A Beginner’s Guide To Bitcoin and Blockchain
Earlier this year, we highlighted cryptocurrency as something to keep an eye on in 2018, but what exactly is Bitcoin?
A fact: more people are searching Google for information on Bitcoin than they are for the British Pound. That is perhaps unsurprising – after all, we all know what the coin in our pocket is and how it works. But what actually is Bitcoin? And why are people buying it?
What is Bitcoin?
Bitcoin is the original cryptocurrency. There are over 1,300 different types of cryptocurrency currently in circulation; a number which keeps rising as people attempt to imitate the success of Bitcoin – the first and largest one.
The difference between a Bitcoin and the pound in your pocket is that a bitcoin is purely digital. The “crypto” part of cryptocurrency stands for encryption, which is used to regulate the transfer of money from one person to another. This means there is no need for a middleman, so there are no transaction fees.
Bitcoins are not actually stored anywhere. When you own a bitcoin, you own a secret line of code called a private key. That key is used to let people know you control the bitcoin and allows you to access and move it.
What is Blockchain Technology?
The technology behind Bitcoin means that everybody can see all the transactions that take place, but without anyone having to share their real name. All the transactions made using Bitcoin are publicly stored in a ledger (called the blockchain) simultaneously across thousands of different computers, which is updated regularly.
A common analogy for the blockchain is a Google Sheet. Everyone can access and update the document at the same time, meaning there is greater transparency and trust. Traditional banking is the equivalent to sending an excel file to someone and waiting for their revision before you are then able to edit it again.
A force for good?
Despite the potential benefits to the way we make financial transactions, and the fact that bitcoin removes the need for a central bank, meaning the system is resistant to censorship, the network does have its darker sides.
The resistance to censorship and government intervention, while positive for those using it, means that the currency has a strong association with crime, and is used for money laundering and drug dealing online.
Another consequence of the currency is the environmental impact that it is having. Unlike the Pound, with Bitcoin there is no central bank to print more money. Instead, computers around the world compete to solve increasingly complicated mathematical problems. The winner then receiving an amount of bitcoin as a reward. This mining process is also used to validate the network, making sure that people aren’t spending the same money twice. Unfortunately, the computing power required is intense. The Bitcoin network is currently estimated to use 52.69TWh of electricity, which is nearly the same usage as the entirety of Greece. Cryptocurrency is proving to be an unexpected, but genuine concern to environmentalists
Should I Invest in Cryptocurrency?
At the moment, probably not. Bitcoin in particular had a large crash in January (although it is rising again) and remains a volatile investment. The Bank of England governor Mark Carney has also called for tighter regulation on Bitcoin and other crypto-currencies, so watch this space.