Bitcoin has been all over the news thanks to its rapid price rise. Even people who were unaware of digital currency are now asking how bitcoin works. However, even for people who are familiar with the concept, some facts might come as a surprise.
Satoshi Nakamoto is credited with having created the bitcoin. There is plenty of debate about it though. Some people claim that the creator is someone else. Others believe that the real Satoshi Nakamoto has not made a public appearance. The one fact that seems certain is that the creator of bitcoin holds a million coins.
Most users know that bitcoin can be mined. This is the only way to put new coins into circulation. However, too many coins can lead to devaluation. That is why the mining algorithm becomes complex, as more coins are mined. In crypto terms, this is known as mining complexity. It ensured that too many coins do not flood the market at the same time. Users are not sure what conditions the algorithm puts on the mining process.
It is believed that bitcoins are being held by just a few people. As it happens with any resource in the hands of a tiny group, there are fears that bitcoin may crash soon. The unbelievable price rise of the currency also seems too good to be true, if predictions are to be believed.
The power consumption for maintaining digital currencies has been one of the points of criticism against the currency. Bitcoin is one of the currencies that consume plenty of power. It takes power from user computers, and this adds to a massive amount of power taken to sustain the currency.
The first transaction based on bitcoin was a pizza order, which cost a few thousand bitcoins back in 2009. Today, a single coin costs $10,000. It is sobering to look back at the journey of the currency.
One of the major features of the bitcoin has been the near-perfect privacy it offers. Buyers and sellers who want to remain anonymous therefore prefer the bitcoin for transactions. The algorithm makes it easy to send to send the currency via a code, instead of mailing address. While this has generated concerns about misuse, Bitcoin remains the currency of the future for many.
Unlike traditional currency, bitcoin can be exchanged in parts. Instead of giving up an entire coin, you can trade the bit of it. This ensures that high-value coin can be used to purchase small value items. This gives users plenty of flexibility. They can hold on to the high-value coins without breaking it up by exchanging it for another currency, before paying for small value items.
While currently, the bitcoin is in the news for its high price, things were different just a few years back. The bitcoin took a steep dive in 2014 in terms of value. Too many coins flooding exchanges led to the loss of value. Current safeguards to protect against similar loss of value might work.
It is not easy to hold on to the coins. This technical difficulty may be the deterrent for investors and buyers. The bitcoin needs to be stored in a virtual wallet. The wallet needs to be guarded against accidental trade, since the coins, once sent, cannot be retrieved. Similarly, for miners, it is important to claim coins as blocks. Otherwise, they could lose the coins. Handling the coins can require a learning curve that needs to be mastered first.
Bitcoin is increasingly coming into focus in association with celebrities. Many large brand names and famous people are associated with the currency. Some hold the currency; others hold shares in firms that handle the currency, and so on. This has helped boost the profile of the currency.
The blockchain is considered secure for storing sensitive data. According to promoters, the blockchain cannot tamper easily. This makes the bitcoin algorithm highly reliable. So much so, that many new digital currencies are based off the blockchain. As more research is carried out over how the blockchain works, there will be more understanding around the strengths and possible weaknesses of the blockchain.
The price of bitcoin has led to comparisons with gold. In particular, the value of bitcoin gaining over the value of one ounce of gold was an impactful moment in the history of the currency. While it did not mean in terms of economics, it heralded a change in how the digital currency was perceived.
As more interest centers on the bitcoin, developers are going to look at more ways to base currencies off the blockchain. Bitcoin has shown the path to a new possibility, where how economic transactions are carried out is set to change.