What is bitcoin?

Words such as «cryptocurrency» and particularly «bitcoin» have lately been heard coming from just about everywhere — television, radio, even your colleagues. More and more Anglicisms are coming into active use in many native tongues all over the world. The process has gone so far that you put yourself at risk of getting into an awkward situation, if you don’t know the meaning of this or that borrowed word (which just a couple of years ago was part of only programmers professional jargon). But what are those who don’t know much about the intricacies of the financial system mechanics or are generally non-tech savvy supposed to do? Read this article to the end, as we are going to discuss in detail what bitcoin is, learn the history of its origin and touch upon some technical aspects of this subject.

Crypto... what?

You may have already heard that bitcoin is an electronic cryptocurrency, but what is behind this term? Let’s figure it out. Cryptography is the science of confidentiality, in other words, it studies data protection methods. Similarly, the word «cryptocurrency» can be deciphered as «confidential currency». As you can see, everything is simple. «Bitcoin» is also a compound word, its first part — «bit» — indicates that it is related to the computer sphere, the Internet, and «coin» means a piece of metal used as money. Summarizing the aforesaid, we conclude that bitcoins are money just like rubles or dollars, but they exist only in electronic form, and all bitcoin transfers from one person to another remain fully anonymous, and nobody other that the parties to a transaction can influence this process.

History and background

Many other countries’ currency notes have similar warnings, but unfortunately they have never stopped counterfeiters. Money counterfeiting has always been the mankind’s big vice since ancient times. No wonder that science fiction writers and scientists have long dreamed of creating money that could not be counterfeited, but this idea was implemented only in 2008 by a programmer named Satoshi Nakamoto.

It is not known for sure whether it is his real name or a pseudonym (there is also a theory that a whole group of people go under this name), what is important is that Mr. Nakamoto, whoever he may be, has managed to fulfill the mankind’s long-cherished dream of creating a currency that could not be counterfeited. Moreover, bitcoin is immune to wear and tear or inflation, and last, but not least, it is not controlled by the state, which makes it the most democratic currency in the world. It is achieved by the unique encryption methods underlying this ambitious project. The first ever bitcoin transaction was made on May 22, 2010, when someone used bitcoins just to buy pizza. However, this fact undoubtedly marked the beginning of a new era in the history of mankind.

Mining and how it works

Bitcoin is essentially a source code generated as a result of computing operations performed by a computer. The use of your computing capacities to «mine» for coins has been called mining, just as they mine for gold or other minerals. The system is designed in such a way that getting each new coin requires more and more computing powet, so this cryptocurrency is becoming increasingly expensive over time. Whereas previously a simple PC which cost next to nothing could be used to mine bitcoin, now mining requires major equipment and the coin’s rate has skyrocketed up to 6.5 thousand US dollars reaching 20 thousand dollars at its peak. There is another way of getting bitcoin: it can be bought with normal money or other cryptocurrencies at the exchange.

Your guess is right: the success of bitcoin was followed by the emergence of other cryptocurrencie that differ from it in a great variety of details, but it is a whole different story...