Bitcoin is a digital or virtual cryptocurrency created in 2009. It follows the ideas set out in a white paper by the mysterious Satoshi Nakamoto, whose true identity has yet to be verified.
Bitcoin offers the promise of lower transaction fees than traditional online payment mechanisms and is operated by a decentralized authority, unlike government-issued currencies.
There are no physical bitcoins, only balances kept on a public ledger in the cloud, that – along with all Bitcoin transactions – is verified by a massive amount of computing power. Bitcoins are not issued or backed by any banks or governments, nor are individual bitcoins valuable as a commodity.
Despite its not being legal tender, Bitcoin charts high on popularity, and has triggered the launch of other virtual currencies collectively referred to as Altcoins.
When you purchase Bitcoin, you are essentially buying into a digital ledger that keeps track of how much Bitcoin you own. This digital ledger is known as the blockchain. In order for the blockchain to work properly, each Bitcoin transaction must be verified by what is known as “miners.” Miners use powerful computers that race against other miners in an effort to verify and approve each Bitcoin transaction.
As more and more miners join the network, it becomes increasingly difficult to make changes to the blockchain. That’s because each new block that is added to the blockchain contains a cryptographic hash of the previous block, which links them all together. If someone tried to alter just one block in the blockchain, everyone would know because that change would no longer match up with the hashes of all the other blocks in the chain.
The proof-of-work system that miners use to verify transactions and add new blocks to the blockchain requires a lot of computational power. All of this computing power comes at a cost, which is paid for by “miners” who are rewarded with newly minted Bitcoins for their efforts.
The more computing power a miner controls, the higher their chances of being rewarded with new Bitcoins.
The fact that there is no central authority overseeing Bitcoin makes some people nervous. However, there are several steps that users can take to ensure their safety when using Bitcoin:
– Use a reputable Bitcoin wallet: A good way to start is by using a wallet that has been recommended by someone you trust. There are many different types of wallets available (online, offline, hardware, software), so do your research before choosing one.
– Use multiple wallets: If you want to be extra cautious, you can use more than one wallet. This way if one wallet is compromised, your bitcoins will still be safe in another wallet.
– Use a strong password: When creating your wallet password, make sure to use a strong password that will be difficult for someone else to guess. A good password should be at least 8 characters long and contain a mix of uppercase and lowercase letters, numbers, and symbols.