Bitcoin is a digital currency created in 2009. It follows the ideas set out in a white paper by the mysterious Satoshi Nakamoto, whose true identity has yet to be verified. Bitcoin offers the promise of lower transaction fees than traditional online payment mechanisms and is operated by a decentralized authority, unlike government-issued currencies. Today's market cap for all bitcoin (abbreviated BTC or, less frequently, XBT) in circulation exceeds $7 billion.
There are no physical bitcoins, only balances kept on a public ledger in the cloud, that – along with all Bitcoin transactions – is verified by a massive amount of computing power. Bitcoins are not issued or backed by any banks or governments, nor are individual bitcoins valuable as a commodity. Despite its not being legal tender, Bitcoin charts high on popularity, and has triggered the launch of other virtual currencies collectively referred to as Altcoins. Bitcoins are electronic currency, otherwise known as 'cryptocurrency'. Bitcoins are a form of digital public money that is created by painstaking mathematical computations and policed by millions of computer users called 'miners'.
It’s easy to draw parallels to mining precious metals like gold (GLD), wherein large corporations invest a lot of capital to extract gold from the earth. In the bitcoin world, mining involves investing a lot of capital in computer hardware and competing with fellow miners to solve a complex mathematical problem.
Just like gold miners (GDX), bitcoin miners create small quantities of bitcoins by using their computer network. The first miner to solve the problem using his or her computer’s computing power gets rewarded by the bitcoin network in the form of newly created bitcoins. Bitcoin mining requires a lot of resources and is a difficult process.
Bitcoins are, in essence, electricity converted into long strings of code that have money value.
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