bitcoin (USD-BTC), the world’s first digital currency, has been a hot topic in financial circles for at least the last few years, and arguably needs no introduction.
Surveys suggest most Americans have at least heard of it. In simple terms, Bitcoin is a virtual currency (also known as a cryptocurrency) that can be exchanged through online transactions and is stored in a digital ledger. Once trading for pennies on the dollar, a unit now costs nearly $40,000 with a market cap of nearly $750 billion.
Although the outlets that accept cryptocurrencies are still limited, Bitcoin is arguably the easiest of all cryptocurrencies to exchange. A small but growing number of service providers accept the virtual currency, which can be used to purchase goods in video games, exchange them for US dollars or other fiat currencies, and even pay for goods and services in some places.
Bitcoin was founded in 2008 by an unknown individual or group by the name of Satoshi Nakamoto. Although feverish speculation has surrounded Nakamoto’s true identity, with some claiming to be Nakamoto, it remains unconfirmed.
Nakamoto began working on the code that would eventually serve as the backbone of Bitcoin in 2007. In 2008, a white paper for the cryptocurrency was first published, creating the original software reference implementation (the program that sets the standards for Bitcoin). technicians for Bitcoin), and served as an effective starting point for the cryptocurrency.
Bitcoin was then created as open source code, meaning that anyone could use it. To date, it is estimated 11,000+ cryptocurrencies on the market today.
Somewhat fitting given its libertarian beginnings, Bitcoin’s main distinguishing feature is its decentralized nature. Unlike other forms of payment, no centralized organization or entity controls the currency or has the power to regulate the creation of more Bitcoin or the transactions that occur with it.
Transactions are secured using blockchain technology (more on this below), but no authority has the power to reverse transactions and there is no clearing period before funds can be dispersed. Those same characteristics have raised concerns among regulators about the potential for theft, fraud, and illicit transactions.
How does it work
The process of creating bitcoin is known as mining. Miners perform intensive computing operations to verify transactions on the Bitcoin network. Mining rewards users for solving complex math problems. Uses of Bitcoin a ‘proof-of-work’ networkwhich confirms transactions by showing that a certain amount of specific computational effort has occurred.
Mining requires a significant amount of computing power, which has led Bitcoin to receive criticism that the energy-intensive process is bad for the environment, a point recently raised by Tesla (TSLA) CEO Elon Musk, who unleashed a firestorm in the crypto markets.
Bitcoin uses blockchain technology, a 21st century innovation that allows transactions to be linked through a digital ledger. Cryptocurrency was the first application of this technology, but it has since been expanded and used in other financial and technological applications.
Price bubbles and volatility
Bitcoin’s price action is not for the faint of heart, one of the reasons critics argue that it is not stable enough to be a successor to fiat money. And whether or not Bitcoin has intrinsic value has been a subject of intense debate.
“Bitcoin is not a currency, it is an asset,” said Pavan Sukhdev, chairman of the environmental advocacy group WWF International and a former managing director of Deutsche Bank. Yahoo Finance in a recent interview. He pointed to extreme volatility and lack of backing value as reasons for his illegitimacy.
Eswar Prasad, a professor at Cornell University, was even more direct. “Bitcoin was designed as a digitally anonymous medium of exchange that did not involve a trusted third party such as a central bank, but Bitcoin abjectly failed in its stated purpose.” recently told Yahoo Finance.
For example, during the spring of 2011, the price skyrocketed from $1 to $32 in a three-month period. In November of that same year, Bitcoin saw a sharp drop to around $2 per coin. This was just the first of many price bubbles that saw Bitcoin go up and down, quickly and sharply. And by December 2017, the price of a unit had reached a new all-time high of more than $20,000.
It was during this time that Bitcoin jumped into the mainstream, coining the first wave of “Bitcoin millionaires” (and, later, bitcoin billionaires). However, once again, the bull market proved volatile and dragged the coin below $7,200 in two years.
However, with Bitcoin now finding its legs in the sea, it gained more mainstream mainstream acceptance and benefited from investments from big-name corporations and banks. Bitcoin reached a all-time high over $60k in April before falling back to just under $40k in late July.
Tesla, Black Rock, Inc. (BLACK), Square (square), and BNY Mellon (BK) are just a few of the growing number of large companies that have found a way to gain a foothold in a patchy but expanding market. With more legitimate backing, more people have invested in cryptocurrency than ever before.
Investment opportunity or legitimate currency?
The Bitcoin price rollercoaster ride is complex and varied, and increasingly subject to government policy. China has launched a crackdown on cryptocurrencies and crypto mining, expressing his displeasure at the subversive nature of a decentralized currency. Since the vast majority of bitcoin mining occurs there, restrictions on activity in the region can affect the price and contribute to wild fluctuations.
However, the continued fervor surrounding cryptocurrencies in general, as well as a strong fan base, make it likely that Bitcoin will continue to gain more public acceptance. the Annual Bitcoin Conference 2021 in Miami it attracted 12,000 attendees to discuss cryptocurrency and networking with each other. And some of his most devoted fans have even gone as far as to declare it a religion.
Ihsaan Fanusie is a writer at Yahoo Finance. Follow him on Twitter @IFanusie.