Simply put, Bitcoin is a form of electronic currency. It was created in 2009, and it is not tangible money. Instead, it is transferred between computers and exchanged online. Part of the benefit of using Bitcoin rather than money online is that there are lower transaction fees for purchases. Bitcoin is traded and stored within an online ledger system called a Blockchain.
How to Get Bitcoin
There are three main ways to obtain Bitcoin. The easiest way is to receive them in exchange for goods or services. Some companies pay their employees in bitcoin in addition to physical money. The second method is to purchase them by buying their stock. Currently, Bitcoin’s stock price is over $7,770 per share, so that option probably is not ideal for beginners. Finally, the third option is to obtain them through mining.
Mining for Bitcoin is a term that involves adding transaction records to the Blockchain. High powered computers will work towards solving complex math problems. When the problems have been solved, a record will be added to the Blockchain and Bitcoin will be produced. When Bitcoin has been used for a transaction, nodes on the Blockchain will verify if that Bitcoin has been duplicated or spent twice.
How Did Bitcoin get so popular?
The first Bitcoin transaction occurred in 2010, when one Bitcoin was equivalent to $0.003. Part of the reason that Bitcoin started to catch on so quickly was due to the recent recession in 2008 and 2009. People had begun to lose trust in financial institutions and were looking around for another way to invest. Banks were tied together very closely, so Bitcoin shone because it was not linked to any.
Another reason for Bitcoin’s popularity was that anyone was able to access the Blockchain. The idea was that anyone could mine for Bitcoin on their own, and obtain ‘free money’.
The Fall from Fame
The problem soon arose that as anyone could access the Blockchain, any transaction could pass through without a trustworthy intermediary. Illegal products were being traded and exchanged for Bitcoin, such as marijuana and fake IDs.
Mt. Gox was the world’s largest Bitcoin exchange in 2013 and part of 2014. In 2014, clients were lodging complaints that they were unable to withdraw their Bitcoin. As it turns out, an online hacker was draining all the Bitcoins that Mt. Gox had been holding for their clients. Mt. Gox filed for bankruptcy in early 2014.
This event demonstrated that Bitcoin was no better than a regular financial institution. Both were capable of taking their client’s money and turning it into nothing. Banks as well are harder to hack than online programs.
Bitcoin was not down for long. The latter half of 2014 saw Microsoft start to accept Bitcoin as payment for their products. This was the start of clients seeing Bitcoin as a valid form of currency once again. Currently, cryptocurrency is a legitimate investment and is present in many portfolios. However, be prepared to deal with its volatility in case it quickly loses favor with investors again.