If you hadn’t heard of bitcoin a few months ago then the chances are that you have now, with the cryptocurrency taking the world by storm as of late. Having enjoyed a steep increase in value, bitcoin now seems to be the word on everyone’s lips. But what is it and where did it come from?
What is bitcoin?
Bitcoin is the world’s first digital currency, as well as being the most well-known. The famous cryptocurrency was invented in 2009 by Satoshi Nakamoto with its goal to be ‘a new electronic cash system’. It doesn’t exist in physical form, so there are no bills or coins to handle. Other digital currencies include Ethereum, Ripple, Litecoin and more.
This new monetary system is completely decentralised, meaning it isn’t connected to a government, institution, or in fact, any authority at all. According to Venture Beat, ‘Transactions happen digitally from person to person, without middlemen such as banks or clearinghouses.’
Every owner of bitcoin, no matter how many you own, is anonymous. Instead of using your name, or any type of identifying information, you are given an encryption key.
How does it work?
If you want to get hold of Bitcoin, you’ll have to buy it or mine it. The focus of mining is to record bitcoin transactions which have taken place during a certain period. It’s a complicated process and is usually done by a group working together, or even by a company. Bitcoin mining requires incredibly powerful computers to have a chance at success, plus, miners compete against one another to be the first to complete the record. People who are the first to complete a record are rewarded with 12.5 bitcoins, which equates to around $225,000 as of December 2017.
If you’re unable to mine for bitcoin, then your only option is to buy some, which is more expensive to do now that the value of the currency has risen.
In order to buy bitcoin, you must first have a bitcoin wallet. Bitcoins are made up of codes, or long strings of numbers that represent the ‘coin’, and the encryption key. If someone manages to hack into your computer and retrieve these numbers, technically the bitcoin becomes theirs. Because the cryptocurrency isn’t linked to any establishments, there’s currently no way to report the fraud.
Digital wallets like Coinbase offer a place to store your bitcoins. You can also buy and sell on this platform. Alternatively, you could store your codes offline on a USB stick. Or, if you want to go old school, you could write them down and store them in a safe.
What can I do with bitcoins?
At the moment bitcoin isn’t as flexible as regular currency, which means you can’t use it everywhere. It is becoming more widely accepted, though. For example, you can use it for shopping with online stores such as Shopify. OkCupid, Domino’s and Expedia also accept it as a payment method. According to Bloomberg, only three out of the top 500 online merchants will take the cryptocurrency at the moment, so you may be waiting a while until you can use it to do your weekly food shop.
One bitcoin is now worth more than an ounce of gold, but you’d only be able to really reap the benefits if you invested early on.
There are rumours that bitcoin, along with other cryptocurrencies, could become the currency of the future. But something tells us we won’t have to cut up our bank cards just yet!
Bitcoin in the news
With the phenomenon of cryptocurrencies growing, it’s likely that you’ll be seeing a lot more of them in the news. Just recently we saw the unintentional gain of US rapper 50 Cent when he discovered he had around 7 million dollars worth of bitcoin in the virtual bank. When selling his 2014 album, Animal Ambition, he accepted the virtual currency as a payment method. Now, four years later, it’s worth a lot more than it once was!
Also making a fortune from accumulated bitcoin is self-made millionaire and entrepreneur, Grant Cardone. He told CNBC he would never invest in it but was ‘paid for a speaking gig in bitcoin’. The event ended up being worth around $2 million. That’s a lot of money for one gig!
We hope this has helped to shed some light on bitcoin. Head to our Money Savvy page for more insightful articles.