Tech Corner: Bitcoin Basics

By Jonah Wolmark

In Bitcoin We Trust

In Bitcoin We Trust

Bitcoin is what is known as a cryptocurrency or, digital medium of exchange that employs cryptography for the transfer and management of money. Bitcoin was first launched in 2009 by a pseudonymous developer known as Satoshi Nakamoto. Users have “wallets”, or collections of cryptographic keys, that are used to identify who owns which bitcoins. One of those keys is kept completely private, as that is the one that gives a user access to his or her bitcoins. The Bitcoin network stores all transaction data in what are called “blocks”.

You may have heard of people “mining” bitcoins. This does not mean that people are going out with pickaxes and shovels to dig up digital coins. To mine bitcoins, a special program needs to be run on a computer. The program connects the computer into the Bitcoin network. The program then helps run algorithms to verify transactions made with bitcoins. People profit from mining by the Bitcoin network automatically distributing a set amount of bitcoins to the miner for each block of transaction data that is processed.

Many people associate the use of Bitcoin with illegal activities. This is because there have been numerous reports of illegal goods purchased with bitcoins, including drugs, hits on people, and unregistered firearms. This is a misconception, not because these things are not bought with bitcoins, but because these goods are also bought with other currencies, including US Dollars.

Bitcoin theft is possible if one gets ahold of another’s Bitcoin wallet, or even just the specific private key used to unlock it. With this, one could transfer all of the bitcoins from the stolen wallet to his or her own. Private keys and wallets are kept very secure, however. Thefts happen when an online wallet, exchange, or payment processor that stores the private keys of its users are compromised due to malware or hacking. Once into a system, a hacker could gain access to the private keys of the users of that system. These hacks are not caused by flaws in the Bitcoin system, but by oversights or mistakes in third party systems.

Bitcoin is not the only cryptocurrency in existence, though it is the oldest. Other notable cryptocurrencies include Litecoin, Dogecoin, Zerocoin, and Ripple. Most cryptocurrencies are very similar, though some include changes to backend operations that make their processes very distinct.

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