Bitcoin was created in 2009 by the mysterious entity Satoshi Nakamoto. This person, or group of people, has maintained his/their anonymity since then. The identity of Nakamoto is a mystery that many hackers and computer tech experts have tried to solve. To date, no one has been able to identify the person or team of people behind the name.
In 2008 Nakamoto issued a white paper describing the digital currency, Bitcoin. The paper detailed the Blockchain and Bitcoin creation process. In Jan 2009, Nakamoto released the first Bitcoin software. Nakamoto continued to monitor and modify the code of the Bitcoin network until 2010. The Bitcoin creator currently owns about one million Bitcoin, and he, or they, has not spent any of it since January 2009.
What is Bitcoin, Exactly?
Bitcoin operates on the idea of a decentralized currency; there is no Federal Reserve or other agency producing and controlling the currency. Bitcoin is owned by everyone who uses and creates it, but none of the owners have control over it.
Bitcoin is the first digital currency, or cryptocurrency, in pure form. It was completely self-manifesting—meaning the code that created the first Bitcoin also created the second, and it grew from there. Currently, Bitcoin is created by users who complete transactions and solve mathematical problems within the Bitcoin network.
Where is Bitcoin Created?
You can’t go to the local ATM and withdraw a few Bitcoin. Bitcoin exists only digitally, in the Bitcoin Network Ledger. In this open and transparent ledger, every transaction made and every Bitcoin created are documented by everybody in the network.
Bitcoins can be stored, exchanged in transactions, and, someday, used in real-world purchases, but all of these actions are documented in the network ledger. This transparency reduces the risk of fraud and double spending.
How to Spend or Exchange Bitcoin
Bitcoin users can maintain a Bitcoin Wallet, software to save your data and account information, as well as private security keys, which “holds” their Bitcoin. They can also store their Bitcoin on their personal computer hard drive. But, whatever method of storage used, the Bitcoin is still tracked and accounted for in the network ledger.
Purchases and exchanges of Bitcoin are also accounted for in the network ledger. Each user maintains an anonymous account number (or combination of numbers and letters) that is their single user identity. If one user wants to give another user an amount of Bitcoin, he or she documents it on the network ledger, and all users update their files. Network users, known as miners, verify each transaction of Bitcoin trading.
Real world transactions are still new, and we expect that future software development will increase the locations that accept Bitcoin for purchases. These transactions are handled by a third party entity, much like PayPal, who then documents the transactions on the ledger. These Bitcoin exchange sites also allow you to buy Bitcoin through their service.
What is the Value of Bitcoin?
Unlike regular money, Bitcoin is not stable. There is no standard backing the currency, as there is gold with US dollars and Sterling with UK pounds. Because of this, the value of the Bitcoin can fluctuate wildly. The change in Bitcoin price and dollar value of Bitcoin is driven, like any investment, by the laws of supply and demand and by the perception of scarcity.
Currently, Bitcoin is difficult and time-consuming to create, so the dollar value of a single Bitcoin is more than one thousand US dollars. You can find Bitcoin charts and Bitcoin graphs on a variety of exchange based websites. These sites may show varying Bitcoin prices, depending on the location and c
In the beginning, Bitcoin was fairly easy to create, so the value of a single Bitcoin, in 2010 was less than ten US cents. However, as interest in the digital currency grew, and more and more people began to join in the fray, the complexity of creating Bitcoin increased. This increase in complexity led to a decrease in supply, which led us to today’s very high Bitcoin value.
How is Bitcoin Created?
Bitcoin mining creates Bitcoin. The process is called mining because there is a finite amount of Bitcoin available. The amount of Bitcoin caps at 21 Million Bitcoin. There will be no more Bitcoin created once the miners have generated 21 million Bitcoins.
Each transaction or mathematical solution becomes a Bitcoin generator. Bitcoin miners use special software, and increasingly specialized hardware, to solve math problems. As the math problems are solved, a certain amount of Bitcoin is created and issued to the miner. Bitcoin mining keeps the network secure and stable, while also keeping it transparent.
What is Bitcoin Mining?
Bitcoin miners use coding, or cryptography, to create Bitcoin. The process is the same for other cryptocurrencies as well. A Bitcoin miner is anyone with a computer running a mining program. The miners use coding to verify transactions and solve mathematical puzzles. There are specific computer machines, hardware, that are designed specifically for Bitcoin mining.
Bitcoin mining hardware is becoming more affordable and more common. However, the cost of running a miner—electricity, location, and storage—can be expensive. So, Bitcoin mining is not a get something for nothing process. One miner that we researched has a purchase price of $1500.00. Every cryptocurrency miner runs on electricity, so consider your electricity costs as you calculate your possible earnings.
As miners, with the software doing the mathematics and algorithms, verify transactions and solve mathematical equations, Bitcoin is created. Well, a percentage of a Bitcoin, a very very small percentage. The miner mentioned above will mine about .25 Bitcoin in a year, a dollar value of around $3700.00, at an operating cost of nearly $1900.00.
These miners do require maintenance but do not require constant supervision. So your Bitcoin maker can be mining and making money, while you go about your life.
Every Bitcoin transaction is combined with other Bitcoin transactions into a Block. The blocks, when completed, are linked to other blocks, creating the Bitcoin blockchain. Each block in the blockchain contains
- references to all previous blocks
- all the transactions that have been added to the block
- a time stamp
- proof of work that shows how the block was created
Once a block is completed, it is “hashed.” Hashing makes it impossible to alter the block, again making the network secure. When the block is added to the blockchain, it is permanently recorded on every computer in the network. The information contained on the blockchain dates back to the inception of Bitcoin and is updated near daily.
Changes in Bitcoin Mining
The difficulty of the mathematical problems used to generate Bitcoin and verify transactions in the network is updated every two weeks. If more users are mining, then the math problems become more difficult. With fewer active users, the problems become less difficult. This fluctuation is built into the Bitcoin system because of the creator; Satoshi Nakamoto wanted the amount of Bitcoin mined to remain constant, no matter how many miners were competing.
In 2009 an individual miner, working with his home computer, could mine a lot of Bitcoin in just a few days. But as more people discovered faster ways to mine, and more technology companies got into creating mining hardware, the difficulty of mining math problems increased. Now, an individual miner, using his home computer, could potentially mine a single Bitcoin in a hundred years.
This fluctuation in the difficulty of the math has led to the creation of computer hardware systems designed specifically for mining. ASIC (Application Specific Integrated Circuit) systems are dedicated to mining Bitcoins. Even with these specialized units, Bitcoin mining has become nearly impossible to do as an individual: thus the growth of mining pools.
Mining pools are groups of miners who have joined together to increase their chances at Bitcoin mining. Most pools require a fee, in Bitcoin—generating a transaction that must be verified by the Bitcoin mining network. Each member of the pool shares in the Bitcoin creation relative to his/her/their contribution.
Can Bitcoin Mining Make Money for You?
Bitcoin mining is still profitable. If you can make the upfront investment into a mining machine, especially an ASIC machine, are willing to join a mining pool and pay their fees, and have a temperature controlled location and sufficient energy, then, yes. You too can make a profit with Bitcoin mining.
Bitcoin mining is not a get rich quick scheme. You will likely not show a profit for many months. Nor is it a way to get something from nothing. There are the upfront costs as well as the cost of electricity and power. But it is still possible to make money by Bitcoin mining. And it will continue to be possible until we have mined all 21 million Bitcoin.
A word of caution: because of the fluctuation in the value of Bitcoin, investing in Bitcoin mining will be much like investing in any other stock or commodity. There is intrinsic risk involved.