Bitcoin is a digital currency that was created in January 2009. It follows the ideas set out by the unknown creator, Satoshi Nakamoto. Bitcoin offers the promise of lower transaction fees than traditional online payment mechanisms and, unlike government-issued currencies, it is operated by a decentralized authority, which is why it is incredibly popular with everyone around the world! Bitcoin is a type of cryptocurrency. There are no physical bitcoins, only balances kept on a public ledger that everyone has transparent access to. All bitcoin transactions are verified by a massive amount of computing power. Bitcoin is very popular and has triggered the launch of hundreds of other cryptocurrencies, collectively referred to as altcoins. Bitcoin is commonly abbreviated as “BTC.”
How does Bitcoin work?
Each bitcoin is a computer file stored in a digital wallet on a computer or smartphone. To understand how the cryptocurrency works, it helps to understand these terms and a little context:
- Blockchain: Bitcoin is powered by open-source code known as the blockchain, which creates a shared public ledger. Each transaction is a “block” that is “chained” to the code, creating a permanent record of each transaction.
- Private and public keys: A bitcoin wallet contains a public key and a private key, which work together to allow the owner to initiate and digitally sign transactions, providing proof of authorization.
- Bitcoin miners: Miners then independently confirm the transaction using high-speed computers, typically within 10 to 20 minutes. Miners are paid in bitcoin for their efforts.
How does Bitcoin make money?
Bitcoin value follows the law of supply and demand — and because demand shifts up and down, there’s a lot of volatility in the cryptocurrency’s price. Besides mining bitcoin, which requires technical expertise and investment in high-performance computers, most people purchase bitcoins as a form of currency speculation — betting that the U.S. dollar value of one bitcoin will be higher in the future than it is today, which is difficult to predict.
The Pros and Cons of Buying Bitcoin
Bitcoin: The pros
- Private, secure transactions anytime — with fewer potential fees. Once you own bitcoins, you can transfer them anytime, anywhere, reducing the time and potential expense of any transaction. Transactions don’t contain personal information like a name or credit card number, which eliminates the risk of consumer information being stolen for fraudulent purchases or identity theft.
- The potential for big growth. Some investors who buy and hold the currency are betting that once Bitcoin matures, greater trust and more widespread use will follow, and therefore Bitcoin’s value will grow.
- The ability to avoid traditional banks or government intermediaries. After the financial crisis and the Great Recession, some investors are eager to embrace an alternative, decentralized currency.
Bitcoin: The cons
- The price volatility. The recent gains are good news if you bought Bitcoin in December 2018; those who bought in 2017 when Bitcoin’s price was racing toward $20,000 had to wait until December 2020 to recover their losses. On top of that, you can see Bitcoin shift in price every twenty to thirty minutes.
- Hacking concerns. While it may seem safe bitcoin wallets have been an attractive target for hackers. There have been a number of high-profile hacks, such as the news in May 2019 that more than $40 million in bitcoin was stolen from several high-net-worth accounts on a cryptocurrency exchange.
- Limited (but growing) use. In May 2019, telecommunications giant AT&T joined companies such as Overstock.com, Microsoft, and Dish Network in accepting bitcoin payments. But these companies are the exception, not the rule.
- Not protected by SIPC. The Securities Investor Protection Corporation insures investors up to $500,000 if a brokerage fails or funds are stolen, but that insurance doesn’t cover cryptocurrency.
All in all, the Bitcoin rave sounds promising and it sounds like the next big thing! But always remember to make your decisions solely based on your judgment and only invest money you are willing to lose. Do your research and be safe when investing. Thank you for joining us on today’s #AskBryant segment, where we discussed the basics of Bitcoin, cryptocurrencies, and the pros and cons of obtaining these items are. Thank you for tuning in and we’ll see you on the next segment!