11 Things You Need to Know About Bitcoin

Even the most tech savvy among us have a hard time wrapping their heads around Bitcoin. It's a hot topic and a frequent point of discussion among investors, entrepreneurs and stock traders, so you should want to know all about it.

For starters, here's an overly simplified explanation of Bitcoin: It's a digital currency (there are more than 800 now) that isn't controlled by a central authority such as a government or bank. It's created by "miners," who use computers and specialized hardware to process transactions, secure the currency's network and collect bitcoins in exchange. Supporters say it allows for more secure transactions over the internet. That's in part due to blockchain, a technology that records cryptocurrency transactions chronologically in a public digital ledger.

Bitcoin is only eight and a half years old, but it’s the oldest and most highly valued cryptocurrency out there. In such a short time, it’s had a rocky and controversial history, but it’s also attracted a fair share of high-profile supporters. Click through to read 11 bits about Bitcoin that will make you at least sound like you know what you're talking about next time it inevitably comes up.

The birth of Bitcoin

The origins of bitcoin trace back to 2008, when its creator, who went by the pseudonym Satoshi Nakamoto, published a proof of concept for Bitcoin. The proof was then published to a cryptocurrency mailing list in 2009. Nakamoto left the project in 2010 and disappeared, but other developers picked up the work. Bitcoin's birthday is Jan. 3, when Nakamoto mined the first 50 units of the currency.

3. Very expensive pizza

The first transaction involving bitcoin was reported on May 22, 2010, when a programmer identified as Laszlo Hanyecz said he "successfully traded 10,000 bitcoins for pizza." As of Aug. 28, 2017, 10,000 bitcoins are worth about $43 million.

4. You can spend bitcoins

While it may not seem like it, people continue to use bitcoins to buy stuff. The largest businesses to accept the cryptocurrency include Overstock.com, Expedia, Newegg and Dish.

5. Federal Bureau of Bitcoin

At one point, the U.S. government was one of the largest holders of bitcoin. In 2013, after the FBI shut down Silk Road, a darknet site where people could buy drugs and other illicit goods and services, it took over bitcoin wallets controlled by the site, one of which held 144,000 bitcoins. Investors have been making a killing by bidding on government-seized bitcoins.

6. A mountain-sized setback

In early 2014, Bitcoin suffered a devastating loss after the alleged hacking of Mt. Gox, a Japanese exchange. About $460 million of the currency (in 2014 value) was stolen. It was the largest loss of bitcoins ever and raised concerns about how secure the currency was.

7. The billionaires' takes

Warren Buffett, perhaps the most famous investor in the world, was not so keen on Bitcoin one of the only times he addressed the currency. "Stay away from it. It's a mirage, basically," he told CNBC. "The idea that it has some huge intrinsic value is a joke in my view." Fellow billionaire Mark Cuban has said its value is inflated, but he recently invested in cryptocurrency. Richard Branson, however, has spoken more optimistically about it.

8. Wealthy twins and a smart teen

Other notable investors in Bitcoin include Cameron and Tyler Winklevoss (the Harvard-educated twins who sued Mark Zuckerberg claiming that Facebook was based on an idea they'd had). They invested $11 million into Bitcoin in 2013, an amount said to be about 1 percent of all bitcoins in circulation at that time. The Winklevoss twins have been petitioning the SEC to create a bitcoin exchange traded fund. The agency rejected the idea earlier this year.

Another is investor and entrepreneur Erik Finman, who invested $1,000 into Bitcoin when he was 14 years old and is now a millionaire.

9. Celebrities want in

Celebrities have also expressed enthusiasm for the cryptocurrency. Actor and Goop founder Gwyneth Paltrow advises Abra, a Bitcoin wallet, and Ashton Kutcher, Nas and Floyd Mayweather have all invested in Bitcoin startups.

10. Support from a big financial institution

In August 2017, Fidelity Investments became a rare standout among financial institutions in embracing Bitcoin and other cryptocurrencies. The company allows its clients to use the Fidelity website to view their bitcoin holdings held through digital wallet provider Coinbase. "This is an experiment in the spirit of learning what these crypto assets are like and how our customers may want to interact with them," Hadley Stern, senior vice president and managing director at Fidelity Labs, told Reuters.

