Bitcoin is probably the most buzzed virtual currency of the 21st century. It has almost become a household name with ever-increasing coverage in the media, and fair to say its notoriety continues to increase. So what’s all the fuss about? Bitcoin appeared around 2009 as a new form of digital currency and was develop from the off as open-source by a clever chap called Satoshi Nakamoto. We are told his true identity is ‘shrouded in mystery’ like he’s some kind of Marvel superhero, I suspect this simply means he’s a super nerd, but there’s no question, he’s undoubtedly a pioneer…
So what’s it all about?
Bitcoin is a form of currency the same as any other. It is transacted through secure wallets. However, it is not under the control of any government or financial institution. Yet. it is highly accepted in global e-commerce activities. The premise is for it to be owned and managed by its own community. Bitcoin is de-centralised and managed by peer-to-peer members whom all partake in new transaction activity and store previous activity in what is known as ‘blockchains’.
It means that a full ‘copy’ of all transactions are stored locally and used to verify, between participants, new activity, thereby preventing any one person from malformed, adding or creating fake transactions within the blockchain. This ‘consensus’ approach protects the security of Bitcoin transactions.
Bitcoin works in not a dissimilar way to PayPal in that you have a digital wallet with a unique address where people can send you Bitcoins. You can simply install a wallet on your device, or you can download the full Bitcoin wallet and participate in the network as a node.
Bitcoin’s value is very much an effect of supply and demand with risky investors gambling on the highs. Currently, a single Bitcoin (shown as 1.0000000) is worth £573 or $935. You can purchase Bitcoins at any of the eight decimal places, so for example, 0.0100000 would cost you £5.70 and 0.1000000 would cost you £57.00, no surprise where Bitcoin got its name!
OK, where do I buy Bitcoins?
Unless you have some Bitcoins coming your way via a payment, you will need to purchase Bitcoins in your real currency. Purchasing is all about trust as it is not regulated; however, that’s sort of how eBay started out, where users trusted each other to pay for and send items, and they’ve done rather well for themselves…
The Bitcoin coal face
Bitcoin mining, as it is known, is the process of generating Bitcoins and a small payment in the form of units of Bitcoins are paid for the time and effort your hardware is used and your level of participation. This is done via several methods from using your own PC’s CPU or GPU to using ASIC miners (Application Specific Integrated Circuits), these are designed for the specific purpose for which they are built, which in this case is generating Bitcoins.
Unless you have significant investment to purchase powerful ASIC miners such as those from butterflylabs.com which can run at 600GH/s (Hash’s per second) you will have to look at USB ASIC Miners such as the popular BlockErupter which generate 336MH/s. Using the BlockErupters, you can create your own USB hub style rig running lots of them concurrently.
The reality though, is that it may be too late in the game to make any serious money from Bitcoin mining. The complexity (Hash rate) of the BlockChain is now such that even joining and contributing to a Mining Pool, where miners work together and share the profits, will likely see more spent in electricity than in any real financial return.
Also, there is a maximum limit of 21 million Bitcoins, and at present, it is nearing 12.4 million, and as the more miners join, the quicker this limit will be reached. It is now more likely you will make money buying Bitcoins themselves than generating them.
The future of Bitcoin…
Bitcoin is an emerging technology, as such, the price has been volatile, however recently it has started to become more stable as the community of users grows. As of this writing, Bitcoin sees the number of transactions reach as high as 100,000 per day. While banks and big business are yet to consider whether Bitcoin is a threat or an opportunity, there is no doubt they are beginning to sit up and take notice of this new digital currency which continues to grow its user base daily.