Bitcoin explained: What is it and how does it work?

What is Bitcoin and how are people finding success with it?

How Bitcoin works

Bitcoin is a digital currency that is not tied to a bank or government and allows users to spend money anonymously. The coins are created by users who "mine" them by lending computing power to verify other users' transactions. They receive bitcoins in exchange. The coins also can be bought and sold on exchanges with US dollars and other currencies.

What are they worth?

On December 7, the price of Bitcoin soared to a peak of more than $23,601 (US$16,858), according to the Coindesk exchange. The value of Bitcoins can swing sharply. Mid 2016 one was worth $US457.04, and the value has risen steadily in the last 12 months. But its price doesn't always go up. A Bitcoin's value plunged by 23 per cent against the US dollar in just a week in January. It fell by the same amount again in 10 days during March. 

Why are they so popular?

Bitcoins are basically lines of computer code that are digitally signed each time they travel from one owner to the next. Transactions can be made anonymously, making the currency popular with libertarians as well as tech enthusiasts, speculators - and criminals.

Who is using Bitcoin?

Some businesses have jumped on the Bitcoin bandwagon amid a flurry of media coverage.

The currency has become popular enough that more than 300,000 daily transactions have been occurring recently, according to Bitcoin wallet site In mid-2015, activity was closer to 230,000 transactions per day.

Still, its popularity is low compared with cash and cards, and many individuals and businesses won't accept bitcoins for payments.

How are they kept secure?

The Bitcoin network works by harnessing individuals' greed for the collective good. A network of tech-savvy users called miners keep the system honest by pouring their computing power into a blockchain, a global running tally of every Bitcoin transaction. The blockchain prevents rogues from spending the same Bitcoin twice, and the miners are rewarded for their efforts by being gifted with the occasional Bitcoin. As long as miners keep the blockchain secure, counterfeiting shouldn't be an issue.

How was Bitcoin started?

It's a mystery. Bitcoin was launched in 2009 by a person or group of people operating under the name Satoshi Nakamoto. Bitcoin was then adopted by a small clutch of enthusiasts. Nakamoto dropped off the map as Bitcoin began to attract widespread attention. But proponents say that doesn't matter: The currency obeys its own internal logic.

An Australian entrepreneur last year stepped forward and claimed to be the founder of Bitcoin, only to say days later that he did not "have the courage" to publish proof that he is.

3 min read
Published 14 May 2017 at 2:06pm
Source: SBS