Let’s talk about Bitcoin. Bitcoin (BTC) is a form of online currency that operates on a peer to peer electronic cash system. They can be transferred from one computer (or Smartphone) to another without the need to go through financial institutions. The transactions are public, and free from prying government eyes (and tax collectors *wink*), although some US authorities have started monitoring bitcoin clients and service providers. The processing of bitcoin transactions is secured by some central servers which communicate over the internet, and confirm transactions by adding them to a ledger. Updates to the ledger are shared over a peer to peer network and archived periodically. In addition, each new ledger update creates some new bitcoins. The number of bitcoins added to the system is governed by a formula. Nodes on the network are programmed to increase the money supply according to a predetermined schedule until the total number of bitcoins reaches 21 million.
“So how do I get my paws on this tasty currency?” you ask. Well, you have to become a miner(Not the beefy, strong armed type though, no heavy lifting required thankfully). Obtaining new bitcoins is referred to as mining because it is much like sifting through a large number of possible bitcoins until you find a real one. And although anyone can do it, mining requires a large amount of processing power.
Since the creation of the bitcoin protocol in 2008 by Satoshi Nakamoto (nice fake name),the mining process has seen massive jumps in the computing power used. Initially, Bitcoin mining was carried out on CPUs (central processing units) of computers. But this turned out to be too slow. So miners turned to GPUs. A GPU (graphics processing unit) is a special processor used by a computer to handle graphics related tasks e.g.video rendering. This is because such tasks require a lot of calculations to be carried out simultaneously, and regular CPUs aren’t just cut out for that stuff. A GPU has a lot of cores (hundreds), and each core can execute the same calculation as all other cores at the same time. So the miners use regular, commercially available GPUs such as AMD Radeon or NVIDIA Geforce to run the billions of calculations required to mine bitcoins, and if they are successful, are able to mine one bitcoin every few days. Yes, the calculations are that many.
As bitcoin became more popular, and more expensive, the demand for more digital gold grew. Miners had to look for new strategies to produce bitcoins faster, and they decided to use FPGAs (field programmable gate arrays). These are chips that can be configured to run a particular task (such as bitcoin mining calculations) repetitively, and at high speed. They are preferred to GPUs because of their lower power usage.
Nowadays, most bitcoin miners use ASICs (Application Specific Integrated Circuits), which are custom built to accomplish one task and one task only. Unlike FPGAs, ASICs cannot be reconfigured to perform other tasks later in their lifetime. An ASIC designed to mine bitcoins can only mine bitcoins, and will only ever mine bitcoins. Kinda like soldier ants (sad life, eh). Anyway, these ASICs offer a massive speed increase to the bitcoin mining process, and an added bonus of reduced power consumption.
Now that we know how bitcoins are made, let’s look at how they’re used. A user can have one or more bitcoin addresses from which bitcoins are sent or received using a digital “wallet”.This address is actually a public key, which is visible to any other user of the system, but for a transaction to be verified, the users involved also have to provide matching private keys, which are usually stored on their own devices, such as mobile phones or PCs. Some vendors offer banknotes and coins denominated in bitcoins, but these are really just bitcoin private addresses.
Bitcoins, as a currency have no intrinsic value, and the price is governed by the willingness of the owners to hold on to them. However, as the price rises,owners become more willing to hold on to them, and so the prices rise and so on. Bitcoin prices have also been known to fluctuate wildly; in April 2013, for example, the price of BTC fell from $266 to around $50 before stabilizing around $100, all in the space of a few weeks.
The anonymity associated with bitcoin transactions has made the currency a target for use by shady individuals and criminals. Others simply use bitcoin to hoard their money, and the fact that total USD value of bitcoins in existence is in excess of $1 billion shows that this number of people is significant
Whatever your views on bitcoin are, it just goes to show how much technology has changed the way we interact with each other. Would you consider using bitcoin? Let us know in the comments section below. Adios!!
Author: Ope Akapo