11. A hard fork

On Aug. 1, 2017, Bitcoin experienced what's being called a "hard fork" as a result of a few issues, including the limited number of transactions that can be processed per second. Essentially, the cryptocurrency split into two, with Bitcoin Cash debuting. Here's how Rob Marvin of PCMag explains the situation: "The Bitcoin fork speaks to a fundamental ideological rift over what's more important: preserving the decentralized nature and independent control of the Bitcoin network, or accelerating transaction speeds to make the cryptocurrency more viable for mainstream ecommerce and payments." Bitcoin Cash allows larger blocks of currency and more transactions per second.

In Context Bitcoin Has Risen To Record Highs

After a two-year long bear market, bitcoin came roaring back in 2016, and has been climbing ever since.

The digital currency reached a new all-time high above $4,650 on Tuesday, an increase of more than 350% year-to-date. The sheer intensity of its gains has inspired some comparisons to the digital currency's initial run-up, which ended with the collapse of bitcoin exchange Mt. Gox in early 2014, marking the end of the first bitcoin bull market.

Given bitcoin's torrid advance, analysts from Bespoke Investments attempted to put its gains in context in a chart. The results are striking: Compared with infamous asset bubbles like tech stocks in the 1990s, bitcoin has climbed much further in far less time. According to Bloomberg, “there’s almost no comparison” between bitcoin and the tech-stock bubble. 

“Bespoke Investment Group contrasted the rise in bitcoin with infamous bubbles such as the tech market in the late nineties. There’s almost no comparison. Tech stocks rose just over 1,000 percent over the entire course of their bubble, and bitcoin is already up more than twice that. Take a look.”

According to CoinTelegraph, bitcoin analysts expect the digital currency to finish the year around $5,000.

And some expect the digital currency to go much, much higher. According to the Wall Street Journal, early Snapchat investor Jeremy Liew expects Bitcoin will reach $500,000 by 2030. Security company founder and notable eccentric John McAfee believes it’ll take only three years.

Alistair Milne, a popular bitcoin analyst who has a large Twitter following, calculated earlier this month that bitcoin would already be worth more than $7,000 if the digital currency’s share of the overall crypto market would return to its pre-2017 levels. Bitcoin’s market capitalization now represents less than half of the total for the broader market crypto market, down from about 90% early this year. The drop is largely due to bitcoin rivals like Ethereum and Litecoin, which put bitcoin's YTD rise to shame.

e it was before the Bitcoin Unlimited/forking fears), the price would be ~$7000 today

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Bitcoin has made a habit out of routinely defying its most ardent skeptics. But the shadow of Mt. Gox still looms large over the digital currency market. And the risk of another bull-market-ending catalyst like a 51% attack on the bitcoin network or another major hack at one of the more mainstream exchanges could force out the week hands, sparking another precipitous drop.

Mining Bitcoin in Venezuela feeds families

Cryptocurrencies like bitcoin have long been seen as a risky investment, but in places like Venezuela, they can also be dangerous.
Thousands of Venezuelans have turned to secretly mining the digital currency for their economic survival, and for many that means risking jail time.
Venezuela was once the richest country in South America, but it's now in crisis. It stands at the brink of civil war. Deadly protests paralyze city centers. It's the world's most indebted country, and its GDP has collapsed. Food and basic necessities are scarce, people are rationing toothpaste and toilet paper, and there are even reports of hungry Venezuelans killing flamingos and anteaters for food.

Ronaldo Schemidt | AFP | Getty Images
View of damages in a supermarket in Valencia, Carabobo State, on May 5, 2017, the day after anti-government protesters looted stores, set fire to cars and clashed with police, leaving at least five people injured, and one dead after being hit in the head by a projectile.
The country's future economic picture looks just as bleak. It already has the highest inflation rate on the planet. The International Monetary Fund expects prices in Venezuela to rise more than 1,100 percent this year.
Venezuela's currency — the bolivar — is in free fall. Going against black market rates, it's lost 99.4 percent of its value since 2012. But bitcoin, ethereum and other cryptocurrencies are insulated from all that. They're fully decentralized so they're immune to what's happening in any one country — regardless of where they're mined. And that's why Venezuelans have turned to mining.

