IN its short years of existence the cryptocurrency Bitcoin has seen a meteoric rise in its value punctuated by some dramatic falls making hundreds of early investors extremely wealthy.
But what is it, how do you use it and is it safe? Here is everything you’ll need to know…
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What is Bitcoin?
Bitcoin is a virtual currency that was created in 2009 by an unknown computer whizz using the alias Satoshi Nakamoto.
Individual Bitcoins are created by computer code and their total value is thought to exceed £251.8billion.
Transactions are made without middlemen, so there are no transaction fees and no need to give your real name.
More businesses are beginning to accept them and in some parts of the world, you can even buy pizza with Bitcoins
You can set up a virtual wallet website like Blockchain to store, keep track and spend your digital money.
You are also able to purchase Bitcoin through an online exchange or Bitcoin ATM.
Bitcoins aren’t printed, like pounds, dollars or euros – they’re produced by people, and increasingly businesses, running computers all around the world.
To find merchants that accept Bitcoin in the UK click here.
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How do Bitcoins work?
To process Bitcoin transactions, a procedure called “mining” must take place, which involves a computer solving a difficult mathematical problem with a 64-digit solution.
For each problem solved, one block of Bitcoin is processed.
In addition, the miner is rewarded with new Bitcoin.
To compensate for the growing power of computer chips, the difficulty of the puzzles is adjusted to ensure a steady stream of new Bitcoins are produced each day.
There are currently about 16 million in existence.
The Bitcoin protocol – the rules that make Bitcoin work – say that only 21 million Bitcoins can ever be created by miners.
However, these coins can be divided into smaller parts with the smallest divisible amount one hundred millionth of a Bitcoin.
This is called a “Satoshi”, after the founder.
To receive a Bitcoin, a user must have a Bitcoin address – a string of 27-34 letters and numbers – which acts as a kind of virtual postbox.
Since there is no register of these addresses, people can use them to protect their anonymity when making a transaction.
These addresses are in turn stored in Bitcoin wallets, which are used to manage savings.
How do I buy Bitcoin and how much is it worth?
Several marketplaces called “Bitcoin exchanges” allow people to buy or sell Bitcoins using different currencies.
Japan-based Mt Gox is the largest Bitcoin exchange. It was launched in July 2010, and by 2013 was handling 70 per cent of all Bitcoin transactions.
People can also send Bitcoins to each other using mobile apps or their computers in the same way people send cash digitally.
The value of Bitcoin, like all currencies, is determined by how much…
Read more:Bitcoin explained: What is it, how do you buy it and is the cryptocurrency safe?
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