Ask a Redbird Scholar: What is bitcoin?
I don’t get bitcoin. Please explain it.
Cryptocurrencies are increasingly used for purchases and as an investment option internationally. Bitcoin—the most recognized and first cryptocurrency created—surfaced in 2008 with Satoshi Nakamoto. The name is a pseudonym for a person or group that has never been identified.
In the simplest of terms, cryptocurrencies are a virtual medium of exchange. They allow for purchases to be made anonymously using digital money, and without involvement of a financial institution.
Proof of any purchase or money transfer comes through a tracking system known as the blockchain, which is a distributed database that protects against fraud. Every transaction is time stamped and recorded, with multiple copies on millions of servers around the world.
The process of verifying transactions—called mining—is the means for creating more bitcoins. Computers collect pending bitcoin transactions, which are turned into mathematical riddles. The first whiz to find the solution receives bitcoins once the answer is verified by other miners. As of April 30, 17 million bitcoins existed. There is a global limit of 21 million total that will be created; that cap will be reached in 2140.
Concerns surrounding the use of cryptocurrencies include that they fluctuate widely in value, they are unregulated, and some are anonymous. Another troubling aspect is the enormous amount of energy needed to power computers that mine around the clock.
Critics note that the energy needed for mining could ruin the planet, as well as financial institutions as they exist today. The underlying technology of having provable transactions, however, is a strength and will remain regardless of how extensively cryptocurrencies continue to be used.
Glen Sagers, professor, School of Information Technology
To learn more about bitcoin, read “Mystery money: A beginner’s lesson in cryptocurrency,” which appeared in the August 2018 issue of Illinois State.)
Our top faculty experts answer questions from the Illinois State University community in the “Ask a Redbird Scholar” section. To submit a question, email Kevin Bersett at kdberse@IllinoisState.edu or tweet it to @ISUResearch. Chosen questions and answers appear in each issue of Illinois State’s new research magazine, the Redbird Scholar. To read other “Ask a Redbird Scholar” posts, visit IllinoisState.edu/RedbirdScholar.