$BTC

Bitcoin is back in the news. Hackers tried to scam Twitter users to send them money via Bitcoin using high-profile social media accounts.

While we're all used to the idea of digital currency - spending and receiving money that isn’t physically in front of us - cryptocurrencies, like Bitcoin, remain a mystery.

What is Bitcoin mining? How might we use money in the future? And can we even trust cryptocurrencies?

In this Q&A, we ask Dr William John Knottenbelt, director of the Imperial College Centre for Cryptocurrency Research and Engineering, to help us better understand this cryptic kind of currency.

1. What is Bitcoin and how does it work?

Bitcoin is a form of digital money. This means it doesn’t have a physical form. Instead, units of digital currency are traded over a computer network that has some unique properties:

It does not have any central points of control (there are no ‘banks’)

It does not have any central points of transaction storage (a central database that holds a record of all the transactions made).

Instead, it operates over a global network with thousands upon thousands of nodes - a machine within a network like a computer or some other device - which together process and store transactions.

Having thousands of nodes makes it difficult to have a common record of all the transactions - but a technology known as blockchain makes this possible.

Blockchain is a shared transaction record - it prevents anyone from ‘double spending’ bitcoins and makes it extremely hard for anyone to alter historical transactions. It is very hard, if not impossible, to shut down or interfere with.

Glossary

Node: A machine that takes part in the global network by running the bitcoin software.

Blockchain: A database of financial transactions which constantly grows as new transactions or ‘blocks’ are added to it, forming a continuous and public chain of data.

Cryptocurrency: Digital, decentralized currencies that uses cryptography for security.