BitCoin, Etherium, Cryptocurrency. Chances are you've heard about one of them. What you might not know is what they are, and how they work. Here is our (brief) rundown of exactly that.
What is Bitcoin?
Put plainly, Bitcoin and other cryptocurrencies are a digital form of money. There are no physical bills, or dollars, no central bank that controls it, and no bank that carries it - it's governed by nothing. Transactions are made anonymously, and transactional information is stored in what's known as a blockchain.
What is a blockchain you ask? It's essentially a ledger that stores and records every single transaction that occurs with a cryptocurrency. 'Blocks' are added to the 'chain' each time a transaction is verified. The transactions are verified by 'miners' which ensure that (because the currency is completely virtual) the senders coins are sent to the correct destination with the correct value with no changes. This is a complex process uses a lot of computing power, and so the miner is rewarded by receiving cryptocurrency in return for adding a block to the chain in what's called a coinbase transaction. This is how new currency is made.
How does it work?
Below is an infographic that explains the process of coin creation and the way money is transferred in slightly more technical terms.
What is all of the hype?
Cryptocurrencies became the world's very first decentralised peer to peer currency and payment network around the end of the Global Financial Crisis of 2008. Mistrust in traditional currencies spurred initial interest in the currency, and since then a growing acceptance of the virtual money by large companies has encouraged an increased interest by the general public.
This interest has blown up over the last 12 months. For some perspective, this time last year, as of the publish date of this article, 1 Bitcoin was valued at $1135AUD, one year on, that same 1 Bitcoin is valued at $16,438AUD. That's some ridiculous growth right there, that difference alone is just shy of 20% of the average Australian annual income. That doesn't neccesarily make it all growth as during that 12 months the currency did manage to reach a staggering $24,385AUD prior to crashing in late December of last year.
The information provided in this post is for educational purposes only and is general in nature. We recommend that you consult a licensed or authorised financial adviser if you require financial advice that takes into account your personal circumstances.