From its origins in a white paper authored by an enigmatic source, to its adaption among criminals seeking to conceal illicit activities, and now to newfound legitimacy as a globally traded asset, Bitcoin continues to be a topic of intrigue and by some accounts, appears to be making its way into the mainstream. For a basic understanding of Bitcoin, we’ve compiled answers to some common questions on this subject.
What exactly is it? Bitcoin is a digital currency, or cryptocurrency, that is not backed by any physical asset or controlled by a government or bank. Unlike traditional currency, it is not printed into bills or minted into coins. Relatively rare, bitcoins are controlled by an algorithm and secured through cryptography, or codes that must be read with an encryption key. Bitcoin has a finite supply – only 21 million bitcoins can be created or “mined.” As of December 2017, there were about 16.78 million in circulation.
When was Bitcoin first used? Although Bitcoin emerged as a digital currency in January 2009, its origins are traced to a manuscript written in 2008 by an author listed as Satoshi Nakamoto. However, the name appears to be a pseudonym – the real identity of the individual or group that created Bitcoin remains a mystery to this day. To learn more about the story behind Bitcoin’s creator (or creators) visit http://bit.ly/TheStoryBehindBitcoin.
How does it work? Bitcoin is exchanged anonymously as there are no account numbers, names or other identifying information to connect it to its owners. Instead, it operates using blockchain technology. Essentially, transactions are recorded in a ledger (public database) and verified by those who use special software to solve complex mathematical equations. Once a transaction is authenticated, it becomes a “block” which is added to the database as part of a chain. The “miners” who solve these problems are issued bitcoins as a reward. Because any breaks to the chain are immediately detected, the system prevents anyone from spending the same money more than once.
How are bitcoins used? You don’t need to be a miner with special software in order to use bitcoins. They can be obtained on many online exchanges and at Bitcoin ATMs, and you can also accept them as a means of payment for goods or services. You simply need to set up a “wallet,” an online account where you can receive, store and send them through a provider such as Coinbase or Square Cash. If a merchant accepts them, bitcoins can be used to buy a wide variety of goods and services, from gift cards and pizza to hotel reservations and airline tickets. And while trading bitcoins involves tremendous risk, some people use it as a highly speculative investment.
Where can you use Bitcoin? Among the 100,000 plus companies that take bitcoins as payment are Microsoft, Overstock.com, Dish Network, CheapAir, Virgin Galactic, and even the global charity Save the Children. Find a list of businesses that now accept bitcoins here.
While Bitcoin has a set of unique advantages that can make it useful as a global payment system, it is still relatively new, highly volatile and not without its share of drawbacks. For an excellent overview of its benefits and risks, check out “Bitcoin: The Pros and Cons for Consumers and Merchants” from Yahoo! Finance.