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Bitcoin breakdown: a closer look at the cryptocurrency

An iPhone displays a bitcoin price graph. Credit: Courtesy of TNS

Chaz Schmidt bought a Valentine’s Day gift for himself last year –– $26 worth of Bitcoin. Nearly a year later, his investment is now worth $2,700.

Bitcoin, a type of cryptocurrency, has exploded in popularity in the past year, though it has been around for nearly a decade.

Many have heard of Bitcoin but not many know the details behind the mysterious currency.

Bitcoin is a form of digital currency that was developed by Satoshi Nakamoto in 2008, though Nakamoto is actually an alias for an unknown person, or group of people, who designed Bitcoin. Though there are a variety of cryptocurrencies available at the moment, Bitcoin has become the most popular one for investors.  

Bitcoin was created as a way to bypass government control on currencies and make online transactions easier. The underlying technology behind Bitcoin is a blockchain, a digital ledger in which public transactions made in cryptocurrencies are recorded in a global network of computers.

The Cryptocurrency Club on campus teaches students the information behind digital currency like Bitcoin. Schmidt, the president of Ohio State’s Cryptocurrency Club, explained Bitcoin using an analogy.

Imagine you are playing poker with a group of strangers,” he said. “No one at the table is able to trust one another so everyone keeps a ledger of the bets that occur. At the end of each round, the group of players compares their ledgers with one another to form a consensus.

“If someone at the table attempts to cheat by changing their version of the ledger, the rest of players will notice and reach a consensus that excludes the cheater’s false bets. Once a consensus is reached, everyone turns the page and starts recording the new round on the next page.”

Jim Fowler, the club’s adviser and assistant professor in the mathematics department, said he remembers being on the internet in the ’90s and hearing people talk about making the internet cash concept work.

“The real innovation with Bitcoin was figuring a way to make digital cash work,” he said.

The way people make money off of Bitcoin is through data mining, the process of examining large databases in order to generate new information. Users are encouraged to create new pages in their ledger by making new transactions. To gain more Bitcoins they have to verify pending transactions and solve a math puzzle. Once a miner solves the puzzle, their block of transactions is added to the end of the chain and they’re able to receive new Bitcoins.

Nathan Crum, vice president of the Cryptocurrency Club, said the concept of Bitcoin is revolutionary. As more people become familiar with how the currency works, its relevance is likely to grow in years to come.

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