Bitcoin is a world wide decentralized cryptocurrency. Meaning that there is no central authority such as government or banks. Instead of a middle man, it operates by peer-to-peer technology. Transactions and the issuing of new bitcoins is managed directly by the network as a whole. The network is open-source and open to anybody. Although bitcoin is thought to have been created by a “Satoshi Nakamoto”, this is a pseudonym. The true creator of Bitcoin remains a mystery.
Bitcoins are not produced but they are mined in blocks. Blocks are encrypted in a special algorithm known as SHA-256. The algorithm is never the same for any two blocks. In 2008 there were 50 bitcoins in a block. Every 210,000 blocks (almost 4 years), that number halves. So now only 12.5 bitcoins are mined in a block. Blocks are produced every 10 minutes. Once the block has been created, anybody can earn the bitcoins inside by a process known as “mining”. Mining is done by using a computer to solve the blocks algorithm. Miners often join together to increase the total computing power to solve the blocks algorithm. When they join together it is known as a “mining pool” or simply a “pool”. When bitcoin first came out, many users mined with their GPU’s (much more productive than CPU’s). Almost a decade later, this is no longer the case. Miners now use what is known as an ASIC or Application Specific Integrated Circuit. ASIC’s are designed for mining and nothing else. As you can imagine, they are very productive in what they do but the mining community is very competitive. ASIC’s are relatively expensive and use massive amounts of electricity. This makes mining very hard to be profitable. Here is link to a mining profitability calculator.
The mining community is very competitive because one reason: the price of a bitcoin. Bitcoin’s price is volatile. The price is solely determined by supply and demand. Although the supply is fixed to 21 million to ever be created. The demand is constantly changing. There have been a few occasions as to where bitcoins have been stolen. Mt. Gox is one of the biggest cryptocurrency heist to ever happen to the network. Mt. Gox was a $460 Million disaster. If you want to learn more about the Mt. Gox disaster click here.
Buying bitcoin is a quick and easy way to get involved. There are many exchanges out there, although some are thought to be scams. These sites exchange bitcoin for fiat currency and vise versa. I personally use Cex.io. Other popular bitcoin exchanges include Coinbase, Kraken, and Bitstamp. These sites can be used for long term investment or for short turn around in profit. Many people use these exchanges for the simple buy low, sell high to make a quick and easy profit as the price is always changing. Beware that almost all exchanges charge a fee when you buy and sell.