What Are Bitcoins?

Certified Financial Planner Robert M. Ryerson has published and spoken extensively on financial topics. One innovation which Robert M. Ryerson has taken an interest in is cryptocurrency, a form of digitally-based currency backed by computing power.

Bitcoin , the first and most popular cryptocurrency, uses a shared public ledger called a blockchain to store all confirmed transactions.

Bitcoin wallets use the blockchain to calculate their spendable balances, making sure all transactions are legitimate and individuals cannot fraudulently increase their balances. When users transfer Bitcoins between one another, they use a private key and signature to maintain the integrity of the transaction, and transactions are confirmed through a process called mining, in which computers on the network perform computations.

While secure, this transaction process has a significant energy footprint. Each transaction conducted through Bitcoin averages out to approximately 215 kilowatt-hours of power usage, about one-quarter of what a typical American household uses monthly. Due to the high level of distrust built into the system and the numerous times each transaction is computationally verified, it also requires a large amount of computing power.