Bitcoin Explained: How Does Bitcoin Mining Work?

B Bitcoin Basics A Brief History of Bitcoin Bitcoin fans have called it the "future of money", predicting it will transform the global financial system, but others are more sceptical. However, it's easy to get caught up in technical jargon if you don't understand the basics: B What is a Bitcoin? Bitcoins (BTC) are a They are not controlled by virtual digital currency (or 'cryptocurrency') any bank or country and the price of a Bitcoin is set by the open market, based on what people are willing exchanged between two parties with no middleman. to exchange them for. Bitcoin Beginnings 2008 The domain name bitcoin.org was registered The initial Bitcoin whitepaper was drafted by Satoshi Nakamoto. The paper sets out, in technical language, what a Bitcoin is and how it works. Nakamoto A movement was proposed was almost certainly a pseudonym for an individual or group that has never to create a peer-to-peer network to generate "a system for electronic been revealed. transactions without relying on trust" 2009 The Bitcoin network came online The first Bitcoins were issued and made available to anyone willing to help proce transactions in the Bitcoin ledger, or 'blockchain'. The way Bitcoins were claimed via this process became known as 'mining'. What is Bitcoin Mining? Mining is a misleading term, mined bitcoins are simply the reward for devoting computing power to administering the Bitcoin ledger by processing and storing transactions on the blockchain. Let's break that down... Somebody initiates a transaction. (i.e. buys something or sends money to someone). The transaction is bundled with others into a 'block', An alert is sent to everyone in the Bitcoin network. Those in the network 4. approve the transactions (if valid). Okay, this is where it gets a tiny bit technical... The header from the previous block gets inserted into the new block as a large piece of code, or 'hash algorithm'. ? + ? = ! %3D Those registered to the Bitcoin ledger (blockchain) are given the opportunity to solve this algorithm. The member who solves the algorithm wins brand new shiny Bitcoins and the transaction proceeds. The block gets added to a chain, which provides a record of all previous transactions. B The money is processed. How Do I Buy & Spend Bitcoins? If you don't fancy mining Bitcoin, you can buy them using legal tender (£, $ etc - also known as fiat currency) via a bitcoin exchange, such as Bitstamp or Coinbase. Bitstamp coinbase 1 BTC = $10K $ At the time of writing, the exchange rate was about $10,945 (or £8,165), but the volatility of the currency rendered this sentence obsolete after just one hour. You'll need to set up a Bitcoin wallet on your computer or phone and back up regularly to keep your coins secure until you are ready to spend them. Your Bitcoin wallet contains a private key that will be used in all future transactions: 12TFVXGDWF3GM SDjftnfKWpyEhgs W9DymN Once, Bitcoin was notorious as a payment method for illegal goods online, but now thousands of reputable companies accept Bitcoin. Etsy amazon.com WWORDPRESS Bitcoin Benefits It's easy to see why Bitcoin was so attractive to drug dealers and other nefarious merchants online. However, there is increasing interest in using Bitcoin for legitimate purposes, where traditional methods are problematic. No Bank Account Smaller Transactions Small online payments which would normally Bitcoin could be used in sending funds to people who don't have bank accounts or incur an additional or government IDs, such as recent immigrants. minimum fee if paid for with a credit card. Speeding Up Transactions Bitcoin has the potential to revolutionise the way banks deal with transactions, with plenty of banks and companies looking to invest in blockchain technology to allow cheaper, faster transactions and stock trading. 400 300 200 100 2014 2015 2016 2017 2018 2019 Estimated Bank Spending on Blockchain Technology Bitcoin 5 Ways the Bubble Could Burst Right now Bitcoin is an unpredictable currency; whilst adventurous investors see it as an exciting opportunity, the more cautious are already suggesting that Bitcoin may have had its day. Rivals % of Total Market Dominance Disagreements about how Bitcoin should work has led 2014 2017 developers to create their own offshoots with different rules and processes. Some of these rivals could potentially unseat Bitcoin as the king of cryptocurrencies. 93% Bitcoin 45% 7% Others 55% Increased Regulation Originally designed to avoid regulation by financial institutions, Bitcoin has made few friends with regulatory bodies. If Bitcoin gets too big, there's a chance the regulators could enforce a complete crackdown on it and other cryptocurrencies. 3 Historical Comparisons .com Bitcoin has many of the Price Feb 1637 hallmarks of previous 200 bubbles, such as the 150 dotcom bubble in the 1990s and the "Tulip 100 Craze" of the Netherlands 50 Nov in the 17th Century. May 1637 1636 Hacking Recent hacks of Bitcoin exchanges have exposed huge thefts of up to half a billion dollars. News of the hack caused Bitcoin values to dip, albeit briefly. 5 Technophobia The high technological barrier to entry has put many people off investing in Bitcoin. Despite operating in a similar way to virtual money on a bank's ledger, the idea of cryptocurrency is too hard a concept for many to grasp, leading to the assumption Bitcoin's success is merely a fad. Sources: entrepreneur.com nytimes.com bitcoin.org Brought to you by: bloomberg.com bitcoinmining.com CartwrightKing weforum.org forbes.com - SOLICITORS stackexchange.com wheretospendbitcoins.co.uk cartwrightking.co.uk $Million