Bitcoin has been in the news a lot recently.
Firstly, because at times this year it has been more valuable than gold but also because it is the currency of choice for cyber criminals the world over.
But what is Bitcoin, why do hackers and cyber criminals demand it and why has its value nearly doubled in less than 12 months.
Here is everything you need to know:
What is Bitcoin?
Bitcoin was created back in 2009 and is a virtual currency. The person who created it uses the alias Satoshi Nakamoto but their real identity is unknown.
When placing a transaction there is no need to use your real name, there are no transaction fees and there are no middle men and more and more businesses are now starting to accept them.
You can create a virtual wallet using websites such as Blockchain or you can purchase Bitcoin through an online exchange or Bitcoin ATM.
When you own Bitcoins, you have nothing physical such as notes or coins so they are known as a cryptocurrency.
Bitcoins are attractive to certain elements of society who wish their transactions to remain anonymous as well as the lack of government control.
For example, the website Silk Road was closed in 2013 following an FBI raid that reveal people were using Bitcoin to purchase drugs.
However, an increasing number of legitimate services and retailers are beginning to accept payment in Bitcoin.
How does Bitcoin work?
Like all currencies, its value is determined by how much people are willing to pay for it.
To process Bitcoin transactions, a procedure called ‘mining’ must take place, which involves a computer solving a complex mathematical problem with a 64-digit solution.
Every time a problem is solved, one block of Bitcoins is processed and the miner is also rewarded with new Bitcoins.
The difficulty of the puzzles alters to compensate for the increased power of computer chips therefore ensuring that new Bitcoins are produced each day. Presently, there are around 15 million in existence but protocol says that there can only ever be 21 million.
The smallest unit, a “Satoshi”, is one hundred millionth of a Bitcoin.
In order to receive Bitcoin, you must have a Bitcoin address – a string of 24-34 letters and numbers that acts like a virtual mailbox to and from which the Bitcoins are sent.
Where can I buy Bitcoins?
They can be purchased from “Bitcoin Exchanges” with Japan based Mt. Gox being the largest. They can also be sent via mobile apps or computers.
What’s the future?
No one knows as it is highly unpopular with governments due to the levels of anonymity.
This naturally encourages money laundering and other criminal activity so in the end, anonymity may be its downfall.
With that being said, it is starting to become more mainstream, which has helped the digital currency’s value to surge in 2017 and at the time of writing is now worth $2,000 per coin, according to Coinbase and other leading Bitcoin exchanges.