Betting with Bitcoin
The cryptocurrency known as Bitcoin has been in worldwide circulation since 2009, but even as the eight-year anniversary of Bitcoin’s launch approaches this January most people still have no idea what the term actually means.
Origin of Bitcoin
Bitcoin was originally conceived as a peer-to-peer system used to exchange digital assets and make payments using “cryptocurrency.” The idea of cryptocurrency was originated in 1998 by computer engineer Wei Dai, who suggested a new model of money based on cryptography – or the art of writing and deciphering codes – to regulate creation and transaction.
The invention of Bitcoin itself is officially credited to “Satoshi Nakamoto,” the credited author of a paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System.” Nakamotos’ famous “White Paper” was published by the Cryptography Mailing List in November of 2008 as a proof of Dai’s theories on cryptocurrency’s viability.
Today, however, the Nakamoto identity is widely believed to be a pseudonym used by the individual or team of software designers who truly invented the Bitcoin concept. Speculation has swirled as to the reality behind the Nakamoto mask, and in 2011 an investigative report by The New Yorker even attempted to use linguistic analysis to pin down the true author. To this day though, Nakamoto’s true origins remain a mystery.
What is clear is that the Bitcoin model has proven to be successful on a global scale. More than 10 million Bitcoin “wallets” (more on this in a minute) have been established, and hundreds of thousands of individuals and companies use the service each day.
But while Bitcoin continues to grow from a tech fad into a full-fledged currency model, an overwhelming majority of society remains entirely unfamiliar with the concept. This page, written with the laymen in mind, provides an introduction to the ever evolving world of Bitcoin.
Why Were Bitcoins Invented?
Back in 2008 the person or people behind the Nakamoto identity were searching for a way to create a purely digital exchange system, one which could conceivably replace the cash and coin model used for much of human history. As stated in the original Bitcoin “White Paper,” the goal was to create “an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.”
In order to decipher that technical jargon, imagine yourself sending $100 to your younger sibling a few states away studying at the University. In order to conduct this transaction two decades ago, you’d use Western Union to wire the funds, while today you’d be more likely to jump on PayPal for a quick peer-to-peer transaction. But in any case, the funds would be sent under the supervision of a “trusted third party” – an agency like a bank, or Western Union, or Paypal, which supervises the transaction to ensure that the $100 you send is the same $100 your sibling receives.
The concept of Bitcoin simply removes this trusted third party, creating a genuine peer-to-peer system of exchange which is wholly unregulated by any outside entity or middlemen. So rather than rely on PayPal’s transaction log to record your private financial dealings, Bitcoin enables users to take advantage of something called the “blockchain” instead.
What is the Blockchain?
The reason virtual currencies like Bitcoin didn’t appear sooner, despite rapid technological progress in recent decades, is known as “double-spending.” Simply put, when you use $100 to buy groceries, giving bills, a check, or credit to the store in exchange for food, you no longer have the ability to spend that same $100 again.
But with a virtual currency, the only thing being exchanged is a digital file – one which can be duplicated, sent multiple times simultaneously, or otherwise tampered with. The double-spending conundrum is what motivated the use of trusted third parties like PayPal in the first place, but Bitcoin introduced the blockchain as a novel solution to double-spending.
The blockchain can be described as a continuous public ledger of every single Bitcoin transaction ever recorded. By using cryptography principles to encode private data, each Bitcoin user can enter their recent purchases into the blockchain individually, without relying on a trusted third party to “mediate” the transaction.
Groups of transactions form a “block,” which are linked to one another in chronological order to form a “chain,” and the resulting blockchain can be used to verify any and all transactions involving a particular Bitcoin.
Where do Bitcoins Come From?
New blocks are added to the blockchain at a rate of roughly six times every hour, and in order to verify the sheer volume of these user-generated transactions, a tremendous capacity for computing power is needed.
Blockchain additions are verified through intricate mathematical proofs, or solutions to complex mathematical equations, which are used to ensure that Bitcoin transactions haven’t been counterfeited like paper currency. To keep the blockchain addition process running smoothly, a specialized subset of Bitcoin users known as “miners” operate extremely powerful computer servers designed to process billions of calculations per second, which work to verify each proof attached to a transaction.
As a reward for this expenditure of computing power and electricity, miners are compensated with proportional amounts of Bitcoin which are commensurate with resources spent verifying transactions. In this way, new Bitcoins are continually generated and added to the worldwide economy.
Miners are a small group of technologically savvy users, but anybody with a smartphone or basic internet access can take advantage of Bitcoin.
Exchanges have been built where ordinary currency can be used to obtain Bitcoin as an investment, much like you can buy gold bars or silver coins. You can also exchange traditional funds with a friend looking to unload their own Bitcoin reserves.
How Can I Use Bitcoin?
Bitcoin adaptation occurred slowly during the first few years of use, but today the virtual currency can be used in any number of ways by ordinary consumers.
With nothing more than a blockchain wallet, which is accessed like any other smartphone app, users can purchase goods through online retailers like Etsy or Shopify, pay for an OkCupid dating account, or even grab a five-dollar footlong at Subway.
Progressive cities like San Francisco are even experimenting with Bitcoin ATM machines, which dispense cash in exchange for Bitcoin deposits and vice versa. As of today, over 800 of these Bitcoin ATMs are operational all across the planet, including 437 in the United States and 115 in Canada.
At the time of this writing, one Bitcoin is valued at just over $611, so for the most part people pay for items using fractional denominations of a single Bitcoin. Unlike dollars and most cash/coin based currency, Bitcoin is divisible to the eighth decimal place, allowing for greater denominational flexibility.
And because the blockchain has replaced trusted third parties, Bitcoin users don’t worry about banking holidays, jurisdictional borders, or the bureaucracy of moving money using traditional means.page