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Bitcoin and Cryptocurrency Technologies provides a comprehensive introduction to the revolutionary yet often misunderstood new technologies of digital currency.
You might be aware that GPU prices have skyrocketed in recent months. This is due in large part to the rise of cryptocurrencies, to which there are many. Bitcoin is the first and most popular one, but what is Bitcoin? We’re here to demystify the topic for you. While Bitcoin and cryptocurrency are incredibly deep and complex topics, in this beginner’s guide, we’ll not only explain what Bitcoin is, but we’ll also dive into how it’s created, discuss its use-cases, clear up misconceptions, and much more. Here’s everything you should know about Bitcoin and cryptocurrency.
What is Bitcoin?
Bitcoin is the first decentralized digital currency. You can send and receive it to an individual via a peer-to-peer payment system anywhere in the world as long as you have an internet connection. You can also purchase goods with it among several online sites and physical stores. Its decentralized design means that it isn’t controlled by any one individual, central bank, company, or country. In short, Bitcoin is an open-source international currency.
Who invented Bit coin?
Satoshi Nakamoto wrote the technical whitepaper to Bit coin in 2008 and the first Bit coin was produced the following year. It’s unclear who Nakamoto is, however, and there are rumors that the alias may represent more than one person.
What is the blockchain?
Bit coins are produced, or “mined”, by individuals with high-end computers that solve encrypted math equations over a distributed online database called the block chain. Whenever a Bitcoin transaction takes place, that data is encrypted and sent across the network for these mining computers to verify. They do so by decrypting the data. This process is known as cryptography and forms the backbone of security for Bitcoin (more on security later).
Can Bitcoin be hacked?
The way the blockchain is designed prevents Bitcoins from being spent again after they’ve already been used. The block chain also makes it very difficult to create new Bitcoins out of thin air. In conjunction with the cryptographic measures outlined above, the Bitcoin blockchain is based on a consensus proof-of-work model. This means that not only do mining computers have to provide answers to the aforementioned encrypted equations, but in order for data to be added to the blockchain, a majority of the mining computers on the network have to agree that the computations were correct. To overcome this, an attacker would effectively have to hack the majority of computers on the network (to which there are hundreds across the world) at the same time while providing mathematical proof of work. This makes Bitcoin incredibly hard to hack. Security is arguably the crypto currencies greatest asset. To date, Bitcoin has not been hacked.
Some exchanges that act as an online meeting grounds for buyers and sellers of cryptocurrency have been hacked, however. The Mt. Gox attack is the most notable one. In 2014, 850,000 Bitcoins were stolen from the Japan-based exchange. Users can mitigate their risk by taking their assets off of these exchanges and storing them in cryptocurrency wallets.
How do cryptocurrency wallets work?
There are two major types of cryptocurrency wallets. Perhaps the most accessible are digital wallets that act as an online address for you to store the keys to your Bitcoins/cryptocurrencies. USB-based hardware wallets allow you to store your keys offline and are generally deemed more secure as a result.
One common misconception is that these wallets store your Bitcoins/crypto currencies, but they only store the keys (passcodes) that allow you to open up your Bitcoins on the block chain network so you could transfer them elsewhere.