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What is Bitcoin?

What is Bitcoin?
Highlights

Teenagers are using untraceable currency Bitcoin to buy dangerous drugs online. Fears have been raised as children as young as 14 are getting parcels...

Teenagers are using untraceable currency Bitcoin to buy dangerous drugs online. Fears have been raised as children as young as 14 are getting parcels of legal highs delivered to their home, the Irish Mirror reports . The drugs, which are not against the law in the UK and other countries, are known to have serious side-effects and users have developed psychological issues. Legal highs, which mimic cocaine and marijuana, are banned here but police have found “synthetic cannabis” is on the rise.

Bitcoin is a form of digital currency, created and held electronically. No one controls it. Bitcoins aren’t printed, like dollars or euros – they’re produced by people, and increasingly businesses, running computers all around the world, using software that solves mathematical problems. It’s the first example of a growing category of money known as cryptocurrency.

Bitcoin can be used to buy things electronically. In that sense, it’s like conventional dollars, euros, or yen, which are also traded digitally. A software developer called Satoshi Nakamoto proposed bitcoin, which was an electronic payment system based on mathematical proof. The idea was to produce a currency independent of any central authority, transferable electronically, more or less instantly, with very low transaction fees.

This currency isn’t physically printed in the shadows by a central bank, unaccountable to the population, and making its own rules. Bitcoin is created digitally, by a community of people that anyone can join. Bitcoins are ‘mined’, using computing power in a distributed network. This network also processes transactions made with the virtual currency, effectively making bitcoin its own payment network. Around the world, people are using software programs that follow a mathematical formula to produce bitcoins.

The mathematical formula is freely available, so that anyone can check it. The software is also open-source, meaning that anyone can look at it to make sure that it does what it is supposed to. Bitcoin slid by 10 percent in January after one of its lead developers, Mike Hearn, said in a blog post that he was ending his involvement with the cryptocurrency and selling all of his remaining holdings because it had "failed".

Hearn says the bitcoin network is about to run out of capacity as the volume of transactions increases. And when that happens, the network will become unreliable, with payments unable to be processed and vulnerable to fraud.

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