Whilst a Google search for “Bitcoin” returns 115 million results, chances are, you still won’t understand it. What is the Blockchain? Why are people mining? Here’s the basics – for everyone who doesn’t speak geek.
From a young age, when we first received pocket money, we immediately understood the value – and thrill – of earning our own money. Our spending habits may have evolved from mixed lollies to superannuation, but one need remains the same; knowing our piggy bank is safe.
Unfortunately the big piggy banks practice a system called “Fractional Reserve Banking” – lending 9 times the value of money they hold in reserve. At best it creates a dangerous debt bubble – at worst it decimates the value and security of our savings.
Imagine an alternate example:
- $21 million exists in the world – you own $2.
- A global, public ledger is maintained.
- You spend $2 and update your ledger.
- Everyone updates their ledger.
Can you print more? Spend more? Lend more? This is the model at the heart of Bitcoin – the Blockchain. A global, transparent, public ledger.
Bitcoin: A digital currency that is independently owned and traded by individuals around the world. You can buy Bitcoin with dollars, Euro or any other currency, then use it as an investment or to trade. Most importantly, it is “distributed” – rather than a bank or government managing ownership and transactions, an independent, global, public ledger exists: the Blockchain.
The Blockchain: a software program that contains a global, public ledger of every Bitcoin transaction.
Mining: a reward system offered to individuals who run and maintain the Bitcoin Blockchain software.
To keep Bitcoin independent numerous people need to store the ledger; yet the hardware required to run the Blockchain is expensive. To encourage people, a reward system was established. Freshly minted Bitcoins and transaction fees are “mined” and distributed to holders of the Blockchain: “Miners”.
Miners across the world contend to update the Blockchain. First they must prove they are legitimate holders of the software by solving a complex computer algorithm that could only be proved with the equivalent computing power required to run the Blockchain.
Once the algorithm is solved and all miners have agreed upon the solution, a miner is selected to update the Blockchain. The entire Blockchain is refreshed and the miner receives freshly minted Bitcoin and the transaction fees paid from all of the Bitcoin trades.
Allocations of new Bitcoin slowly decrease in time until all 21 million has been distributed. In parallel, Bitcoin transaction fees increase due to the rising number of Bitcoin transactions. At present, there are approximately 250,000 Bitcoin transactions per day worldwide.[i] Eventually, when all 21 million Bitcoin has been minted, miners will receive transaction fees only.
- Safe: can’t be hacked, stolen or double spent.
- Fair: transparent Blockchain ensures real-time verification.
- Secure: multiple redundant copies of the Blockchain prevent seizure; various backup and encryption protocols are in place.
- Democratic: evolution of protocol is through community consensus.
- Valuable: limited supply creates natural appreciation.
- Tax-free: Anonymity ensures no viable taxation system.
- Fast: transactions confirmed within 10 minutes.
- Efficient: transferred globally at any time.
- Autonomous: individual choice in fee structure.
- Low Risk: anonymous transactions protect merchants from fraud.
It’s immune to
- Interest Rate Movements: currency based on equity, as opposed to debt, does not require interest rates.
- Foreign Currency Movements: independent of foreign fiat currency fluctuations.
- Inflation and Devaluation: the total number of Bitcoin is fixed at 21 million.
No wonder Bitcoin prices are surging.
Bitcoin Trader is a personalised cryptocurrency brokerage firm catering to individual, corporate, institutional and SMSF clients. The company is incorporated in Australia, with established global partners providing access to high liquidity and multicurrency settlements. Our core focus is on safe, secure and compliant cryptocurrency investment, divestment and portfolio reallocation.
Disclaimer: This content is for informational purposes only. It does not constitute investment or financial advice. Any information, material or commentary is intended to provide general information only. Information contained in this document has been obtained from sources believed to be reliable, but BT Brokerage Services Pty Ltd trading as Bitcoin Trader, makes no representation as to its accuracy or completeness. Before acting on any information contained in this document, each person should consider its appropriateness having regard to their own or their clients’ individual objectives, financial situation and needs. You should obtain independent taxation, financial and legal advice relating to this information and consider it carefully before making any decision or recommendation.