Bitcoin and crypto currencies at large have taken the world by storm. The exponential growth in bitcoins value over the past few years has garnered lots of attention for the decentralized currency with mysterious origins. Governments, central banks, and financial institutions are now taking notice.
Satoshi Nakamoto is the name used by the unknown person or people who designed bitcoin and created its original implementation. In October 2008, Nakamoto published a paper describing the bitcoin digital currency. It was titled “Bitcoin: A Peer-to-Peer Electronic Cash System”.
In January 2009, Nakamoto released the first bitcoin software that launched the network and the first units of the crypto currency, called bitcoins. There has been much speculation about the true identity of Nakamoto. Nakamoto has not disclosed any personal information when discussing technical matters. Nakamoto claimed to be a man living in Japan; but there is some speculations he was unlikely to be Japanese due to his use of perfect English and his bitcoin software not being documented or labeled in Japanese. Whatever the case of bitcoins origins, the technology is no longer seen as just a trend.
To understand crypto currencies you have to first understand the block chain, the underlying technology that powers bitcoin. A blockchain is a digitized, decentralized, public ledger of all cryptocurrency transactions. Constantly growing as ‘completed’ blocks (the most recent transactions) are recorded and added to it in chronological order. It allows market participants to keep track of digital currency transactions without central record keeping. Each node (a computer connected to the network) gets a copy of the blockchain, which is downloaded automatically.
The maintenance of the block chain is the main energy consumer for bitcoin and all crypto currencies. Adding new blocks to the block chain requires a tremendous amount of computer processing power. Once groups of computer processors have expended enough time and electricity to satisfy the proof of work required to add new blocks. Work begins on the next block as new transactions come in.
With each new block that gets added more and more process power is required. This process is called “mining”. With bitcoin, miners use special software to solve math problems and are issued a certain number of bitcoins in exchange. This provides a way to issue the currency and also creates an incentive for more people to mine. Bitcoin miners help keep the network secure by approving transactions. Mining is an important and integral part of bitcoin that ensures fairness while keeping the bitcoin network stable, safe and secure.
With each new crypto currency transaction, the electricity needed to maintain this operation increases exponentially. The bitcoin system was designed with this in mind. Where will the energy to power this growing currency come from? Comment below with your thoughts and ideas!
Our friends at the World Economic Forum created this great video describing bitcoins energy consumption in more detail.