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What Is Bitcoin (And Cryptocurrency)?

Everything you need to know about Bitcoin and cryptocurrency.

You might be aware that GPU prices have skyrocketed in recent months. This is due in large part to the rise of cryptocurrencies, to which there are many. Bitcoin is the first and most popular one, but what is Bitcoin? We're here to demystify the topic for you. While Bitcoin and cryptocurrency are incredibly deep and complex topics, in this beginner's guide, we'll not only explain what Bitcoin is, but we'll also dive into how it's created, discuss its use-cases, clear up misconceptions, and much more. Here's everything you should know about Bitcoin and cryptocurrency.

What is Bitcoin? Bitcoin is the first decentralized digital currency. You can send and receive it to an individual via a peer-to-peer payment system anywhere in the world as long as you have an internet connection. You can also purchase goods with it among several online sites and physical stores. Its decentralized design means that it isn't controlled by any one individual, central bank, company, or country. In short, Bitcoin is an open-source international currency.

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Who invented Bitcoin? Satoshi Nakamoto wrote the technical whitepaper to Bitcoin in 2008 and the first Bitcoin was produced the following year. It's unclear who Nakamoto is, however, and there are rumors that the alias may represent more than one person.

What is the blockchain? Bitcoins are produced, or "mined", by individuals with high-end computers that solve encrypted math equations over a distributed online database called the blockchain. Whenever a Bitcoin transaction takes place, that data is encrypted and sent across the network for these mining computers to verify. They do so by decrypting the data. This process is known as cryptography and forms the backbone of security for Bitcoin (more on security later).

Image courtesy of G2 Crowd.
Image courtesy of G2 Crowd.

Once the data has been decrypted, they are publicly stored in one megabyte blocks on the blockchain network. As an added security measure, these blocks are formed every 10 minutes and can not be altered. New transactions are stored on subsequent blocks, which link up to the old blocks in a chronological chain. The blockchain thus acts as a public ledger of Bitcoin transaction history.

Every miner keeps an up-to-date record of the blockchain, which is currently over 157GB, and gets rewarded with a small amount of Bitcoin for doing so.

Can Bitcoin be hacked? The way the blockchain is designed prevents Bitcoins from being spent again after they've already been used. The blockchain also makes it very difficult to create new Bitcoins out of thin air. In conjunction with the cryptographic measures outlined above, the Bitcoin blockchain is based on a consensus proof-of-work model. This means that not only do mining computers have to provide answers to the aforementioned encrypted equations, but in order for data to be added to the blockchain, a majority of the mining computers on the network have to agree that the computations were correct. To overcome this, an attacker would effectively have to hack the majority of computers on the network (to which there are hundreds across the world) at the same time while providing mathematical proof of work. This makes Bitcoin incredibly hard to hack. Security is arguably the cryptocurrency's greatest asset. To date, Bitcoin has not been hacked.

Some exchanges that act as an online meeting grounds for buyers and sellers of cryptocurrency have been hacked, however. The Mt. Gox attack is the most notable one. In 2014, 850,000 Bitcoins were stolen from the Japan-based exchange. Users can mitigate their risk by taking their assets off of these exchanges and storing them in cryptocurrency wallets.

How do cryptocurrency wallets work? There are two major types of cryptocurrency wallets. Perhaps the most accessible are digital wallets that act as an online address for you to store the keys to your Bitcoins/cryptocurrencies. USB-based hardware wallets allow you to store your keys offline and are generally deemed more secure as a result.

One common misconception is that these wallets store your Bitcoins/cryptocurrencies, but they only store the keys (passcodes) that allow you to open up your Bitcoins on the blockchain network so you could transfer them elsewhere.

How much is Bitcoin right now? In relation to the US dollar, the current value of Bitcoin is:

Bitcoin price on Bitstamp - http://dc-charts.com

Can you exchange Bitcoin back to your local fiat currency (Dollars, Pounds, Euros, etc.)? Yes. Similar to purchasing stocks from investment banks online, many cryptocurrency exchanges allow you to purchase Bitcoin for fiat and vice versa.

What determines the price of Bitcoin? Similar to stocks, the price of Bitcoin is determined by consumer trust. This is manifested by how much people are willing to invest in the currency.

Do you have to buy a whole Bitcoin? No. As a matter of fact, Bitcoins are divisible up to eight decimal places. The smallest denomination (.00000001 Bitcoin) is called a Satoshi.

