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How Does Bitcoin Work and Why Is It Surging?

The hype around Bitcoin has made it a topic of discussion in financial and investment spheres across the globe. Since it hit $20,000 last year, Bitcoin went from being something that people liked to know more about to being a trend that many investors wished to benefit from.

Bitcoin, which is a cryptocurrency and worldwide payment system, is the first decentralized digital currency and works without a central bank or single administrator. Mining of bitcoin refers to creating new bitcoins in the system by solving complex mathematical equations.

Bitcoin is used as an investment and could even be described like a digital version of gold. Supply of bitcoin is limited and it requires immense effort to create new bitcoins. Since it is a digital currency it can be used anywhere in the world and can be divided up to be used in smaller forms which may not be possible with traditional investments like physical gold. It can act as a savings investment but can also be used for transactions as a currency.

Blockchain, the technology behind Bitcoin, is expected to change lives and enter just about every industry including financial, real estate and even consumer electronics.

A blockchain is essentially a continuously growing list of records, called blocks, which are linked and secured using cryptography. Each block typically contains a cryptographic hash of the previous block, a timestamp and transaction data. By design, a blockchain is inherently resistant to modification of the data. It is “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way”.

Supercomputers solve complex mathematical equations that other computers verify and bitcoins are released as a reward. The solved equation is then added to the blockchain ledger as a permanent record.

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Specialized computer farms are set up to solve the equations, with the first network to actually solve the equation rewarded with new bitcoin. While in the early days after bitcoin was launched in 2009 this could be done by hobbyists from personal computers, the increased complexity of the blockchain means it requires more energy and computing power to solve the equations and produce new coins.

Bitcoin and other cryptocurrencies are volatile and thus a very risky investment, however, the percentage of profit that can be gained from cryptocurrencies as an investment attracts investors. It can also be used for making money transfers acting just like currency would. However since its value can change drastically in a single day it cannot be a reliable option for many people.

According to experts, the value of Bitcoin has increased due to many factors including the use of Blockchain technology for other purposes, higher security on exchanges and more companies related to the field of bitcoin arriving on the scene. Many investors want to cash in on the bitcoin boom, driving prices up further.

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