Venezuela's underground cryptocurrency miners
In the cryptocurrency world, miners use computers to do the bookkeeping for digital transactions, verifying them and adding them to a public ledger. When someone mines, they earn digital currency as a payment for their efforts. It's been a lifeline for people like "Brother," a nickname used by an individual who lives just outside Caracas, who only agreed to speak to CNBC on condition of anonymity.
The 29-year-old father initially got into mining because his $43 monthly salary from his government job wasn't enough to support the baby girl he and his wife had on the way. That's when he decided to start illegally using computers in his government office to mine. He has since quit his job and now mines using his own equipment from home.
"Because of my daughter, I didn't think of it as a risk to what could happen to me in the company. I have to take the risk for her. I have to do this for her," says Brother.

Source: CNBC
"Brother" is based just outside Caracas and only agreed to speak to CNBC under anonymity.
Brother's story is a familiar one. David Fernando Lopez has since fled the country, but he once ran a bitcoin mining farm out of Caracas for three years. He was 40-years-old and didn't have a job. Mining was the one thing that could take him out of poverty. "You can feed a family with one ether rig. It's a fact."
Lopez says that a lot of people are doing this right now. "Andrea Perez" is among them. CNBC is using an assumed name for her to protect her identity. Andrea works three jobs, yet mining bitcoin represents roughly 80 percent of her income, or around $120 per month. "For me, bitcoin has represented the ability to be able to support and feed my daughter in a very volatile environment."
With a drastic shortages of supplies, Lopez says the easiest way to get basic amenities is to use cryptocash on e-commerce site purse.io. He orders staples like soap, deodorant, and shampoo — then a courier from Miami will deliver the goods right to his office. Others use cryptocash to buy vital medicine, like insulin, from overseas.

"You can feed a family with one ether rig. It's a fact."-David Fernando López, Former bitcoin farm operator

The process of mining itself isn't all that intuitive, so many have turned to online forums and YouTube tutorials to learn how to do it. Randy Brito runs an online forum called Bitcoin Venezuela that teaches people how to mine. Brito operates remotely out of Spain, having fled Venezuela with his family when he was 14. What started as a community of 10 users has ballooned to nearly 10,000 people.

"People are barely making a living with their jobs there. Even if they're a professional, they are not able to work," Brito said. "So people are finding that mining is a way to make a predictable income for their families."

Though it's a vital source of income for many, he says the danger of mining is becoming more acute by the day. "People who mine bitcoin or crypto with mining rigs, they're usually doing it underground," said Brito.

Source: David Fernando López
David Fernando Lopez spent three years running a bitcoin mining farm.
Venezuela's crackdown on mining
Mining cryptocurrency is completely legal in Venezuela, yet police have been arresting miners.
It began with Valencia-based Joel Padron and Jose Perales. Local media reported both were arrested and detained for several months in 2016 on charges of energy theft and possession of contraband.
The number of arrests and raids has steadily grown since then. When asked about why authorities were cracking down so hard on bitcoin miners, a detective from the national police (CICPC) told CNBC that in many of these cases, suspects were "exploiting resources without documentation."

Source: David Fernando López
Lopez ran his mining farm out of Caracas.
However, some miners said the Venezuelan government views cryptocurrencies as a threat to the already weak bolivar and to its strict rules about capital flight. Government officials could not immediately be reached for comment.
One Reddit post by a Venezuelan bitcoin miner claimed that, "miners are getting jailed and accused of terrorism, money laundering, computer crimes and many other crimes. It's getting crazy here and I really don't want to waste my life for money."
"Miners are getting jailed and accused of terrorism, money laundering …"
A year ago, "Tego Sanchez" spent his life savings on mining hardware and taught himself to mine. It now accounts for 80 percent of his income. At ethereum's peak price, he earned roughly $20 daily. But the 23-year-old says he lives in constant fear of being caught after seeing his friends arrested in raids. He says that's a big reason Venezuela's crypto community largely runs on secret groups and encrypted messaging apps like Telegram. That's also why he uses an assumed identity.

Source: CNBC
"Tego Sanchez" spent his life savings on mining hardware.
"I haven't had any problems with national security forces because I don't talk about it. Not even my friends know what I do," he said. "My grandmother is the only person who knows because I live with her."
"Mateo Patino" also taught himself to mine back when the economy went sideways in 2012. At the height of bitcoin's value, he raked in up to $600 monthly, roughly three times the wage he earned as a journalist.
Patino says he was approached by the SEBIN, an acronym given to the country's intelligence service — the Servicio Bolivariano de Inteligencia Nacional. "They started to ask questions about why I was drawing so much power from my house. I actually turned off all my bitcoin miners, and I moved them to another secure location."

