What is bitcoin? A look at the digital currency

By Collin Gallant on March 24, 2018.

Medicine Hat News & the Associated Press

The price of a single Bitcoin rocketed above $20,000 at the beginning of the year, bringing the best-known ‘cyrptocurrency’ into mainstream conversations.

But it also brought forward a lot of questions.

What is it? Where is it? How does it affect to me?

This week the City of Medicine Hat announced that it has signed a power-supply agreement with Hut 8 Mining Corp., which plans to open a major data processing centre in September to handle the digital currency and earn transaction fees.

WHAT BITCOIN IS

Bitcoin is the world’s most popular virtual currency, which allows people to buy goods and services and exchange money without involving banks, credit card issuers or other third parties.

It has a fuzzy history, having been used by hackers to demand ransom and for the purchase of illegal drugs online. But recently it’s become more popular with a different crowd: Speculative investors.

As its price keeps rising, here’s a brief look at bitcoin.

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HOW BITCOINS WORK

Bitcoin is a digital currency that is not tied to a bank or government and allows users to spend money anonymously. The coins are created by users who “mine” them by lending computing power to verify other users’ transactions. They receive bitcoins in exchange. The coins also can be bought and sold on exchanges with Canadian dollars and other currencies.

In February, TD Bank announced it would no longer allow Bitcoin to be purchased using the credit cards it issues.

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HOW MUCH IS IT WORTH?

One Bitcoin was trading at about C$11,600 on Friday, of about US$8,600, according to coindesk, a website that monitors the price. Though it is only one of hundreds of cryptocurrencies.

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WHY IS IT POPULAR?

Bitcoins are basically lines of computer code that are digitally signed each time they travel from one owner to the next. Transactions can be made anonymously, making the currency popular with libertarians as well as tech enthusiasts, speculators — and criminals. The technology involved is called ‘blockchain’ which technology experts say is a major innovation in data storage that could eventually be used to changed all record and data storage.

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IS IT REALLY ANONYMOUS?

Yes, to a point. Transactions and accounts can be traced, but the account owners aren’t necessarily known. However, investigators might be able to track down the owners when bitcoins are converted to regular currency.

Earlier this year, the Canadian Revenue Agency announced that it expects those who bought or sold Bitcoin in 2017 to report profits or loss in income tax calculations.

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WHO’S USING BITCOIN?

Some businesses have jumped on the bitcoin bandwagon amid a flurry of media coverage. Overstock.com accepts payments in bitcoin, for example. The U.S. exchange operator CME Group said in October that it plans to open a futures market for the currency before the end of the year, if it can get approval from regulators. Still, its popularity is low compared with cash and cards, and many individuals and businesses won’t accept bitcoins for payments.

Some high-profile banking executives have spoken against bitcoin.

Bank of Canada governor Stephen Poloz has said it is more akin to “gambling” compared to traditional investments.

That said, JPMorgan is starting to use the underlying technology behind bitcoin, known as blockchain, as a potential way for banks to more accurately track trading and assets.

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SHOULD I OWN BITCOIN?

There are basically two reasons why an individual would want to buy bitcoin: to use it as a form of payment, or as an investment to store value.

Bitcoin’s current usage among mainstream merchants is limited. Microsoft accepts it as a form of payment on its Xbox and Windows Store platforms. But don’t expect to spend it at Wal-Mart or Amazon.

The virtual currency is a matter of debate among investors. Some, like Dimon and billionaire Mark Cuban, are strongly against it while others are enthusiastic about it. Wall Street is starting to build products around it. The more grounded investors see bitcoin as a highly speculative, highly risky investment that a person should not put all their money into, not unlike gold, commodities or traditional currencies.

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HOW BITCOINS ARE KEPT SECURE

The bitcoin network works by harnessing individuals’ greed for the collective good. A network of tech-savvy users called miners keep the system honest by pouring their computing power into a blockchain, a global running tally of every bitcoin transaction. The blockchain prevents rogues from spending the same bitcoin twice, and the miners are rewarded for their efforts by being gifted with the occasional bitcoin. As long as miners keep the blockchain secure, counterfeiting shouldn’t be an issue.

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HOW BITCOIN CAME TO BE

It’s a mystery. Bitcoin was launched in 2009 by a person or group of people operating under the name Satoshi Nakamoto. Bitcoin was then adopted by a small clutch of enthusiasts. Nakamoto dropped off the map as bitcoin began to attract widespread attention. But proponents say that doesn’t matter: The currency obeys its own internal logic.

An Australian entrepreneur last year stepped forward and claimed to be the founder of bitcoin, only to say days later that he did not “have the courage” to publish proof that he is.

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