The Bitcoin Bubble.

Bitcoin is a digital currency and payment system. It is also a cryptocurrency, meaning it uses cryptography for security. Counterfeiting bitcoin is almost impossible. No one knows who invented bitcoin, but the open source software was released under the name Satoshi Nakamoto. Transactions take place between users and are verified by network nodes to see if the bitcoins are not fake. If verified to be true bitcoin, the transaction is recorded in a ledger called a blockchain. So what makes a bitcoin so valuable and how do you get bitcoins. Bitcoins are created as a reward for doing something called mining.  All bitcoins are registered in the ledger (blockchain). Each bitcoin has an address in the ledger. Knowing the address and the random private key makes you the owner of the bitcoin. You might think that a brute force attack could generate the address key combinations? Now I am over simplifying this, but remember when I said bitcoins are created as a reward? Well the miners have to figure out the random key and address. In addition, each ledger (blockchain), requires what the call a proof of work. A proof is in place so you can’t bombard the ledger with data or some other type of abuse. The proof of work, requires a cryptographic hash. A hash is like when you put a series of numbers together to get another number and that number unlocks something. Now there is one more thing, you don’t just up and get bitcoin. After getting the proof, you need to hash a nonce with a proof of work and unlock something. A nonce is a number that can only be used one time. The software assigns each ledger (blockchain) with a difficulty target. This changes every 14 days. To create one ledger between March 2014 and March 2015, experts estimate miners had to try between 16 quintillion and 200 quintillion  nounces before creating a new ledger(blockchain). A quintillion has 30 zeros. So you are rewarded every time you add a block, by using an address, a private key and nounce that is verified by the previous block. The way it is set up, is that there is a finite amount of bitcoins. There will only be 21 million bitcoins. So finding a bitcoin using what is very loosely describe above is what makes it valuable. One bitcoin is trading at $6148.69 at the close of today’s market. But not all people believe that the market is going anywhere. While Mark Cuban thinks investment-wise it is just a bubble, he see’s the blockchain technology as something we will be seeing a lot of in the future. Warren Buffet is not a big fan of bitcoin and says of the digital currency,”You can’t value bitcoin because it’s not a value-producing asset, it is impossible to say how far bitcoin’s value will rise, there is a real bubble in that sort of thing. You can’t have a business where people can invent a currency out of thin air and think that people who are buying it are really smart.”


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