How many Bitcoin are there? Currently, there are over 16.8 million Bitcoins. Nakamoto designed Bitcoin to max out at 21 million by the year 2140. Beyond then, no Bitcoins will be mined or created. The cap was implemented to prevent currency inflation. Beyond 2140, miners will reap transaction fees for maintaining the Bitcoin blockchain.

What is an altcoin? Altcoins are alternative cryptocurrencies to Bitcoin. Like Bitcoin, most of them are designed around decentralized blockchain technologies that typically involve miners working together on a network. Currently, there are over 1,000 altcoins. Many of them are attempting to offer unique use-cases. Ethereum, for instance, has its own unique blockchain that enables "smart contracts."

Smart contracts attempt to open up new avenues for conditional automations where trust is a key variable. For instance, in a future where self-driving cars can deliver packages to your house, a smart contract coupled with the blockchain could ensure that you won't be charged until the package has arrived at your house. This is a transaction that can occur without any human interaction.

Some altcoins are tying blockchain technologies to radio-frequency identification (RFID) tags so people can scan a product with their smartphone to validate the authenticity of moving goods in markets with high amounts of counterfeiting.

Proponents assert that there are many use-cases for blockchain technologies. One general appeal of altcoins is that many of them are attempting to better facilitate automation in business and between emerging smart devices.

Can I use my gaming PC to mine Bitcoin? You used to be able to mine Bitcoin with gaming GPUs, but Nakamoto designed Bitcoin to be harder to mine over time. This was done to mimic the scarcity and difficulty of mining gold. As such, application-specific integrated circuit chips (ASICs) were designed specifically to mine Bitcoin. You can use modern gaming graphics cards to mine altcoins, however. This is the reason why GPU prices have skyrocketed in recent months.

Why are GPUs used to mine cryptocurrency? Because mining cryptocurrency involves solving numerous encrypted equations, GPUs with their highly parallel architecture are inherently very efficient at powering through these computations. While the best modern consumer CPUs may have 4, 8, or even 16 cores to do the job, modern GPUs have hundreds of compute cores working in parallel. This makes them orders of magnitudes more effective.

How can I use my gaming PC to mine cryptocurrency? To mine cryptocurrency, you'll first need to set up a cryptocurrency wallet so you can deposit your earnings.

The easiest way for beginners to start mining is to join a crypto-mining marketplace. Nicehash is the largest one, and the company makes its money by taking a cut of mined coins. Nicehash also offers a benchmark that suggests what your specific PC should mine.

How successful a PC is at mining is largely determined by the speed at which it can compute an operation in the Bitcoin code. This is known as the hash rate and is measured in megahashes per second. Since mining cryptocurrency is very GPU-intensive, it can consume a lot of power. Thus, the ideal balance is to maximize your hash rate while minimizing power consumption.

Many retail outlets are selling six pack of GPUs for cryptocurrency mining.
Many retail outlets are selling six pack of GPUs for cryptocurrency mining.

What are some of the risks to mining? Cryptocurrency mining can significantly raise your power bill and be detrimental to your hardware, since you would have to run them under heavy workloads for long periods of time. This can also cause heating issues. Furthermore, while mining a particular altcoin may be profitable one day, if the coin takes a financial crash the next, you could potentially lose money. Finally, while joining a crypto-mining marketplace is the easiest way to start mining, like exchanges, these marketplaces act as centralized hubs for cryptocurrency, and are more susceptible to hacks. NiceHash, in particular, was hacked towards the tail end of 2017 when 4,000 Bitcoins were stolen.

What are the best GPUs to mine cryptocurrency? This will vary depending on the altcoins you want to mine, but popular GPUs for mining on Nvidia's side at the moment include the Titan X, GTX 1080 Ti, and GTX 1070. On AMD's side, current popular picks include the RX 580, RX 570, RX Vega 64, and RX Vega 56. Many miners will also set up rigs with multiple GPUs working in parallel to bolster hash rates.

Where can you spend Bitcoin? There are many companies that accept Bitcoin. Some notable ones include Overstock.com, Expedia, and Newegg. More can be found here.

Where can I buy Bitcoin? The most common way is to purchase them from online exchanges.

What obstacles does Bitcoin face? The Bitcoin market is highly speculative and volatile. Regulations and tax rules are also currently in a state of flux. In addition, there is concern that certain countries may attempt to ban cryptocurrencies.

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Jimmy Thang

Hi! I'm Jimmy Thang and I'm GameSpot's Tech Editor!

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