If you’ve seen Bitcoin in the news lately, you’re not alone. It seems like there’s always something happening, whether a new retailer is accepting the digital currency or its price has risen to new heights. Bitcoins seem popular today.
But, what is Bitcoin? How does it work?
The top investors in the world recommend really knowing about an investment before putting your money into it. If you educate yourself on any investment vehicle and understand how it works, you’ll be more inclined to make smarter investment choices.
What Is Bitcoin?
Your first step to really understanding Bitcoin is to actually know what it is. You see, in 2009, digital currency was introduced to the world by Satoshi Nakamoto. The creator used a pseudo name to hide his or her identity.
Even today, no one is 100% certain who the developer of Bitcoin is.
Bitcoin is a type of currency that is:
- Non-physical, so you can’t hold a physical coin
- Keeps only balances in online ledgers
You’ll keep the coin in a digital wallet that tracks your balance and holds all of your digital currency in one place.
If you buy Bitcoin, you’ll never actually hold a fiat currency, but you’ll have your balance stored in a digital wallet. The balance can go up or down, and all of the transactions will be held in ledgers.
How does it work?
If you’re not sure of how a digital currency works, you’re not alone. It’s a confusing topic, but it’s one that is easy to understand when you break it down little by little. Bitcoin is comprised of nodes (computers) and miners.
Bitcoins are all stored on what is known as “blockchain.” Imagine a chain of blocks where all transactions are held – that’s blockchain. Due to all of the nodes needed to verify blocks of transactions, it’s impossible to cheat the system with false purchases.
Everyone can see the transactions on the blockchain.
Public and private keys are used as your:
- Bank account number when discussing public keys
- Your ATM pin would be your private key
All transactions require a public and private key that verifies the transaction. Your wallet will grow or shrink depending on what end of the transaction you are on. A wallet isn’t actually physical. It’s a decentralized digital wallet that’s held on the blockchain.
Peer-to-peer technology is used to offer instant payments.
While the blockchain does exist, Bitcoin is decentralized, offering a high level of anonymity. Mining coins is done through a very energy-intensive process, with a total of 18 million coins in existence today and a total of 21 million total Bitcoins that can be mined in total.
The reasons for Bitcoin’s popularity
There are a lot of digital currencies, but some are far more popular than others. Bitcoins are by far the most popular form of cryptocurrency available today.
A few reasons:
1. Bitcoin was the first digital currency, and it has been around for nearly 12 years. History shows that the longer a digital currency has been around, the higher chance of the currency being a success.
2. Acceptance. Bitcoin is widely accepted, allowing people that own coins to be able to use them for everything from cars to pizza and even pay for a vacation. The more the acceptance grows, the higher the popularity of Bitcoin.
3. Rapid growth. People want to make fast money, and the volatility of Bitcoins has made them very popular. Some investors have seen their coins rise from $30,000 to $40,000, and people hope that their investment will also yield high returns for them.
4. Blockchain is one of the most impressive technologies in the world, and it allows for fast and cheap transactions. Transferring internationally now only takes minutes rather than days using fiat currency.
5. Low risk of fraud. There is a low risk of fraud thanks to the transparency and verification process behind every transaction. And due to the longevity of the coin, it’s been able to grow in popularity while other digital currencies have failed.
Bitcoins are the world’s most popular cryptocurrency, and as the coin gains more acceptance, its popularity will only continue to rise. Knowing how Bitcoin works and what it is will help you better understand if investing in Bitcoin is the right choice for your investment portfolio.
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