Source: David Fernando López
A friend of Lopez helped assemble his bitcoin mining farm back in 2013.
This is one way authorities track down miners. Venezuela has heavily state subsidized electricity. That keeps the price low, which is a major incentive, because mining for cryptocurrencies takes an enormous amount of electrical power. However, it also means police monitor power consumption all across the country. Miners said when authorities see that somebody is using too much electricity, they go after them.
That's why many arrests of miners are on charges of internet fraud and electricity theft. Earlier this year, four miners in Charallave were arrested for allegedly endangering the stability of the town's electrical service.
Brother said he not only protects his online identity; he also conceals his electrical footprint. He has split his mining equipment across three different locations, and pays his neighbors to use their electricity so he can spread his devices across multiple power grids.

Source: CNBC
National electricity transmission grid of Venezuela
But even using precautions, Patino said, mining for bitcoin, in particular, is a major gamble.
"Mining bitcoin became something out of a spy movie, because miners were getting arrested on false charges," Patino said. "Many bitcoin miners are being prosecuted. Many, they're scared, they're paranoid."
Lopez said he ultimately had to get out of the business entirely for his own safety. Though 99 percent of his net worth is still invested in bitcoin, Lopez said he now chooses to trade the cryptocurrency instead, a bystander as the danger of mining grows.

Source: David Fernando López
After getting out of the business of mining, Lopez ultimately fled Venezuela.
Venezuela is just one country in deep political and economic crisis, but it illustrates why digital currency alternatives like bitcoin are gaining in importance.
Joe Lubin, co-founder of the cryptocurrency ethereum, argues in challenging conditions where natural currencies are spiraling out of control, cryptocurrencies are integral to survival. "Yes, they're volatile. But they represent real lifesaving value to many people in many countries around the world."

Bitcoin Miners Discuss Partnerships With Russian Energy Corporations

Russian media has reported that two of the nation’s major energy corporations, EvroSibEnergo and Gazprom, are in discussions with Russian bitcoin miners who are hoping to strike a deal on cheap power. EvroSibEnergoI has reportedly issued statements articulating that although no contracts have been officially been signed, the corporation is open to the possibility of entering into partnership with cryptocurrency miners.

Russia’s Largest Energy Company Has Received “Dozens of Requests” From Russian Bitcoin Miners

Russian media outlets have reported that two major energy corporations have been in discussions with Russian bitcoin miners. The news comes just weeks after Russian state officials announced plans to launch an ICO for a public-private partnership seeking to rival China’s dominance over the bitcoin and cryptocurrency mining industries

According to RT, EvroSibEnergo has received “dozens of requests“ from Russian bitcoin miners seeking to reduce the power costs associated with mining. EvroSibEnergo has stated that “there are over 70 manufacturing facilities with ready-made infrastructure, including quick access to electrical grids and substations, provided with cheap electric power”, which are located throughout Siberia, the Urals, and European parts of Russia.

Miners May Still Be Legally Required to Purchase Their Power Through Russia’s Wholesale Energy Markets

Russian miner, Timofey Ra, is reported to have stated that power costs account for 30 per cent of the costs associated with mining bitcoin, and 15 per cent of the costs associated with generating ethereum. Ra alleges that some miners have already struck preferential deals with power companies, citing per kilowatt prices as low as two rubles ($0.03 USD) – a 62.5% saving off the average price of 4.5 rubles per kilowatt ($0.08 USD).

Dailystorm has reported that despite the private deals between Russian bitcoin miners and energy companies, miners will still be legally obliged to purchase their power through the nation’s wholesale market. Dailystorm states that “by law[,] more than 25 MW of power should be sold through the wholesale market… Miners require 100 kW to 30 MW of power… thus, even if the contract is concluded at a reduced price, it will be necessary to make additional payments in the wholesale market.”

Do you think that Russia will be able to rival China’s dominance of the bitcoin mining industry? Share your thoughts in the comments section below!

What is Bitcoin

Bitcoin is a form of digital currency, created and held electronically. No one controls it. Bitcoins aren’t printed, like dollars or euros – they’re produced by people, and increasingly businesses, running computers all around the world, using software that solves mathematical problems.

It’s the first example of a growing category of money known as cryptocurrency.

What makes it different from normal currencies?

