Bitcoin is becoming increasingly popular, but starting out using the crypto currency can still be intimidating and confusing for newcomers. Here then are the answers to the five questions you always wanted to ask, but were too afraid to.
1. Who invented it?
The person who is credited with the creation of the crypto currency is known by the name Satoshi Nakamoto, and first appeared on online messageboards. The truth is though that nobody really knows who the maths whizz behind Bitcoin actually is.
Newsweek claimed that they had uncovered the real Satoshi in March last year, but the person they unmasked categorically denied involvement in Bitcoin, so the search continues.
2. How do you use Bitcoin?
Bitcoins can either be bought via an online exchange, or new ones can be created by a process known as mining. This requires computers to perform increasingly difficult mathematical tasks, and requires increasing amounts of comuting power..
The catch is that only 21m Bitcoins can ever be created, and so the process of mining gets progressively harder, with every desired new Bitcoin requiring a bit more computer power to mine.
Once bought or mined, Bitcoins need to be stored in a wallet, which has a private key – a secret piece of data to keep transactions anonymous.
3. What is blockchain?
The blockchain fundamental to allowing Bitcoins to be traded. The best way to think of it is the ledger recording every Bitcoin transaction, and it is held by every computer involved in Bitcoin.
Each executed transaction adds a new block to the chain, stored in chronological order, and linked to the previous one by hash. The blockchain allows wallets to calculate how much they have in them, and to make sure the buyer can complete their purchase.
4. Is Bitcoin only used for illegal purposes?
Bitcoin has a reputation as being the currency of choice for gun runners and drug dealers, thanks to Silk Road, the online market place where you could buy anything anonymously, whose creator faces life imprisonment.
However, the currency is being increasingly used for legitimate means. For example, you can now buy items on Amazon with them, as well as some other major retailers like Target, Whole Foods and Zappos.
Bitcoin ATM’s are also starting to appear too, although they are still quite rare.
5.Who regulates all this?
Until recently noone, and that is the way the Bitcoin users liked it. Part of the original idea is that it would alter the economy and politics fundamentally, and take power away from centralised regulators and governments. Many of the first users wanted to create what they considered a libertarian utopia.
Recently though the regulators have been fighting back, and the regulator in the US branded Bitcoins a commodity, imposing rules on how they are traded.