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What is Bitcoin? And should you invest in it?

By newadmin / Published on Saturday, 03 Feb 2018 03:56 AM / No Comments / 7 views


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How’s this for a hero’s journey: In July 2010, one Bitcoin cost just 5 cents. In December 2017, that figure rose to nearly $20,000. And within the last 24 hours, the price fell below $8,000 — and the global cryptocurrency market lost more than $100 billion.

If you’ve heard Bitcoin as a buzzword but are at a loss when it comes to the definition, you’re not alone. Just 24 percent of U.S. adults are familiar with Bitcoin — but that hasn’t stopped the digital currency’s circulation value from swelling to more than $152 billion despite the recent downturn. That’s like a Powerball jackpot on steroids — and a big reason Bitcoin has been such a hot topic recently. Whether you want to be able to talk intelligently about it at a cocktail party or are seriously considering putting some money into it, here’s what you need to know.

Think about digital currencies like viewing your checking account balance online — you see the number on your screen, but you don’t have the bills in your hands.

Think about digital currencies like viewing your checking account balance online — you see the number on your screen, but you don’t have the bills in your hands.

What Is Bitcoin?

Bitcoin is one type of digital currency (or “cryptocurrency”), dreamed up by an anonymous inventor in the wake of the 2008 financial crisis. Think about digital currencies like viewing your checking account balance online — you see the number on your screen, but you don’t have the bills in your hands. In the case of Bitcoin and other digital currencies, however, there is no standardized physical representation (like a dollar bill) — the assets exist only in digital form. There’s also no regulation. The payment network that allows the digital tokens to move between individuals isn’t managed by any one entity (like the government) or company (like Visa, Wells Fargo or Venmo). Instead, it’s decentralized, made possible by a system of computers around the world. You can’t use it for many purchases. Some large retailers like Overstock and Expedia have made headlines by starting to accept it, but they’re outliers. And transactions are private; in fact, many users value the degree of anonymity that digital currencies offer.

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How Does Bitcoin Work?

The technology that makes Bitcoin and other digital currencies work is called blockchain, which Mercina Tillemann, chief operating officer at the Global Blockchain Business Council, says is kind of like a set of railroad tracks. “In order for me to get something from me to anywhere else, I need that framework — [those tracks] — to exist.” Bitcoin is like a train car that travels on top of the tracks. When you send Bitcoin to someone, the transaction is verified by computers all over the world. The computer or data center that verifies the transaction first (it involves solving a complex mathematical equation) is rewarded in the form of a Bitcoin payment, says Kyle Forkey, general partner at Amentum, a cryptocurrency investment firm. (People and groups who race to do this can turn a significant profit.)

Until recently, it was difficult to move something digitally without the risk of it being copied or altered in the process. For example, think about when you send someone an email — you retain the original, and they receive a copy. If the same thing happened when you sent money, it’d be a real problem, says Tilleman. That’s why we currently rely on intermediaries — banks, credit unions, companies like PayPal — to make sure that doubling-up issue never occurs. These middlemen charge fees for ensuring that when you send someone money, you’re parting ways with it completely, and the other person is legitimately receiving it. With Bitcoin, there’s also always an intermediary — it’s whoever is managing the transaction, whether an exchange or other platform. But because there are no restrictions on who can participate (and no account minimums), they’re not the traditional financial services players.

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