In 2009 a mysterious and as yet unidentified figure named Satoshi Nakamoto unleashed the Bitcoin onto the world. As far as currency goes it is a far cry from the metal coins jangling in your wallet. Bitcoins are purely digital and are created using something called cryptography – a process that involves a lot of maths and computing.
What makes Bitcoin unique is that there is no bank, individual person or government that controls the production or use of Bitcoins. Millions of Bitcoins are exchanged across the globe for all manner of goods and services and this Bitcoin network is controlled by the very same people making those transactions – the Bitcoin users.
So how does it work? The first thing you need to use Bitcoins is a Bitcoin wallet. Once you’ve downloaded this digital wallet onto your computer or phone you can fill it with Bitcoins by visiting a Bitcoin exchange online. Here you can hand over some real money in exchange for some Bitcoins. When you buy something with your Bitcoins, this transaction is noted down on a ledger that is publically available. The ledger is called the ‘block chain’. The public ledger notes down where the Bitcoins came from (your digital wallet), how many were sent, and where they ended up.
Sending Bitcoins from one place to another requires computers that are able to handle these transactions and this is where the Bitcoin community comes into play. You can buy a special machine called a Bitcoin miner, download some software onto your computer and then offer up the power of your computer to help make these transactions happen. Your reward for doing this – Bitcoins, of course. This is called ‘mining’ and is another way you can get hold of some Bitcoins.
Unlike credit cards that often fall victim to fraud as your personal details are stolen, Bitcoin transactions don’t contain any of your personal information and so remain anonymous. Other advantages include being able to make transactions at any time you want as the Bitcoin network is always ‘open for business’. With no individual or organisation running the show and a publically available ledger that anyone can take a look at, the Bitcoin network is said to be completely transparent. However this comes with a downside; with no formal organisation to keep Bitcoin in check aside from its users, the Bitcoin has been criticised as an easier way for criminals to buy illegal goods and fund illegal activities.