Bitcoin can be used to buy things electronically. In that sense, it’s like conventional dollars, euros, or yen, which are also traded digitally.

However, bitcoin’s most important characteristic, and the thing that makes it different to conventional money, is that it is decentralized. No single institution controls the bitcoin network. This puts some people at ease, because it means that a large bank can’t control their money.

Who created it?

A software developer called Satoshi Nakamoto proposed bitcoin, which was an electronic payment system based on mathematical proof. The idea was to produce a currency independent of any central authority, transferable electronically, more or less instantly, with very low transaction fees.

Who prints it?

No one. This currency isn’t physically printed in the shadows by a central bank, unaccountable to the population, and making its own rules. Those banks can simply produce more money to cover the national debt, thus devaluing their currency.

Instead, bitcoin is created digitally, by a community of people that anyone can join. Bitcoins are ‘mined’, using computing power in a distributed network.

This network also processes transactions made with the virtual currency, effectively making bitcoin its own payment network.

So you can’t churn out unlimited bitcoins?

That’s right. The bitcoin protocol – the rules that make bitcoin work – say that only 21 million bitcoins can ever be created by miners. However, these coins can be divided into smaller parts (the smallest divisible amount is one hundred millionth of a bitcoin and is called a ‘Satoshi’, after the founder of bitcoin).

What is bitcoin based on?

Conventional currency has been based on gold or silver. Theoretically, you knew that if you handed over a dollar at the bank, you could get some gold back (although this didn’t actually work in practice). But bitcoin isn’t based on gold; it’s based on mathematics.

Around the world, people are using software programs that follow a mathematical formula to produce bitcoins. The mathematical formula is freely available, so that anyone can check it.

The software is also open source, meaning that anyone can look at it to make sure that it does what it is supposed to.

What are its characteristics?

Bitcoin has several important features that set it apart from government-backed currencies.

1. It's decentralized

The bitcoin network isn’t controlled by one central authority. Every machine that mines bitcoin and processes transactions makes up a part of the network, and the machines work together. That means that, in theory, one central authority can’t tinker with monetary policy and cause a meltdown – or simply decide to take people’s bitcoins away from them, as the Central European Bank decided to doing Cyprus in early 2013. And if some part of the network goes offline for some reason, the money keeps on flowing.

2. It's easy to set up

Conventional banks make you jump through hoops simply to open a bank account. Setting up merchant accounts for payment is another Kafkaesque task, beset by bureaucracy. However, you can set up a bitcoin address in seconds, no questions asked, and with no fees payable.

3. It's anonymous

Well, kind of. Users can hold multiple bitcoin addresses, and they aren’t linked to names, addresses, or other personally identifying information. However…

4. It's completely transparent

…bitcoin stores details of every single transaction that ever happened in the network in a huge version of a general ledger, called the blockchain. The blockchain tells all.

If you have a publicly used bitcoin address, anyone can tell how many bitcoins are stored at that address. They just don’t know that it’s yours.

There are measures that people can take to make their activities more opaque on the bitcoin network, though, such as not using the same bitcoin addresses consistently, and not transferring lots of bitcoin to a single address.

5. Transaction fees are miniscule

Your bank may charge you a £10 fee for international transfers. Bitcoin doesn’t.

6. It’s fast

You can send money anywhere and it will arrive minutes later, as soon as the bitcoin network processes the payment.

7. It’s non-repudiable

When your bitcoins are sent, there’s no getting them back, unless the recipient returns them to you. They’re gone forever.

So, bitcoin has a lot going for it, in theory. But how does it work, in practice? Read more to find out how bitcoins are mined, what happens when a bitcoin transaction occurs, and how the network keeps track of everything.

Where to Buy and Sell Bitcoin

Exchange	About	Based
	Coinbase operates one of the most popular wallets and is an simple way to buy bitcoin. $5 bonus on sign up.	USA	BUY BITCOIN
	Localbitcoins matches buyers and sellers online and in-person, locally worldwide.	Finland	BUY BITCOIN
	BitQuick claims to be one of the fastest ways you can buy bitcoin.	USA	BUY BITCOIN
	CoinCorner allow purchases with credit and debit cards for verified users.	Isle of Man	BUY BITCOIN
	Bitbargain has a vast range of different payment options for UK buyers.	UK	BUY BITCOIN
	Xapo is Known for it's ease of use and bitcoin cold-storage vault.	USA	BUY BITCOIN