What are bitcoins?
Bitcoin was originally described in a reference paper titled Bitcoin: A peer-to-peer Electronic Cash System by Satoshi Nakamoto (an unknown person or persons) in 2008. Bitcoin’s inventor(s) set a monetary policy based on artificial scarcity at bitcoin's inception whereby there will only ever be 21 million bitcoins in total. Their numbers are being released roughly every ten minutes and the rate at which they are generated would drop by half (known as The Halfing) every four years until all are in circulation. The current reward is ฿12.5 BTC each 10-minutes, this will drop to ฿6.25 in 2020, 3.12 in 2024, etc. It is this scarcity of supply that underlies the value of Bitcoin. To date, approximately 78% of the to-be-available Bitcoins have been mined. This leaves approx. ฿4.47 million BTC left to be mined. The last bitcoin will be minted in approximately 2140.
Bitcoin is the first decentralised digital currency; it is the original cryptocurrency. Encryption and computational techniques are used to control the generation of the Bitcoin currency and verify the transfer of funds. A key component of the open Bitcoin network is the verification (trust) of a transaction – that it is being made by an authentic actor and not an imposter. The validation of a transaction takes place in the open Bitcoin network (built from and by Bitcoin miners).
Traditional banking and credit card transactions use a closed network of banks and credit card companies to effect the transfer and clearing of funds. It is a complex interconnection of issuing banks, merchant banks, credit card companies and clearing banks. This closed network is used to verify that the transaction is authentic and that funds are present.
Bitcoin operates independent of any government controlled central bank. Bitcoin is therefore an unregulated currency and inherently risky. It is the Bitcoin Blockchain that is the ledger for each transaction on the network. The blockchain is open and freely available, and removes the need for a closed network of special proprietary players. The network is peer-to-peer, meaning users transact directly with one another and no intermediary is required. Bitcoin mines verify all transactions and accordingly receive the fees for those transactions.
Bitcoin is a disruptive technology in that it removes the requirement of working with traditional banks. Its transactions are authentic and can also be anonymous. In February of 2017, there were 11 Million Bitcoin wallets; today (February 2018), there are more than 22 Million. In each 24-hour period there are over 300,000 transactions with a combined value of $2-5 Billion US Dollars. Fees from mining in this 24-hour period are now between $30-50 Million US Dollars.
Bitcoin mining is required for Bitcoin to exist. All mines together form the global unregulated infrastructure that is needed to ensure Bitcoin transactions complete successfully and properly.