Bitcoin. Mining. Blockchain. You keep hearing these words, over and over. “Bitcoin is rising!” Ok… but what even is Bitcoin? What does all this mean? Don’t worry. We understand. It can be difficult to get your head around the fundamentals of cryptocurrency.
Due to the rise in popularity of the use of cryptocurrencies, especially Bitcoin, more and more people want to know how it works. It is likely most people will be interested in learning how to benefit from using cryptocurrencies. So, we have put together a comprehensive guide explaining everything from what it is, to how you can use it.
What is a Cryptocurrency?
A cryptocurrency is a digital currency that uses cryptography (the process of converting plain text into unintelligible text and vice-versa). Essentially, they are just lines of computer code that hold monetary value, created by electricity and high-performance computers.
As digital currencies are not controlled by a bank, it is immune to government interference or manipulation. Cryptocurrency transactions are open source and controlled only by code. They rely on “peer-to-peer” networks, meaning that the transactions are facilitated through the use of public and private keys for security purposes.
Bitcoin was launched in 2009 by an individual or group know under the name Satoshi Nakamoto. The idea was to create a means of exchange that was independent of any central authority that could be transferred electronically.
At the time of writing, the number of bitcoins in circulation is 16,859,188 with a total market value of £107,102,131,012. Once you own bitcoins, they hold value and trade just as if they were little pieces of gold in your pocket.
Bitcoins that you own will be stored in your own digital wallet, which is a small personal database that you store on one of your devices (computer, smartphone, tablet or in the cloud). Importantly, Bitcoin and other cryptocurrencies (Altcoins), would not work without blockchain technology.
Blockchain is the technology that is used to verify transactions. It does this by creating a record that cannot be altered or removed in any way. The ‘block’ refers to a complex mathematical problem (called a hash) which computers aim to solve. Once solved, the block is ‘complete’.
The term ‘chain’ is taken from the way the data from a previous block is used to create a new block, which creates a link. On average, a new block is added to the blockchain every 10 minutes, through mining.
Still with us? Do you remember the complex mathematical problem called a hash? Miners are those people who solve these mathematical problems. To be a miner, you will need the correct graphics cards to provide the processing power for mining and a powerful computer that is able to solve very complicated problems.
However, these computers cost money and require a lot of electricity. As an incentive for people to mine, miners are rewarded for this work through receiving new coins or transactions fees, or both. Mining essentially verifies the transactions and adds them to the blockchain.
How Secure is Blockchain Technology?
Data cannot be overwritten, meaning data manipulation is impossible. Blockchain technology secures data and eliminates a centralised point that cybercriminals can target. The decentralised nature of blockchain has resulted in it becoming increasingly popular beyond its original purpose to support Bitcoin transactions.
Sounds impressive doesn’t it? A secure, digital, decentralised currency. What could go wrong? Don’t be fooled! There are still some challenges that blockchain needs to overcome, with regards to compliance, regulation and enforcement.
How Can You Get Started?
If you own a supercomputer you will be able to mine Bitcoin, but due to the expense of these computers, the easiest way for most people to get involved is by signing up to a Bitcoin wallet service. Some of the most popular services are Coinbase, Blockchain.info and Xapo which you can use on desktop and mobile.
Once you’ve signed up to a digital wallet, you can start investing in Bitcoin. Each service will have a feature that provides you with a graph which shows the changes in Bitcoin’s value over time, so you can make the best investment decisions.
The value of cryptocurrencies is dictated by the climate of the current market. Proceed with caution – the value of Bitcoin is extremely volatile, with the ability to plummet as much as it soars up. Therefore, only invest what you are willing or able to lose.
Wi-Manx can provide crypto mining and colocation of your hardware for your mining operation. Our Isle of Man datacentre offers the latest cooling techmology, cold-aisle containment and first-class security systems.
Ever wondered how WiFi actually works? Check out our recent article – WiFi: How Does It Work? And Is It Dangerous? – to find out!