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How bitcoin works

Mar 20, 2018 | 2:41 PM

MEDICINE HAT, AB — Bitcoin is coming to Medicine Hat.

Hut 8 Mining Corp announced on Monday it will be investing $100 million in the city to create a bitcoin mining lab and blockchain infrastructure company in the city’s northwest. The facility is expected to be up and running in the fall.

CHAT News Today has been researching bitcoin, and here is some more information about the currency and how it works.

What is bitcoin?

Bitcoin is a digital currency and worldwide payment system. It is unique as there is no central bank or central administrator, instead operating on a peer-to-peer network. Bitcoin is traded directly between users. Transactions are verified using cryptography (secret codes) and are listed on a blockchain.

Each user has a unique ID or address, but information identifying who owns the address is not public.

What is the blockchain?

The blockchain publicly lists all bitcoin transactions. The chain is linked and secured using cryptography, and each block contains a timestamp, transaction data and the previous block. Think of it as similar to a bank’s ledger,

Once a transaction is recorded and approved, it cannot be modified without altering the previous blocks.

What is mining?

When people read about bitcoin, mining is often mentioned at the same time. The mining process involves computers confirming bitcoin transactions by solving cryptographic problems. The verified transactions are added to the blockchain, and the miner is paid digital currency in exchange for solving the problems.

Mining requires high end computer software and utilizes significant amounts of electricity, and is often done in pools these days. For example, Hut 8’s current mining operation in Drumheller uses 18.7 megawatts, and has resulted in 750 bitcoins successfully mined. A total of 42 megawatts have been leased by the city’s electric utility to the company, though there are regulations in place by the city to manage load demands.

How long has bitcoin been around?

The idea for bitcoin was first published in a 2008 paper by Satoshi Nakamoto, with the open source software being released for the first time in 2009. There are numerous questions regarding Nakamoto’s identity. He has not disclosed much in the way of personal information, other than claiming he is a man living in Japan. There has been speculation his name is a pseudonym for one person, or possibly a group of people.

How many people around the world use bitcoin?

Due to the somewhat anonymous nature of bitcoin, the exact number of people who use the currency around the world is tough to accurately pinpoint. Coinbase, one of the largest digital currency brokers in the world, has a user base of 13 million people. Bitinfo Charts, a site which provides information on the current value of cryptocurrencies such as bitcoin, estimates there are at least 28 million bitcoin wallets in 2017.

What is the current value of Bitcoin?

1 bitcoin is equivalent to $11,543.83 CDN, or $8,946.48 USD as of Tuesday. The value fluctuates similar to other currency. Bitcoin.org, a website that provides information on the currency, tells investors to treat bitcoin similar to a high-risk asset, noting its current volatility.

Can you be taxed on Bitcoin?

Yes. Digital currencies are subject to the Income Tax Act, and you must report your gains or losses to the Canada Revenue Agency.