What is bitcoin?Geekheads Team
Ahh, bitcoin. Has there ever been a technology that is more talked about but less understood? It seems no one can quite work out whether bitcoin is the currency of the future or just a pyramid scheme to help tech bros get rich quick. We don’t have the answer to that question yet, but we can help you know what to say when your nan tells you she’s considering cashing in her pension and going all-in on cryptocurrency.
Alright, what is it then?
Bitcoin is a kind of digital money. But unlike normal cash, it isn’t printed by a government or stored in normal bank accounts. Instead, people who own bitcoin can directly transfer it between themselves without having to go through a third party (like a bank).
So I can pop to the shop and pay with bitcoin then?
Probably not, sorry. Unless you hang out at some seriously hipster cafés. Bitcoin hasn’t really caught on as a payment method because it takes ages to make transactions and its value is all over the place.
Oh, that’s no good. But it is an easy way to get rich quick, right?
Nope. The value of a single bitcoin is about 17 times more than it was at the start of the year, that’s true, but many economists think that this rapid growth is just a bubble, and the price is going to come crashing down again soon enough. You’re better off keeping your money in your old-fashioned bank account.
But what if I did want to get some… I’m asking for a friend.
There are plenty of places to exchange your pounds, euros and dollars for some virtual currency. Websites such as Coinbase are a lot like currency exchanges – they buy loads of bitcoin at a time and then sell it on to individuals. Other websites match you up with an actual person that’s selling bitcoin, and you can transfer money to them. In almost all cases you’ll have to pay a transaction fee and have your identity verified by providing some ID. And there’s always mining…
Mining sounds fun. I’ll see where I left my pickaxe…
Hold up, it doesn’t work like that. Mining refers to the way that the computers that run the bitcoin network verify transactions by running some complicated calculations. Basically, all these computers across the world record all the different bitcoin transactions that take place, forming a public record of every single time anyone has ever sent or received bitcoin. This is a really difficult task, requiring highly specialised (and expensive) computers, so the owners of these computers are rewarded with tiny fractions of a bitcoin as a payment for running the network. That’s mining.