What is Bitcoin?
Bitcoin: it’s one of the most notable buzzwords of the past several years. No doubt you’ve heard the term tossed around by friends, journalists, financial analysts, politicians, and just about everyone else. But, if you’re like many people, you don’t have much more than a casual familiarity with the term. It’s not your fault! Disruptive technologies like Bitcoin can be confusing, especially with so much misinformation and opinion being thrown about in the news. So, let’s back up and answer the big question: What is Bitcoin?
To properly understand Bitcoin we have to first look at blockchain technology. That’s part of the system that makes Bitcoin possible. A blockchain is a digital, de-centralized public ledger that contains a record of all transactions in which a cryptocurrency is used. For example, if you use 1 bitcoin to purchase a product or service on the internet, the transaction is recorded on the public blockchain.
Now let’s look at Bitcoin itself. Created back in 2009, bitcoin is a digital currency. It is not issued or backed by any banks or governments. There are no physical bitcoins, just balances that are kept on the blockchain. It’s created to provide anonymity to users or market participants. There are public “keys”, (these are like account numbers) and private “keys”, (these would be like your PIN number) used to send and receive bitcoin, as well as authorize transactions. Your bitcoins are kept in a digital wallet, and can be bought and sold on digital exchanges. Bitcoins can be used to make purchases online at retailers that accept Bitcoin as payment, but the reality is that this still isn’t very common.
So, if Bitcoin isn’t being used to make purchases, what’s with all the hype? Up until about two years ago, the Bitcoin world was the realm of a relatively small community of enthusiasts. 2017 changed that though, as the value of Bitcoin went from $1000 USD to $17,000 in only about six months (it currently sits at $7400 USD). It’s difficult to say what started the wave. Maybe it’s a new interest in anonymity in a world where our personal data is spread far and wide across the internet. Or maybe it was frustration with traditional banking systems. Regardless, there’s no doubt the spike in value was almost entirely based on speculation. Financial institutions, governments, and investors of all kinds took notice and got involved.
Bitcoin’s strongest proponents believe that a decentralized currency not controlled by government or banks is revolutionary, and will change the world. Opponents think it’s nothing more than a scam. Warren Buffett, one of Bitcoin’s most notable detractors, said recently, “it’s like rat poison, squared.”
What comes next? Blockchain technology itself, aside from its use in cryptocurrency, is being called a game-changing idea, and can be used for a myriad of other things (including certifying a supply chain, proving ownership of an asset, voting, managing healthcare records… the sky is the limit). As for Bitcoin, those that say it’s a fad have yet to be proven right or wrong, but nearly 10 years after its creation, Bitcoin is now a household name. Whether the value goes up or down, it appears that Bitcoin is here to stay.