Bitcoin. That simple word has caused quite a stir recently, leading to many to ask the question: What is it?
When it’s thrown around with words like cryptocurrency, blockchain, and mining, it’s no wonder people are a bit confused and curious. To help break through that confusion, here’s a simplified version of what Bitcoin really is.
Digital Currency
To start, Bitcoin is a digital, decentralized currency - the first one, actually. All this means is that it doesn’t have any physical representation, no dollar bills or coins, and operates without a central bank or administrator. The concept works how debit or credit cards do, with the money spent never physically changing hands, only virtually. While most money flows through banks and is tracked by them, this is tracked in an entirely different way, the blockchain.
Blockchain
This is a phrase that means very little to most people, though it’s actually a very simple concept. Essentially it’s a public ledger that is shared across the network. This is something the service relies upon to ensure bitcoin isn’t spent twice, and is used as a way to track what is spent and received between users. While the concepts behind it are a little more complex, at its core it’s a system of tracking the transactions made with the service.
Now that those two definitions are out of the way, the good stuff. How have people made money with bitcoin?
First, the currency operates somewhat like a stock for now, with fluctuations based on buying and selling patterns. It’s still considered volatile, meaning even small changes can cause rapid increases or decreases in value, due to the relatively new state of the service. As such, there’s no guarantee that someone will make a significant amount of money by buying in, however, there are some ways to get paid for keeping the service running optimally.
How do you get in on that, you ask? Mining.
Mining is a competitive process, and those who are lucky enough to mine the system must have specialized hardware and serve the vital role of processing transactions for the blockchain and keeping the system secure. This process of verification is what allows the system to continue functioning properly, and these users are rewarded for their work with bitcoins.
To get involved in mining, one simply needs the correct software running with specialized hardware. The mining software finds transactions that need to be processed and performs the correct tasks to complete them. Because miners are spending their computing power, they are rewarded with bitcoin. The currency can then be kept or used to make purchases for goods and services.
While it’s not a popular form of payment yet, many retailers are beginning to accept payments this way, further increasing the popularity of the service. Who knows, in the future this may serve as the preferred currency throughout the world.