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Financial Freedom Magazine

Financial Freedom Magazine

How Does BitCoin Work?

How Does BitCoin Work?

hi I’m Jonathan this is brainstuff and I’ve got some bad news for you money is imaginary now I don’t mean that this printed piece of paper is make-believe I can feel its texture and the ink even smudges off on my fingers but when you compare it to this other piece of paper what’s really the difference well one is a recognized currency and the other isn’t and the reason why well people agree that this piece of paper is a dollar and has value that’s where money’s worth comes from we all pretend it’s a currency this is one reason why the digital currency Bitcoin appeals to some people see it’s not tied to any political system or government so it’s not vulnerable to any of their failings like the economic collapse in 2008 all it needs is for people to believe in it but lately well some people are having a crisis of faith that’s why today on brain stop we’re going to quickly establish some facts about Bitcoin to better inform your beliefs about it now basically it’s virtual money you can use to buy and sell things online and it mimics real world limited resources like gold for instance it’s also a crypto currency meaning that it’s encrypted in a way that prevents it from being copied see every Bitcoin transaction is recorded using a blockchain now that information acts like a ledger that is encoded onto the Bitcoin itself this prevents people from spending the same Bitcoin more than once since everyone else on the currency’s peer-to-peer network knows that it just was spent it’s essentially just a number associated with an Internet address you can store it on your phone or a hard drive until it’s used again now here’s some ways you could acquire bitcoins accept them as payment for goods and services exchange them for a more traditional form of currency or you can mine them that’s right like gold bitcoins are mined not by o-tama grizzled prospectors but by powerful computers and like gold the more people mined bitcoins the less there are to be found so they become harder to find so instead of physically mining with a pickaxe you can attempt to solve math problems for the computer imagine the problem is something like X plus y equals 15 now if you can figure out what x and y are congratulations you get a Bitcoin with little competition the problems are easier to solve but when more people join the search you’ve got a race and the problems get way more difficult but as Bitcoin miners dwindle the math problems will get easier again to ensure the flow is steady their value is boosted and they remain inflation proof not all have in mind yet and we expect they won’t be until around 21 40 so let’s say you heard all this and thought yeah I want to grow up to be a professional Bitcoin miner and trader well there are a few risks you should probably know about first for instance because there’s no regulatory agency setting a bitcoins value it tends to fluctuate wildly another Bitcoin problem is security now actually the format itself is fine but that doesn’t protect it from hackers who target the banks and exchanges that deal in bitcoins again this isn’t the fault of the currency if a bank were robbed you wouldn’t blame the dollar bill for getting stolen right so bitcoin has its lumps and for it to become widely used its volatility needs to settle down quite a bit it’s currently a high risk currency that’s totally unpredictable and we didn’t even get into the mysterious identity of bitcoins founder Satoshi Nakamoto now personally I think the biggest drawback to Bitcoin is that you just can’t make it rain if you’d had experiences with Bitcoin let’s know in the comments below and let us know if there are any topics you’d like us to cover I actually have another pile of them right over there really I mean it’s just off-screen so uh best part about this is I don’t even have to pick it up we have interns to do that see you guys later


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