Many sceptics have argued that bitcoin’s current boom is little more than a bubble waiting to burst: after all, if it were truly valuable and sustainable then wouldn’t it be worth much more? But others believe that we are witnessing something even bigger than a simple market correction: they say this is actually bitcoin experiencing its next phase of growth.
Others suspect the digital currency is being manipulated by a cabal of powerful operators.
You may have heard about Bitcoin and other cryptocurrencies, but you might not fully understand how they work. Here is a brief explanation:
Decentralized digital currencies, like Bitcoin, have no central bank or issuing authority. Instead, they are created through computer-based mining processes that verify transactions on the blockchain (a public ledger). The peer-to-peer nature of these transactions makes them difficult to control via traditional methods such as central banks or government regulation.
Cryptocurrencies can be used to buy coffee at Starbucks or a hamburger at McDonald’s—or even pay for a morning cup of joe in your neighbourhood coffeehouse—but some experts say their use is still relatively limited compared with traditional forms of payment like cash or credit cards.
If you think you know what may happen next with bitcoin, you don’t know bitcoin.
Bitcoin is a very complicated system. It’s also a very new technology, and it’s also a very new financial instrument. Bitcoin is such an unusual thing that we don’t yet know how to think about it—or how it will behave in the future—because its value isn’t anchored in anything we’ve ever seen before.
Bitcoin is digital money; there are no physical coins or bills that represent Bitcoin value as with traditional currency. In fact, there aren’t even any physical Bitcoins; they’re all just numbers stored on computers around the world, which are linked together via software called blockchain technology (more on this later). And instead of being issued by central banks or government entities like minted coins, bitcoins are created by people running powerful computers through complex mathematical formulas known as hashing functions (which I’ll explain later).
As if that weren’t weird enough already, the biggest difference between bitcoin and normal currency might be its non-finite supply: There are currently over 16 million bitcoins circulating worldwide—and there will never be more than 21 million produced throughout history!
Bitcoin is a digital asset that enables users to exchange online credits for goods and services. Bitcoin is a digital currency, created and held electronically. Bitcoin is a type of cryptocurrency, so-called because it uses cryptography to secure transactions and control the creation of new units.
In any case, Bitcoin is here to stay. The digital currency may be volatile and the blockchain may fail, but we are witnessing the birth of a new asset class that’s poised to change how we think about money.