How Does BitCoin Work?

Hi, I'm Jonathan, this is BrainStuff, and I've got some bad news for you. Money is imaginary. Now I don't mean that this printed piece of paper is make-believe, I can feel its texture and the ink even smudges off on my fingers. But when you compare it to this other piece of paper, what's really the difference? Well, one is a recognized currency, and the other isn't. And the reason why? Well, people agree that this piece of paper is a dollar and has value. That's where money's worth comes from. We all pretend it's a currency. This is one reason why the digital currency Bitcoin appeals to some people. See, it's not tied to any political system or government, so it's not vulnerable to any of their failings, like the economic collapse in 2008. All it needs is for people to believe in it. But lately, well, some people are having a crisis of faith. That's why today on BrainStuff we're going to quickly establish some facts about Bitcoin to better inform your beliefs about it. Now basically, it's virtual money you can use to buy and sell things online. And it mimics real-world limited resources like gold, for instance. It's also a cryptocurrency, meaning that it's encrypted in a way that prevents it from being copied. See, every Bitcoin transaction is recorded using a blockchain. Now that information acts like a ledger that is encoded onto the Bitcoin itself. This prevents people from spending the same Bitcoin more than once, since everyone else on the currency's peer-to-peer network knows that it just was spent. It's essentially just a number associated with an internet address. You can store it on your phone or a hard drive until it's used again. Now, here's some ways you could acquire Bitcoins. Accept them as payment for goods and services, exchange them for a more traditional form of currency, or you can mine them. That's right, like gold, Bitcoins are mined. Not by old-timey grizzled prospectors, but by powerful computers. And like gold, the more people mine Bitcoins, the less there are to be found. So they become harder to find. So instead of physically mining with a pickaxe, you can attempt to solve math problems with a computer. Imagine the problem is something like x plus y equals 15. Now if you can figure out what x and y are, congratulations, you get a Bitcoin. With little competition, the problems are easier to solve. But when more people join the search, you've got a race and the problems get way more difficult. But as Bitcoin miners dwindle, the math problems will get easier again to ensure the flow is steady, their value is boosted, and they remain inflation-proof. Not all have been mined yet, and we expect they won't be until around 2140. So let's say you heard all this and thought, you know, I want to grow up to be a professional Bitcoin miner and trader. Well, there are a few risks you should probably know about first. For instance, because there's no regulatory agency setting a Bitcoin's value, it tends to fluctuate wildly. Another Bitcoin problem is security. Now actually, the format itself is fine, but that doesn't protect it from hackers who target the banks and exchanges that deal in Bitcoins. Again, this isn't the fault of the currency. If a bank were robbed, you wouldn't blame the dollar bill for getting stolen, right? So Bitcoin has its slumps, and for it to become widely used, its volatility needs to settle down quite a bit. It's currently a high-risk currency that's totally unpredictable, and we didn't even get into the mysterious identity of Bitcoin's founder, Satoshi Nakamoto. Now personally, I think the biggest drawback to Bitcoin is that you just can't make it rain. If you've had experiences with Bitcoin, let us know in the comments below. And let us know if there are any topics you'd like us to cover. I actually have another pile of them right over there. Really. I mean, it's just off screen. So the best part about this is I don't even have to pick it up. We have interns to do that. See you guys later.