Things you need to know about Bitcoin

Things you need to know about Bitcoin

Bitcoin works on the premise that anything can be turned into a currency as long as everyone accepts that the thing being monetized is worth money. It’s complicated I know.

So, let me break it down.

In prisons, cigarettes are sometimes used as currency. They are traded between inmates as payment for goods and services. In this scenario, cigarettes are money.

How does Bitcoin Work?

Let’s stick to our cigarette example.

Cigarettes

We meet in the prison yard one morning and I buy a magazine from you, I pay you three cigarettes.

The cigarettes go from my hand into yours and the transaction is complete.

How do you know you really have the cigarettes? Well, they’re in your hand. You cannot dispute that I’ve paid you.


Now, let’s say that I want this magazine but I don’t want anyone else to know I have it. So, we use the computers in the Prison Library to keep the transaction private. You send over a digital copy of the magazine.

Prison Guard


I cannot give you the cigarettes in person, as we might be discovered. Instead I send digital cigarettes over on the computer.

Have you been paid?

You see the digital cigarettes, but I could have duplicated the digital cigarettes and sent them out to everyone to pay them for different services. Thus, making the digital cigarettes worthless.

The same applies to any digital currencies.

How do you know you actually have the money?

Well a record would have to be kept of all transactions. This would show who had position of the cigarettes and when. 

Great! Is the problem solved?

Bitcoin
Unfortunately, not. I kept the records and became greedy. Adding a few more digital cigarettes to my pile every now and again.

How do we stop people from adding digital cigarettes to their pile?

Well we make the records public. That way everyone can see all of the cigarettes ever in circulation.

If 100 digital cigarettes were in circulation and I added 20 to my pile, the numbers would not add up and everyone would know what I’d done.

In 2017 Bitcoin traded in excess of $3 billion in Bitcoin every day. Making the record of these transactions huge.

Certain people are paid in Bitcoin to monitor the system and record the transactions and these people are called Miners.

These Miners are highly intelligent, working through complex math’s problems to maintain these records. All of the transactions are distributed to all of the Miners, and the Miner that can reconcile the records the quickest gets paid in Bitcoin.

This is the only way that new Bitcoin gets added to the system.

So, is Bitcoin anonymous?

It could be.

The problem with conducting transactions in Bitcoin is that you have to buy the crypto-currency.

Anonymous

To get in to the system anonymously, someone would have to transfer you Bitcoin. As any type of 'buy in' usually requires some form of ID.

Once you own Bitcoin though, it can be very anonymous.

You will have unique addresses; these addresses allow you to send and receive Bitcoin to other users using the address they give you.

You can have as many addresses as you want to. After performing a transaction using one address, it is recommended you get a new address and conduct your next transaction from there.

This constant change of addresses makes it very difficult to track where funds are originating.

You will need to hide your IP address though, as this can still be used to identify you.

Is it untraceable?

Traceable

Not entirely no.

Many agencies and individuals are working to create software that can trace these transactions and one day they may succeed.

However, as tracing software advances, so does the mining software that keeps users anonymous so the battle is ongoing.

Other spending patterns could be used to trace a user, for example if you have 5 Bitcoin at one address and you send 3.5222 Bitcoin to another address and send 1.5888 Bitcoin to a further address it could be assumed that one of those two addresses you are sending currency to is your new address.

Remember, these transactions are available for everyone to see.

Is Bitcoin legal currency?

Legal

The answer to this varies from country to country. Many countries see it as an investment as opposed to recognizing it as legal currency.


I want to buy Bitcoin, where should I go?

We recommend speaking to an investment specialist before deciding to put your money anywhere. One day Bitcoin may no longer be valuable and you may lose money. It is always best to seek professional advice.

List of useful links:

https://www.theguardian.com/technology/bitcoin

https://www.coindesk.com/price/

https://www.ft.com/bitcoin


Written By Yazmine Howes

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