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How Did Bitcoin Become a Real Currency?

They can be bought second hand on the exchange or “mined” as new bitcoins. Bitcoin prospectes who want new coins will have to solve math problems of various complexities presented by members of the Bitcoin Open Source Consortium. By solving the problem you are assigned to a pool which will be given multiple coins. Solving a math problem, which requires a lot of computing power and can take weeks, does not guarantee that you will get a bitcoin, but it does put you in the lottery. Is what gives you a chance to win.

Why does it sound like a game?

There are overlaps in the gaming and bitcoin community. Extremely fast gaming chips have been used by many bitcoin miners, and online game players have long competed for prizes such as virtual money. But this time, it’s serious.

What does it mean that bitcoins are “open source”?

In theory, the thousands of volunteers who review and approve bitcoin allotments provide a check on the system to make sure the supply is closely monitored and verified against a master list. While the algorithms, or computer codes, users must solve are secretive, the master list, known as the “block chain,” is publicly viewable, just as the code for open-source browser Firefox is open. The theory is that the more eyes there are on a transaction, the more secure it is.

Other open source groups have managed to achieve success using similar open processes. Linux, the widely used open source computer operating system, has been developed by thousands of users who have contributed to the code and maintained the integrity of the software. Wikipedia, the online encyclopedia, works on this concept. These ethics are as old as the Internet itself, which is carried through millions of computers in a peer-to-peer, decentralized network based on a set of general principles.

How many bitcoins are there?

The rules of the bitcoin are based on a mathematical formula that will increase until the number of units reaches 21 million by the time it closes. In theory, bitcoins can be broken down into several smaller pieces to increase the supply of money to meet growing demand.

How do bitcoins gain value?

Value is subjective. The bitcoin numbers themselves are worth nothing – just as gold is just a piece of metal until someone pays for it.

Initially, they were worth pennies. But speculators have bid up the value of a single bitcoin to as high as about $290. The overall value of all bitcoins in circulation is now calculated to be $1 billion, a sizeable figure but a tiny fraction of all global currencies. Vastly more currency is denominated in bank credits and accounts held by governments and individuals and estimated by the International Monetary Fund to be worth about $150 trillion.

How does “real” money gain value?

The piece of paper the dollar is printed on is worth nothing on its own. But banks allot credit to individual banking accounts regulated by government central banks. Their value comes from a government’s backing, know as a “fiat,” Latin for “let it be done.” Every government has a fiat currency, even if it decides to peg its currency to U.S. dollars, as some Latin American, Gulf region and Asian countries do, and because the gold, oil and other global commodities are priced in them.

Once upon a time, the value of a currency was directly linked to the price of gold. But today, most currencies have a floating value, managed by the central bank, which, like bitcoin open source, provides money to fight inflation during economic growth and to drive growth in times of economic stagnation. Manage carefully.

 

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