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What is bitcoin?

Andrew Goldman

Andrew Goldman has been writing for over 20 years and investing for the past 10 years. He currently writes about personal finance and investing for Wealthsimple. Andrew's past work has been published in The New York Times Magazine, Bloomberg Businessweek, New York Magazine and Wired. Television appearances include NBC's Today show as well as Fox News. Andrew holds a Bachelor of Arts (English) from the University of Texas. He and his wife Robin live in Westport, Connecticut with their two boys and a Bedlington terrier. In his spare time, he hosts “The Originals" podcast.

Bitcoin is currently the most famous, and widely used cryptocurrency in the world. So, it would probably help if you to know what a cryptocurrency is, right? Cryptocurrencies are digital currencies that only exist online, and don’t rely on any central bank or authority or server, but are rather spent and collected directly by and between individuals. The “cypto” refers to the fact that the currency transactions are made securely using cryptography.

Bitcoin was the brainchild of Satoshi Nakamoto — which is likely the pseudonym of a person or group of people who released bitcoin as open source software in 2009. Nakamoto, who or whatever it may be, succeeded in creating a digital cash system without a central authority that could transmit payment as quickly and easily from one side of the earth to the other as it could between next-door neighbors. Nakamoto solved the problem that had plagued all digital cash efforts before — by creating a system in which everyone could reliably agree how much bitcoin they and everyone else possessed, as well as record any movement of bitcoin from one individual to another.

A publicly accessible electronic ledger called a blockchain keeps everyone honest about these cryptocurrency holdings and transactions by permanently, and immutably recording every bitcoin transfer. A block in a blockchain is created only when a transaction is confirmed by someone called a bitcoin “miner,” a person or company who performs the task in order to receive bitcoin in exchange for its effort. The miner’s work on the blockchain not only creates the permanent record, but also happens to be the only means for releasing new bitcoin into the world — the bitcoin equivalent of minting something, if minting can really describe how one makes something with no physical form or intrinsic value.

Last Updated January 29, 2018

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