Bitcoin Basics

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By Selena Garrison

Bitcoin. Have you heard of it? Aside from seeing some super tech savvy friends talk about it intermittently on social media, I hadn’t really paid too much attention until recently. I tend to be completely in the dark on the latest tech-y talk, and as it turns out, I’m about eight years behind on this topic, too! So, if you are like I was (or perhaps have no clue what I am even talking about), this article is for you!

What is Bitcoin?

It is hard to really understand the nature of Bitcoin without a basic understanding of the nature of a blockchain, so we will start there. In short, the Bitcoin blockchain is a digital ledger where Bitcoin transactions are recorded chronologically and publicly. Every participant in the ledger verifies and approves any change to the ledger, which makes transactions secure and transparent. This ledger records the owner of each Bitcoin balance in the world, and when you make a Bitcoin transaction, you are basically telling the system that you want to transfer a balance of Bitcoin in the blockchain from one owner to another.

As I mentioned earlier, Bitcoin transactions are relatively anonymous. In the blockchain, Bitcoin owners are not identified by name. Instead, they are identified by a string of characters called a digital address. So, if you want to transfer 100 Bitcoin for whatever reason to some person in Hong Kong, you request that the balance of Bitcoin at your digital address be reduced by 100 Bitcoin and the balance of Bitcoin at that person’s digital address be increased by 100. You then use a private code that acts as a digital signature to confirm that you own the publicly viewable digital address that the Bitcoin is being transferred from. This effectively allows for an anonymous exchange between two people without ever revealing who those individuals are in the real world. Bitcoin is its own currency, so its relation to the dollar is always changing. At the time of publication, 1 bitcoin was worth $4,134.46. At the beginning of 2017, the value of 1 bitcoin was just under $1,000

Who uses it?

If all of this sounds a bit sketchy to you, that is because it can be. In fact, Bitcoin exchanges have been used extensively for dealings in drug trafficking, human trafficking, and all other manner of shady underground transactions.

The key attraction of Bitcoin lays in the blockchain, which allows for easy peer-to-peer transactions, removing the middlemen from the kind of business deals we are all used to. Want to manage your assets or execute a contract without a lawyer? The blockchain could do it. Maybe you are an artist who wants to get paid directly, immediately after someone purchases a print. Bitcoin could do that, eventually.

“Realistically, there isn’t a compelling reason for the average person to use Bitcoin in place of traditional currency, but there are a few cases where it might make sense,” Mike Cushing of 352 Inc., a custom software development and innovation agency, said.

“Bitcoin value has had some ups and downs,” he said, “but since it has gone up pretty reliably over time, some people use it as an investment vehicle.” In addition, Cushing shared that Bitcoin could be particularly useful for transferring money to family or friends overseas without using banks and incurring exchange fees. “Since Bitcoin is a peer-to-peer transaction, it may also be appealing to vendors and merchants who don’t want to deal with delayed payments or the fees charged by credit card companies,” he said. “It would be particularly useful for small retailers, like convenience stores, who make a lot of small transactions. But the rapid change in value might scare off retailers who rely on predictability.”

Is cryptocurrency better than real currency?

While cryptocurrencies like Bitcoin are definitely changing the landscape of the financial industry as we know it, there is little practical real-world application for its use by the average person in today’s market. And since Bitcoin is not insured by any agency like the Federal Deposit Insurance Corporation, security is a huge issue. “Most of the practical uses for Bitcoin and blockchain are probably five to 10 years away for most people,” said Cushing. “But it will likely be a big game changer across all kinds of industries beyond finance, from shipping to legal.”