In the year 2021, cryptocurrency hit a high point. Bitcoin’s value surpassed $65,000 for the second time this year (it had plummeted below $30,000 earlier in the year). And this year, bitcoin — and cryptocurrency in general — made significant inroads into financial services as well as culture, with a growing presence in popular art, commerce, and other mainstream areas.
If you’re looking for a primer on bitcoin and cryptocurrencies, you’re in the right place. We’ll take a look at the basics — what bitcoin is, where it comes from and how to buy it — as well as a range of other topics including valuation, legality and its practical applications
What is bitcoin?
Bitcoin is a digital money, to put it simply. There are no notes to be printed or coins to be minted. It’s decentralized, meaning it’s not under the jurisdiction of any government, institution (such as a bank), or other authority. Bitcoin connects buyers and sellers with encryption keys rather than utilizing names, tax IDs, or social security numbers. Bitcoin is “mined” by powerful computers linked to the internet, rather than being issued from the top down like traditional cash.
How does one ‘mine’ bitcoin?
Bitcoin is mined by a person (or group, or organization) using a mix of complex arithmetic and record-keeping. This is how it goes. When someone transmits a bitcoin to another person, the network creates a “block” that contains that transaction and all previous transactions done during a particular period of time. These transactions are recorded in a massive digital ledger by computers running special software, known as “miners.” The “blockchain” is a perpetual, publically available record of all transactions that have ever been made, made up of these blocks.
What determines the value of a bitcoin?
The value of a bitcoin is ultimately decided by how much people are willing to pay for it. There is a parallel between how stocks are valued and how they are priced in this fashion.
Only 21 million bitcoins can ever be produced, according to Satoshi Nakamoto’s protocol (nearly 19 million have been mined so far), therefore there is a restricted quantity, similar to gold and other precious metals, but no true inherent worth. (Many mathematical and economic hypotheses exist to explain why Nakamoto picked the figure 21 million.) This distinguishes bitcoin from stocks, which are frequently linked to a company’s current or projected earnings.
What can I do with bitcoin?
While there are certain sites where bitcoin may be spent, many individuals prefer to keep their bitcoins as long-term investments. Bitcoin’s price volatility makes it tough to make day-to-day transactions, but a few crypto-powered debit and credit cards are beginning to alter that.