin Cash.
So theyre not like the coins in my purse or wallet?
No. They are essentially a line of numbered code – instructions used in computer programming.
However, once purchased they can be exchanged for some goods and services, like normal money.
Created by a mysterious developer who uses the pseudonym Satoshi Nakamoto, Bitcoins exploded on to the financial scene in 2013, following enormous increases in their value.
In the original Bitcoin white paper, Nakamoto describes his creation as a peer-to-peer version of electronic cash, allowing online payments to be sent directly from one party to another without going through a financial institution.
Nakamoto wrote that such a currency uses cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.
This sort of stateless, bank-free currency uses a distributed, cryptographically secure blockchain to record payment transactions.
Recording of payments onto the blockchain is powered by users, who offer their computer power.
They are rewarded with newly created Bitcoins, and this activity is referred to as mining.
Like many things, it comes down to supply and demand.
New Bitcoins are released at a rate of about 25 new coins every 10 minutes.
But the flow will dry up as they have been designed to ensure that no more than 21 million will ever exist. Today, around 16 million are in use.
Bitcoins can be obtained in a number of different ways. Its possible to accept them as payment for goods or services.
You can also buy them directly from individuals or special websites called exchanges, such asCoinbase, that will swap Bitcoins for regular currency.
While free bitcoin may seem like something that lands in your spam folder, there is a legitimate way to get it with a Bitcoin Faucet.
A Bitcoin faucet is a type of award system either on a website or an app. The company running the faucet will send small amounts when you complete tasks such as watching videos or playing games.
The Cointiply mining game is one of the most popular games in the faucet community and lets you earn in the background, in addition to taking surveys.
Bitcoin wallets are simply specially-designed programs that store your Bitcoin, the same way a regular wallet would store your cash.
They can be used either on a desktop computer or a smartphone and can be stored securely on the web so they can be accessed from anywhere.
Mining is a tricky process that involves solving a complex maths problem that takes both time and computing power. The more powerful your computer (and thus, the quicker you can crunch the numbers) means a more difficult problem.
Custom-built Bitcoin mining hardware and software is now available, allowing miners to find Bitcoins even faster.
Each miner also solves a dual function as they process and secure transactions on the block chain. But the more miners that join, the harder it becomes to find Bitcoins.
A Bitcoin miner can be anyone that simply does it for fun right up to someone with the latest equipment who is attempting to mine for profit.
Bitcoin miners also join into pools that split the workload and gives each of them a share of the profits.
Second-generation cryptocurrencies include altcoins with more advanced functions, that harness the computing power of the blockchain.
An example is Ethereum – the blockchain can execute smart contracts.
These are pieces of computer code that can interact with other coded contracts and perform work – for instance moving money around and making decisions.
The DAO platform that was hacked is written into the Ethereum blockchain and can autonomously operate without humans to control the organisation.
To decide what investments the DAO makes, its members vote on which proposed contacts will be included in the blockchain.
This could be the start of an autonomous financial future dictated by machines rather than humans.
Partly because of fears that investors will lose a packet.
Firstly, Bitcoin has no central bank that stands behind it and isnt regulated by any state.
Secondly, experts reckon the bubble could burst.
Earlier this year Ethereum the second biggest cryptocurrency after Bitcoin saw its value collapse from $317 a coin to $0.1 a coin in a day. It bounced back, and is now trading at $473 a coin, but the lesson is there.
Some have labelled Bitcoins what traders call a fools asset. Unlike investing in a house that can be rented out or a company that makes profits, the only way to make money from them is to find a greater fool than you wholl pay an even higher price than you will.
Legendary investor Warren Buffett says of Bitcoin: Stay away from it. Its a mirage, basically.
Finance expert Martin Lewis said: Bitcoin is a highly speculative investment. Putting money in it is a form of gambling.
Because it is being exploited by criminals and hackers.
The fact that transactions are untraceable makes it a dream come true for drug dealers and money laundering, and it is the currency of choice for cyber criminals.
It is telling that online crooks who launched the massive WannaCry ransomware attack earlier this year, which crippled part of the NHS and as well as businesses in 150 countries, demanded Bitcoin payments for organisations to regain access o their systems.
The ill gotten gains can be transferred across borders and withdraw in any currency or spent them on the dark web – a collection of hard to find websites where it is impossible to track the user.
The Treasury this month announced a crackdown on Bitcoin to tackle money laundering and tax dodging.
Under the plans, online platforms where Bitcoins are traded will be required to vet customers and report suspicious activity.
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