Bitcoin – The Currency You Need To Know About

What Is Bitcoin And Why Was It Created?

One week ago, I came across an article on bloomberg that, to my dismay, illutrated that only 42% of Americans know about the new internet currency. (Bloomberg) Sadly, the remainder of the country guessed that it was either an Xbox game or an iPhone app. As I went outside to yell heedlessly into the night, I decided to put together a simple manual for the recent movement that is catching the eye of banks and governments alike. Call this “Bitcoin for dummies”.

There have been movements to develop virtual cash before, but early attempts failed due to double spending of tokens and a lack of verification. Central banks today are used to verify whether a token has been spent or not by a trusted source however, with the global recession in 2008, the weakness of a central authority became apparent. We have a single breaking point that can bring the economy to its knees. Hence the creation of Bitcoin and its innovative Block Chain system, a public ledger of transactions where a decentralized network of computers verify each account and transaction. This system was developed by Satoshi Nakamoto in August 2008 but this is where the story becomes interesting. This name is likely a pseudonym for the creator and in Japanese translates to “thinking clearly inside the foundation”.

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Birth Of The Network

Bitcoins are born from mining virtual blocks. The first block that Mr. Nakamoto mined is famously known as the genesis block and it rewarded 50 bitcoins. These bitcoins are stored in bitcoin wallets of which there are a number of popular services that act as a bitcoin wallet. In October of 2009, the first exchange rate was published – $1 for 1,309.03 BTC. In 2010, a Florida programmer by the name of Laszlo Hanyecz completes the first real bitcoin transaction by spending 10,000 bitcoins to get two pizza delivered. By November of this year, the Bitcoin economy surpasses $1 milllion US dollars and is at a closing price of $0.30 per Bitcoin.

There was some trouble in paradise as the system grew. Just as Forbes published “Crypto Currency”, a bitcoin profile in April 2011, a major vulnerability in the system was spotted that allowed the duplication of bitcoins by bypassing its economic restrictions. This resulted in 184 Billion Bitcoins generated in one transaction. Within hours it was spotted and erased from the transaction logs. Another problem we all face today with online banking, is the possibility of hacking or stolen passwords. In June 2011, a popular bitcoin wallet service, MyBitcoin, was hacked and 60,000 users had their passwords stolen with 600 losing their balance. This brought the exchange price crashing from $17.51 to $0.01 by the end of 2011.

Where Does It Stand Now And How To Get Started

After the crash, a big movement to regain the trust of the public occurred. This was achieved through consolidation. In 2012, we saw the first website, music album, taxi service, private medical practice, law firm, automobile, and university class accept bitcoin as payment. Up to this point, this was a currency that only the most informed internet users acknowledged. However in October 2012 this changed as the European Central Bank issued this statement:

Virtual currencies could have a negative impact on the reputation of central banks if their use grows considerably. This risk should be considered when assessing the overall risk situation of central banks.”

Over the next two years, Bitcoin surged reaching $500 until the news hit about the seizure of Silk Road. The brainchild of Ross Ulbricht, Silk Road was seized in October 2013 on charges of alleged murder for hire and narcotics trafficking violations. As the service often used bitcoins for transactions, the price of bitcoin dropped significantly ($259) but has since recovered.

The last surge occurred this past month as two significant events happened. Bob Bernanke, current Federal reserve Chaiman, acknowledges Bitcoin in a letter to the Senate stating:

…may hold long-term promise, particularly if the innovations promote a faster, more secure and more efficient payment system.”

He also added that the Fed has no authority to supervise virtual currency. A week later, Virgin Atlantic announces it will accept bitcoin for Space Travel. If there is anything that gets us excited, it is space. Bitcoin surged to a record high of $1240.

Bitcoin has a very interesting history and a more intriguing future. It is a very volatile currency but has the promise of a more secure and efficent world economy. Below are links to some of the more popular Bitcoin Wallet services to help you get started. Now go get mining!

giphyReferences:

– Bitcoin Developers (Bitcoin)

– Popular Bitcoin Wallet Services (Bitcoin)

– Definitive History of Bitcoin Infograhic (Visual Capitalist)

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