Bitcoin: What is it?

TigerDirect Now Accepts Bitcoin!

“Yo Josh, you have to check out this email!” Kent yells from his bed not letting his eyes leave his iPhone…silence. Kent could only hear the sound of his Dell XPS whirling away. Thinking Josh must have headphones on, Kent hops over piles of cables and circuit boards to his door. He gets a quick breath of fresh hallway air before he enters Josh’s room. Among month old piles of laundry, Josh is playing “Dead Space”. Kent taps Josh on the shoulder and Josh removes his headphones with his cheese flavored hands. “Someone just posted a paper proposing a new design for a cryptocurrency. I read through the paper and it appears to solve all the problems of the previous designs! He calls it ‘bitcoin’.”

This is the beginning of bitcoin.

The idea of a secure digital currency only existing on computers, commonly called a cryptocurrency, started in the 1990s. Analysts that study encryption, known as cryptographers or cypherpunks, dedicated themselves to the project for years with no success. For each cryptocurrency designed, cryptographers found some flaw in it that rendered the design unusable… until four years ago.

The Origin of Bitcoin

On October 31, 2008 bitcoin was first mentioned in a paper describing the design of a new cryptocurrency in a metzdowd.com email group. The email was sent by Satoshi Nakamoto. Nakamoto’s design was scrutinized by the group for the next 18 days without finding any major flaws. Bitcoin was launched after Christmas on Jan 3, 2009. In 2010 Satoshi Nakamoto slowly became less involved in bitcoin, passed the project to Gavin Andresen, and vanished. Since his disappearance, many searches have been made to identify Satoshi Nakamoto. To their dismay searchers have discovered it is only a pseudonym, with an array of possibilities.

The Uniqueness of Bitcoin

Bitcoin’s mysterious designer had avoided the major flaws of the previous designs of cryptocurrencies. Bitcoin has many unique qualities. It isn’t based on any physical standard such as gold. Bitcoin is not governed by an authority that decides what happens with bitcoin. Instead of having a central clearing house to validate transactions, control money flow, and manage accounts, Nakamoto proposed using a public list of transactions called a “ledger” or “blockchain”. This public ledger’s transactions are validated by having each user’s computer check the ledger itself. Using a public ledger is beneficial for many reasons. No one person, organization, or government can control the flow of money or freeze accounts. Since there is no central clearing house, nobody can force it to disclose who owns a specific account.

The Legality of Bitcoin

Bitcoin is a controversial topic for governments as they try to understand it’s potential. The U.S. has had many legal hearings about the currency. The United States’s Financial Crimes Enforcement Network (FinCEN) and Securities Exchange Commission (SEC) have both declared bitcoin legal as a “‘virtual currency’ suitable for exchange”. Although bitcoin itself is legal, some people have used it for illegal activities such as money laundering and selling drugs. A total of five arrests have been made in the U.S. concerning bitcoin. Ross Ulbricht was arrested and accused of creating a market called “Silk Road” that used bitcoin, among other things, “to distribute controlled substances” and “commit money laundering”. Charlie Shrem was arrested more recently and was accused of using bitcoin “to sell and launder over $1 million in bitcoins related to silk road drug trafficking”. Some Eastern countries including Russia, China, and India have discouraged its use or made it illegal due to it’s untraceability making it a prime tool for illegal activity.

The Rise of Bitcoin

In-spite of it’s dangerous potential, bitcoin has taken off and is slowly starting to be adopted in many places. With the recent additions of major companies such as Overstock.com, TigerDirect.com, Dell, and the DISH Network accepting bitcoin, it has risen in popularity and value. Although bitcoin exists online, some physical retailers, restaurants, and coffee shops have invented ways to accept it.

Bitcoin was foraged through many years of research. It’s design brings new found freedom and benefits to the world. It’s untraceability making it useful for criminals concerns governments. Change is slow, but bitcoin is starting to get a foothold in commerce. Bitcoin growth has gone from a nine page research paper to a thriving market worth over seven billion dollars. Bitcoin’s potential to be used for harm or good are incalculable, therefore responsibility is needed. It’s future is yet to be written, and you can help write it.

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