If you haven’t heard of Bitcoin: have you been living under a rock? Most questions about it surround the current Bitcoin price, but how many people even know what Bitcoin is? How many understand the technology that backs it?
It’s safe to say people have heard stories about its volatility as aninvestment. Others know that there’s a blockchain involved. Let’s take a deeper look at Bitcoin and find out what it’s all about.
You can’t talk about Bitcoin without talking about the blockchain, the ground-breaking tech that made all of this possible in the first place. After all, there were other attempts at an online cryptocurrency in the late 1990s, but the technology just wasn’t there.
When Satoshi Nakamoto – possibly an alias – created Bitcoin in 2008, the idea was simple, but the execution was anything but. The goal became to create a decentralized currency that didn’t need backing by a government or bank to make it viable.
This became possible because of the blockchain technology. The blockchain would house peer-to-peer transactions, but wouldn’t need intervention from any single entity. The two parties in the agreement each received an encrypted passcode and, when the transaction was finalized, it would become an unaltered part of the chain.
So, we know about the blockchain and the general idea behind cryptocurrency. How are coins created? Is it like the U.S. Mint, where bills can be created whenever they’re needed? The cool thing about Bitcoin is that there are technically a finite amount.
The process of creating coins is called mining. It’s not just something anyone can do, as it is extremely expensive and complicated. The technological power needed to create an adequate mining situation is something that takes time and a lot of money to create.
Miners, in order to add a block to the chain, have to solve these super complex math problems. To do it, they need processing power that can figure these problems out. Miners need to be the first to get to the answer in order to successfully mine the coins.
The thing is that the difficulty only increases as more miners sign up to attempt to mine coins. The hardware needed to do Bitcoin mining is called application-specific integrated circuits (ASICs) and they are extremely expensive ($10,000+). That’s not even mentioning how much electricity it takes to mine coins.
One thing that makes Bitcoin so unique is that there aren’t an infinite number of them. When it was created, Bitcoin allowed for only 21 million coins to be mined. Since then, over 19 million have been successfully mined and put into circulation. That means there are roughly 1.6 million coins that haven’t been mined yet.
There are roughly 900 new coins produced each day, and we have already reached more than 92% of the total coins having been mined. What happens when all of those coins have been mined? What kind of impact will it have not only on Bitcoin, but altcoins as well?
Even the “experts” don’t really know. It’s believed that miners will earn by charging transaction fees on the blockchain, but that’s still uncharted territory. We are rapidly approaching that date and are working on assumptions more than anything else.
We are roughly 15 years out from the creation of Bitcoin, and there are more questions than answers. It’s made a lot of people rich, but there are more than a few horror stories about investing in Bitcoin, too. What does the future hold for this revolutionary creation?