Bitcoin was created in 2009 by a Japanese individual using the alias Satoshi Nakamoto. It is most commonly referred to as a cryptocurrency – people can buy or sell bitcoin in marketplaces called “bitcoin exchanges”, using other currencies. Similar to digital cash exchange, Bitcoin can be sent and received using mobile apps or computers. However, cash does not go from a bank account, it is instead ‘mined’ to turn up profits.
Defining Characteristics of Bitcoin, and How It Works:
- Nobody owns or controls bitcoin wallet; it is open-source.
- Bitcoins can be “mined” by people – this is done by solving complex math problems (using computers). As of today, a winner could gain 12.5 bitcoins roughly every 10 minutes.
- This cryptocurrency is then stored in a “digital wallet”, existing either on cloud or on one’s computer. It acts as a virtual bank account. However, unlike real-life bank accounts, these are not insured by the FDIC – which would not be possible anyway, since each transaction is recorded in a public log that records buyers and sellers’ wallet ID’s, and never their personal details (including names).
- Transactions are included in a block chain, which is a shared public ledger on which the entirety of bitcoin operates. All confirmed transactions are recorded on this block chain – this allows for keeping track of spending and receiving, as well as verifying which transaction came from which wallet.
Bitcoin wallet has a private key/seed, which is used to sign transactions. It is similar to what banks call a PIN – it is mathematical proof that transactions have come from the owner of the wallet. It also helps to prevent fraud through denying alteration of the transaction by anybody, once it has been issued.