What Is Bitcoin?
How this digital currency works and why it's so controversial
by Paul Gil
Updated on March 09, 2020
Cryptocurrency
What Are Bitcoins?
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Bitcoin is a virtual currency that gained recognition after its price-per-coin rose above $13,000 in early 2018. The cryptocurrency (one of many) is at the center of a complex intersection of privacy, banking regulations, and technological innovation. Today, some retailers accept bitcoin, while in other jurisdictions, bitcoin is illegal.
Cryptocurrency Defined
Cryptocurrencies are lines of computer code that hold monetary value. These lines of code are created by electricity and high-performance computers.
Cryptocurrency is also known as digital currency. It's a form of digital money created by mathematical computations and policed by millions of computers (called miners) on the same network. Physically, there's nothing to hold, although crypto can be exchanged for cash.
An illustration of how cryptocurrency works
Lifewire / Vin Ganapathy
Crypto comes from the word cryptography, which is the process used to protect the transactions that send the lines of code for purchases. Cryptography also controls the creation of new coins. Hundreds of coin types now dot the crypto markets, but only a handful have the potential to become a viable investment.
Governments have no control over the creation of cryptocurrencies, which is what initially made them so popular. Most cryptocurrencies begin with a market cap in mind, which means that their production decreases over time. This is similar to the physical monetary production of coins; production ends at a certain point and the coins become more valuable in the future.
What Are Bitcoins?
Bitcoin was the first popular cryptocurrency. No one knows who created it — most cryptocurrencies are designed for maximum anonymity — but bitcoins first appeared in 2009 from a developer reportedly named Satoshi Nakamoto. He has since disappeared and left behind a bitcoin fortune.
Because bitcoin was the first major cryptocurrency, all digital currencies created since then are called altcoins, or alternative coins. Litecoin, Peercoin, Feathercoin, Ethereum, and hundreds of other coins are all altcoins because they are not bitcoin.
One of the advantages of bitcoin is that it can be stored offline on local hardware, such as a secure hard drive. This process is called cold storage, and it protects the currency from being stolen by others. When the currency is stored on the internet somewhere, which is referred to as hot storage, there is a risk of it being stolen.
On the flip side, if a person loses access to the hardware that contains the bitcoins, the currency is gone forever. It's estimated that as much as $30 billion in bitcoins has been lost or misplaced by miners and investors.
Why Bitcoin Is so Controversial
Various events turned bitcoin into a media sensation.
From 2011 to 2013, criminal traders made bitcoins famous by buying them in batches of millions of dollars so they could move money outside of the eyes of law enforcement and tax collectors. Subsequently, the value of bitcoins skyrocketed.
Illegal financial transaction
krisanapong detraphiphat / Getty Images
Scams, too, are very real in the cryptocurrency world. Naive and savvy investors alike can lose hundreds or thousands of dollars to scams.
Bitcoins and altcoins are controversial because they take the power of issuing money away from central banks and give it to the general public. Bitcoin accounts cannot be frozen or examined by tax inspectors, and middleman banks are unnecessary for bitcoins to move. Law enforcement officials and bankers see bitcoins as similar to gold nuggets in the wild west — beyond the control of police and financial institutions.
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My own belief is that #1 is probably an important factor but questionable since the core breakthrough is applicable to all sorts of other tasks like secure global clocks or timestamping or domain names, #2 is irrelevant as all digital cryptographic currency ideas are obscure (to the point where, for example, Satoshi’s whitepaper does not cite bit gold but only b-money, yet Wei Dai does not believe his b-money actually influenced Bitcoin at all36!), and #3–4 are minor details which cannot possibly explain why Bitcoin has succeeded to any degree while ideas like bit gold languished.What’s Wrong With The Cryptocurrency Boom?ethereum заработок криптовалют ethereum bitcoin safe bitcoin kurs фарм bitcoin bitcoin review bitcoin word bitcoin транзакции tether yota utxo bitcoin bitcoin баланс monero майнить bitcoin форекс direct bitcoin trader bitcoin monero bitcoin fpga monero dwarfpool символ bitcoin новости bitcoin bitcoin greenaddress автомат bitcoin store bitcoin captcha bitcoin monero форк bitcoin grant bitcoin script monero proxy icon bitcoin оплата bitcoin 1 ethereum платформу ethereum яндекс bitcoin bitcoin вход
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The Altcoins Market also effects a bitcoin price. The emergence of serious altcoins can distract the attention of Bitcoin audience. A lot of investors, traders, users start to use the altcoins which seem to be more serious and prospective in their point of view in comparison to bitcoin. Hereby, we will observe the bitcoin price drop due to the decreasing demand.'If you’re stupid enough to buy it, you’ll pay the price one day', said JP Morgan Chase CEO Jamie Dimon in October 2017, in response to a question about the popularity of cryptocurrencies.In some parts of the world, bitcoin is still a more efficient and cheaper way to transfer money across borders, and several remittance startups make use of this feature. Last year, Coinbase added cross-border transfers and custody services for high-volume clients in Asia and Europe. A recent partnership between crypto exchange Bitex and Uruguay-based banking service provider Bantotal now facilitates direct bitcoin payments across 60 banks in Latin America. cranes bitcoin blockchain ethereum bitcoin background
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