Bitcoin is a cryptocurrency and also a digital payment system invented by Satoshi Nakamoto and released in 2009. Bitcoin has seen a steady growth since 2009 followed by a more rapid growth in recent months (as of June 2017). It has been gathering a lot more media recognition, this and its soaring prices has garnered the attention of the general public.
How does it work:
Bitcoin is a peer to peer system which means users make direct transfers with each other without the need of intermediary. The transactions are then verified by nodes on the network and are recorded on a public ledger known as a blockchain. The maintenance of this blockchain is distributed across random nodes making the system extremely secure and hard to hack. New Bitcoins are obtained through mining which becomes ever more difficult as new coins are found. This mining doubles up as maintenance of the blockchains. Currently it requires a large amount of specialised equipment to have any hope of mining a significant amount.
Bitcoin mining has changed dramatically over the years. Initially you could make some coins mining on your old laptop. From that point it moved on to rigs with high performance graphics cards and GPU mining was the way to go. Now days its all about large mining rigs with multiple high performance graphics cards or specialised ASIC mining chips. Mining has become a game of balancing electricity costs, the changing price of bitcoin and the investment cost of the rigs vs the profit of spending that money on bitcoins and doing nothing.
Bitcoin wallets store the information necessary to transact bitcoins. Due to the nature of the system, bitcoins are inseparable from the blockchain transaction ledger. So while practically wallets hold your bitcoins in reality they hold your digital credentials for your bitcoin holdings and allow you to spend or access them. There are a few types of wallets available.
Online wallets are where a company will host the wallet for you and provide an interface for you to interact with the wallet and access from anywhere. They are convenient and good for people starting out with cryptocurrency but do open you up to wallet thefts if the people running the service decide to shut down and run with your money.
These wallets store the credentials offline. Examples being paper printouts or data files on flash drives.
These clients verify transactions directly on a local copy of the blockchain (over 110GB June 2017), or a subset of the blockchain (around 2GB.) Due to the size of these this type of client is not suitable for all users and may only be beneficial to traders and businesses.
Lightweight clients consult with a full client to make transactions without a local copy of the blockchain. This makes them much faster and easier to use for general users.
Transaction fees are optional but miners can choose which transactions to process and prioritise getting the higher fees. Fees are based on the storage size of the generated transaction, which is dependent on the number of inputs used to create the transaction.
|Unit||Value in BTC||At $100 per BTC|
Blockchain blocks are limited to one megabyte. This limit has created issues for transaction processing, such as increasing transaction fees and delayed processing of transactions larger than a block. Bitcoin Classic and Bitcoin Unlimited aim to solve these issues/