Who is in charge of Bitcoin in the first place? (Part 3)

Serialized Columns：Starting from Zero: Cryptocurrency Trading：Episode 3

As you may know, Bitcoin is not a currency managed by a government, a bank, or a company. So, where is it issued from and how does it circulate worldwide?

A currency without a central administrator might feel worrisome, but in fact that can be more reassuring.

Distributed Management Using a Computer Network

Bitcoin has a ledger-like database calledblockchain that records all transaction histories.

There, records of “how much coin was sent from where to where” are kept, and the database is public.

And the transaction records in that database are monitored (distributed maintenance) by many participants around the world, and unless more than half (51%) agree that something is fraudulent, fraud is rejected by the network.

If fraud were acknowledged by all, all participants would be harmed, so the idea is that fraud does not occur.

A Majority Based on Good Intentions

Thus, the Bitcoin network decides at regular intervals (every 10 minutes) whether there is any fraud in transactions and appends it to the ledger (blockchain) bya majority of goodwill.

What if there were a centralized administrator in the network?

A single malicious administrator could commit fraud, or a hacker could infiltrate the network to tamper with or destroy data, but with Bitcoin that is unlikely to happen.

What about the Mt. Gox incident?

Some people might have that thought.

In 2014, tens of millions of dollars worth of Bitcoin were stolen from the largest exchange at the time. From that image, it seemsthat Bitcoin is dangerousremains in people’s impression.

In reality, that incident was essentially “a scandal caused by a single, slack corporate entity (inadequate management and internal wrongdoing).”

More of the problems were with the intermediary companies that managed Bitcoin transactions rather than Bitcoin itself.

FX in its early days (before being registered with the Financial Services Agency) reportedly had many incidents of clients’ margin money being stolen, so the situation might be similar.

Correcting wrong knowledge and images as early as possible is gradually spreading.

Bitcoin isn’t inherently dangerous; rather, the exchange’s management system was dangerous…that is the essence.

Security Maintained by Rewards

Bitcoin’s safety is not sustained by charity alone, but by people’s goodwill.

The series of verification tasks is calledmining, and the work is performed by enormous computer calculations.

People who perform this mining are called miners. Anyone with a PC can participate, but today there are so many strong competitors that ordinary people may find electricity costs prohibitive.

Those who successfully append to the ledger receiveBitcoin as a reward, and that moment is the only time new Bitcoin is issued.

The reward started at 50 BTC per 10 minutes per person and is designed to halve roughly every four years to balance supply. It halved to 25 BTC in November 2012 and is planned to halve to 12.5 BTC in June 2016.

As the halving period approaches and the supply decreases, there is alsoa strong possibility that Bitcoin will rise in price.

Summary

Bitcoin is a virtual/crypto currency without a central bank or central authority!