At the time of this writing in 2020, almost everyone has heard of the term "Bitcoin". Whether it's some abstract thought of a digital picture of a coin or trying to figure out where to insert the coin into your computer, the boon of 2017 had the world a buzz about this idea that inflated to almost $15,000 a piece. Bitcoin started in 2008 with a published whitepaper by an anonymous source simply named "Satoshi Nakamoto". As of now, no one knows who Satoshi is or whether its an individual or a group of people. This open source system seeks to allow two people to exchange money without the need for a third party financial institution.
To understand Bitcoin, first we have to look at the traditional banking system. Two parties seek to exchange money through a trusted third party, be it a credit card company or an individual bank. Disputes and transaction fees tack onto the transaction, making it almost impossible to validate the transaction completely for 100 percent of its value. A $10 charge could tack on a $0.95 cent fee for use of another ATM, or a customer could call the bank and say "I didn't make this charge!"
Bitcoin seeks to resolve that. A transaction between two people is logged onto a public ledger, called a "blockchain". Another person validates this transaction and is rewarded with a "coin". This adds trust to the chain of events, with a person seeking to earn more coin rather than to try and get their transactions back.
What is a Blockchain?
A blockchain is merely a chain of transactions, linked by a proof-of-work system that allows a third party to say "Yes, this transaction did happen". These are timestamped and cannot be altered. Once a transaction has been completed, it's locked forever into the public ledger and cannot be changed. This eliminates the need for a financial institution, allowing the users to validate the system.
The way I like to explain a blockchain is like this. Let's say there is a street (we'll call it Blockchain street). This street has a chain of houses. You don't technically "own" the house, meaning you can't physically pick up the house and move it to another location. Instead, you have a record that states you are the owner. If we add a line to these records, stating who your neighbors are on either side, that further validates the information.
If it's public, does this mean someone can steal my information?
Yes, and no. Each transaction has a public key, a series of characters that says where a transaction is coming from and where it's going to. Each public key also has a private key that is not published. Since a blockchain cannot be changed, it's impossible to remove a transaction. A user would have to take this "coin" and reassign it to themselves. Without this private key, though, it is near impossible for someone to hack into your "wallet" and steal your funds.
Using the previous example, let's say those houses all have a public record with the Register of Deeds that says this is their house. While it's impossible to replace the name on the deed publicly to say "No, this is my house!", instead a new record would have to be made to transfer the ownership. The private keys would act as signatures, stating that both parties agreed to the transaction.
In short, don't share your private key! Physically write it down somewhere. Don't copy and paste to a Notepad file or (even worse) onto your online notebook. There have been instances of people doing this, where someone hacked into their online files and stole the private key. This allowed someone to transfer millions of digital money. We will go more into public and private keys later when we start talking about wallets.
How is this Bitcoin created?
As a reward for each block of information being validated, a user is given a virtual "coin" as payment for validating the system. The value of this coin changes, depending on several key values of the particular system. Some people have dedicated mining computers. These machines sole purpose is to validate transactions and earn bitcoins in the process. Because of the length of the blockchain, these machines cost a lot of money and use a lot of resources to work through the transactions. Those that were lucky enough to mine the coin early on could use a souped up personal computer. Now, these machines have to utilize special methods to cool down the processor and continue working through the system.
There are apps and programs that allow you to mine bitcoin on your phone or personal computer. The reality is that these apps display ads that contain value, and exchanges this value for whats called a Satoshi. A Satoshi is worth 0.00000001 bitcoin, so you would have to watch a lot of these ads to generate enough for an entire bitcoin, and these apps often limit the amount that can be redeemed per day. In short, if the end goal is to obtain an entire Bitcoin, it's probably not worth it.
