In the first article, we discussed the rising popularity of bitcoin and took a brief look at what differentiates bitcoin from traditional forms of currency.
Because bitcoin is not issued through the whims of a government or state agency, it is not subject to the same problems associated with inflation and deflation, and its value cannot be arbitrarily manipulated.
Because bitcoin is created through “mining”, the value of bitcoin is controlled by the parameters of the mining process, and cannot be tampered with the way typical currencies can be. For those who are new to bitcoin, this next section will provide an overview of bitcoin mining.
In the previous section we discussed the “block chain”, which is the public ledger that maintains all information related to bitcoin transactions. Every hour more transactions are added to the block chain, and these transactions become part of the permanent history of bitcoin. This block chain is processed in a peer-to-peer system, making bitcoin a decentralized currency.
Bitcoin reliability As transactions are recorded and verified, they can be viewed by anyone with access to the block chain, which makes it impossible for bitcoin to be double-spent or counterfeited.
Bitcoin Mining process The block chain is maintained by users who devote processing power to the task. In the early days of bitcoin it was not necessary to devote much processing power, but as the block chain has grown the hardware need to maintain the block chain has become more sophisticated (and expensive). In return for allocation processing resources to the maintenance of the block chain, users are given newly-created bitcoin proportionate to the amount of processing power they devote to the task. This process of maintaining the block chain in return for creating new bitcoin is called “mining”.
In the next section we will look more closely at how to acquire bitcoin through mining.