About the most complicated currency in simple terms

There is probably not a single publication in the world that does not publish news about bitcoin. For sure, even portals about pets and agriculture have headlines like “Bitcoin Collapsed!” and “Bitcoin Made a Historic High! However, there remain many people in the world who do not understand at all where this currency came from and what is happening to it. We will try to tell you about bitcoin as simply as possible.

Any existing digital file can be copied as many times as you want and the original file will remain unchanged. You can duplicate and infinitely duplicate pictures, sound, video, weather and bean harvest information – that is, anything, including data on financial transactions. That is why banks and payment systems carefully encrypt all financial information and distribute it through their own closed channels: this is the only way to control the data and prevent abuse and fraud.

But in 2008 somebody (still nobody knows his identity) under the pseudonym of Satoshi Nakamoto published in the Internet the protocol of principally new payment system: information in it is distributed through open channels between computers united in a common network. All these computers remain equal and together control the distribution of files. This database is called a blockchain. There is no outside interference, all information is distributed throughout the network and all client computers are busy continuously validating the integrity of the financial data.

This independent payment system has been named “bitcoin” (from the English words “bit” for “unit of information” and “coin” for “coin”), and so has its unit of account. Networked computers work for a reason: for the constant validation of files, the system pays their owners remuneration in the same bitcoins – a process called mining. At first, these were fairly simple operations that even weak home computers could handle.

Bitcoin was then little known to anyone, was not widespread, and therefore cost very little: for example, in 2010, the American Laszlo Hanechza bought two pizzas with delivery for 10,000 bitcoins. Over time, more and more terminals connected to the network, the number of digital transactions grew, and bitcoin skyrocketed in value: at the time of this writing, the same 10,000 bitcoins are worth about 27 billion.

As mining became more and more complex, it required more and more computing power, and by today only so-called mining farms, consisting of many very powerful computers and consuming huge amounts of electricity, can fully mine cryptocurrency. Mining is used by major banks, international corporations, and even entire countries.

It is worth mentioning that the system has a limit: it can only produce 21 million bitcoins and not one more. With each new unit of payment, mining the next one becomes more and more expensive, and that’s why the intrinsic value of bitcoin is constantly growing. So what makes the cryptocurrency go up and down? This is where the general laws of the market come into play: bitcoin is traded on exchanges in the same way as other currencies, so the same forces and laws apply to it.

However, there are peculiarities. Bitcoin is a young currency, and most of the players trading in this market have absolutely no experience. That’s why they easily succumb to both euphoria and panic. Most different events make them either to buy or to sell in mass and as a result the rate is constantly fluctuating. However, the general vector remains unchanged: the price of bitcoin is constantly growing. This trend is unlikely to change in the near future.