What Is Bitcoin? An Overview of Cryptocurrency

What Is Bitcoin? An Overview of Cryptocurrency

If you type the phrase “What Is Bitcoin?” into any search engine, you’ll undoubtedly get so many results, it’ll make your head spin. Bitcoin has dominated the headlines of financial publications, making its prominence on the internet even more substantial — but what exactly is it, really?

What Makes It Different From Physical Money?

The first thing you need to know to adequately answer the “What is Bitcoin?” question is it’s a digital currency not regulated by any bank. People often like the decentralized nature because it gives them the freedom to spend their money how they choose without dealing with bank representatives.

There’s no need to have a bank account to hold Bitcoin or any other cryptocurrency, and people say that’s one of the advantages of it, especially for individuals living in countries with limited access to banking services. Many people who are wondering, “What is Bitcoin?” are also curious about its production, though. For that, individuals or groups called Bitcoin miners use specialized computer and software to create more all over the world.

The Blockchain As a Digital Transaction Record

It’s not possible to extensively research Bitcoin without encountering content about the blockchain. It’s the evidence of all Bitcoin transactions.

Think of each new record as a link, or block, in a chain. Once the information in that entry gets verified, it becomes part of the chain. So, this is where Bitcoin miners come into the picture. Verifying a cryptocurrency transaction on the blockchain requires solving math problems that get more complex as the chain grows. Miners receive cryptocurrencies as a reward for their work.

One of the benefits of the blockchain that people often bring up is that it’s a publicly accessible ledger. People can look at it at any time, so they associate the blockchain with a higher than average amount of transparency.

 

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Storing and Spending Bitcoins or Other Cryptocurrencies

Because cryptocurrencies are purely digital, you can’t keep them in physical wallets. However, many companies sell virtual wallets for Bitcoins or any other cryptocurrencies. They have public and private keys.

Each cryptocurrency owner has a private key, and it lets that person open a digital wallet and spend what’s there. If the key gets lost or forgotten, no one else can open that digital wallet on behalf of the owner.

There are also public keys, which are unique Bitcoin wallets. If a person wants to make a deposit to another cryptocurrency owner, he or she must know that individual’s public key. It’s like a bank account number.

When spending Bitcoins or another type of cryptocurrency, you may deal with a merchant that accepts cryptocurrency as a form of payment. However, there are also ways to convert cryptocurrencies into fiat currencies, such as dollars. Many people do it by working with a cryptocurrency exchange, but other services handle conversions for you, too.

Alternatively, you can sign up for a cryptocurrency debit card. Use it to pay for things with cryptocurrencies at places that accept credit and debit cards.

What Are the Risks Associated With Cryptocurrencies?

In our high-tech world, you may think that not having to carry bulky physical wallets sounds great. However, like almost everything else, cryptocurrencies have an element of risk. One of the primary reasons is because cryptocurrencies are extremely volatile. An impressive rise in value that makes you much richer overnight may not last for long.

Some financial experts familiar with cryptocurrencies warn that owning them will always be a gamble and advise only buying an amount that’s equivalent to what you can afford to lose. You may have also heard the phrase “death cross” associated with cryptocurrencies, Bitcoin in particular. It signifies a downward trend for an asset in the marketplace, occurring when its average short-term movement falls below its long-term average.

When Bitcoin’s value goes down, the people who own it typically get tremendously anxious and wonder if it’ll never rise again. Due to the fluctuation and resultant uncertainty about worth, savvy individuals are understandably reluctant to fully commit to Bitcoin or other cryptocurrencies since volatility is a characteristic of most of them.

Many factors determine cryptocurrency prices, and one of them is supply and demand, just like the stock market. Hype is another factor that could trigger a rise and eventual fall. The output of cryptocurrency miners affects value as well. Unfortunately, regarding worth, 2018 has not been a good year for Bitcoin so far.

Also, although the blockchain itself is considered very secure, there have been high-profile hackings resulting in stolen cryptocurrencies. As these digital currencies continue to capture public interest, they’ll become more enticing to hackers, too.

As long as Bitcoin stays in the news, people will remain interested, even if they don’t invest. Additionally, since a growing number of merchants accept cryptocurrencies and some employers give workers the option of being paid with them, the ever-increasing availability could lead to broader adoption. Cryptocurrency isn’t going away, but it’s impossible to predict its future value.

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Kayla Matthews is a technology writer and the editor of Productivity Bytes. Her work has been featured on Digital Trends, MakeUseOf, VICE, VentureBeat, The Daily Dot and WIRED, among others. Follow her on Twitter to read her latest posts.

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