Bitcoin Guide: Everything You Need to Know About the Cryptocurrency That’s Taking the World by Storm
It seems like you can’t go anywhere anymore without hearing about bitcoin, with everyone from Aunt Sally to your hairdresser trying to convince you to invest (or warning you to stay away). But what the heck is it? Here, all your questions about bitcoin and cryptocurrency answered, including how to buy it, where to spend it and what the financial experts are saying.
What Is Bitcoin?
Bitcoin is an electronic type of currency, and despite the name, there are no actual “coins” involved. Instead bitcoin is a type of cryptocurrency—a form of digital money that uses encryption (aka the conversion of data into code) to control the creation of new units as well as secure and verify transactions.
Bitcoin is completely decentralized, meaning that there are no middlemen (i.e., banks or governments) involved. Proponents say that this allows payments to be sent quickly and directly from one party to another, and also means that purchases can be made anonymously (similar to cash-only purchases) with relatively low transaction fees.
How Does Bitcoin Work?
Well, it’s a little complicated, but here’s what you need to know: The technology behind bitcoin is called blockchain. It’s a highly advanced and ultra-secure system that prevents people from spending the same bitcoin more than once or copying the currency. Now, instead of having a financial institution in charge of blockchains, the entire system is run by a peer-to-peer network made up of computers that use bitcoin. Many experts say that blockchain will be the major technology of the future for lots of industries (not just financial).
Where Can I Buy Bitcoin?
You can purchase bitcoin on marketplaces called “bitcoin exchanges.” Coinbase is the leading U.S. exchange, but you can also use others like Bitstamp or eToro. Once you’ve bought a coin (or most likely, a fraction of one), it is stored in digital wallets that exist either in the cloud or on your computer.
Where Can I Spend Bitcoin?
While a lot of people buy bitcoin as an investment, it is actually currency that can be used to purchase items and services online. Some retailers currently accepting the cryptocurrency include eGifter (which allows you to purchase gift cards for Amazon, Sephora, Home Depot and more), Expedia, Overstock and Etsy. Oh, and some Subway sandwich shops.
How Many Bitcoins Are There?
There are only 21 million bitcoins set to be in existence and so far about 16 million have been distributed. The full amount of bitcoins is expected to be reached by the year 2140.
Why Is Everyone Talking About It?
A single bitcoin varies in value every day. On January 1, 2017, the cryptocurrency was trading at around $961 per coin. Fast-forward to less than one year later and bitcoin were being valued in early December at more than $10,000 each. That’s an increase of nearly 1,000 percent. So why did the price skyrocket in such a relatively short amount of time? Well, the answer goes back to basic Econ 101—supply and demand. As more people hear about and invest in the currency, then the price increases.
While bitcoin is the largest cryptocurrency (it is also widely considered to be the first), there are more than 1,000 cryptocurrencies currently listed on CoinMarketCap.com. Other ones that have made headlines recently include Ethereum, Litecoin and Ripple.
What Is the Future of Bitcoin?
Well, that’s very unclear. Some critics warn that the recent bitcoin craze has all the makings of a bubble, meaning that the price will continue to rise before suddenly crashing. Famed investor Warren Buffett actually warned people to “stay away from it” a few years ago, and many economists agree. However, cyber security expert John McAfee predicts that the price of bitcoin will rise to $1 million by the end of 2020, and many finance experts are excited about blockchain technology.
Bottom line? No one can predict what will happen with bitcoin, and you should only ever invest what you can afford to lose.