If fewer people begin to accept Bitcoin as a currency, these digital units may lose value and could become worthless. There is already plenty of competition, and though Bitcoin has a huge lead over the other 100-odd digital currencies that have sprung up, thanks to its brand recognition and venture capital money, a technological break-through in the form of a better virtual coin is always a threat.
When you pay someone in bitcoin, you set in motion a process of escalating, energy-intensive complexity. Your payment is basically an electronic message, which contains the complete lineage of your bitcoin, along with data about who you’re sending it to (and, if you choose, a small processing fee). That message gets converted by encryption software into a long string of letters and numbers, which is then broadcast to every miner on the bitcoin network (there are tens of thousands of them, all over the world). Each miner then gathers your encrypted payment message, along with any other payment messages on the network at the time (usually in batches of around 2,000), into what’s called a block. The miner then uses special software to authenticate each payment in the block—verifying, for example, that you owned the bitcoin you’re sending, and that you haven’t already sent that same bitcoin to someone else.
In addition to being the means of generating new bitcoin, bitcoin mining creates the blockchain that verifies bitcoin transactions. The block reward is gleaned by placing a new block on the blockchain, which acts as an advancing public ledger of verified transaction. This is an essential function for bitcoin's operation as it enables the currency to be safely and predictably created without the centralized regulation in the form of a bank or federal government. Blocks must to be a validated by a proof-of-work (Bitcoin uses Hashcash), which can only be obtained by expending a great deal of processing power. Once a block is obtained a message is broadcast to the mining network and verified by all recipients.
A “wallet” is basically the Bitcoin equivalent of a bank account. It allows you to receive bitcoins, store them, then send them to others. There are two main types of wallets, software and web. A software wallet is one that you install on your own computer or mobile device. You are in complete control over the security of your coins, but such wallets can sometimes be tricky to install and maintain.A web wallet, or hosted wallet, is one that is hosted by a third party. These are often much easier to use, but you have to trust the provider (host) to maintain high levels of security to protect your coins.
Transactions are verified by network nodes through cryptography and recorded in a public distributed ledger called a blockchain. Bitcoin was invented by an unknown person or group of people using the name Satoshi Nakamoto and released as open-source software in 2009. Bitcoins are created as a reward for a process known as mining. They can be exchanged for other currencies, products, and services. Research produced by the University of Cambridge estimates that in 2017, there were 2.9 to 5.8 million unique users using a cryptocurrency wallet, most of them using bitcoin.