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Bitcoin is a currency just like the US dollar or Mexican peso.
It’s also back in the
headlines after soaring in value. One bitcoin was worth
$2,800 on May 25, up from $1,200 at the end of April.
countries that accept it, you can buy groceries and clothes
just as you would with the local currency. Only bitcoin is
entirely digital; no one is carrying actual bitcoins around in
Bitcoin is divorced from governments and central banks. It’s
organized through a network known as a blockchain, which is
an online ledger that keeps a secure record of each
transaction all in one place. Every time anyone buys or sells
bitcoin, the swap gets logged. Several hundred of these
back-and-forths make up a block.
No one controls these blocks, because blockchains are
decentralized across every computer that has a bitcoin wallet,
which you only get if you buy bitcoins.
Why bother using it?
True to its origins as an open, decentralized currency, bitcoin
is meant to
be a quicker, cheaper, and more reliable form of payment than
money tied to individual countries. In addition, it’s the only
form of money users can theoretically “mine” themselves, if they
computers) have the ability.
2015 survey showed bitcoin users tend to be overwhelmingly
white and male, but of varying incomes. The people with the most
bitcoins are more likely to be using it for illegal purposes, the
Each bitcoin has a complicated ID, known as a hexadecimal code,
that is many times more difficult to steal than someone’s
credit-card information. And since there is a finite number to be
accounted for, there is less of a chance bitcoin or fractions of
a bitcoin will go missing.
But while fraudulent credit-card purchases are reversible,
Bitcoin is unique in that there are a finite number of them: 21
million. Satoshi Nakamoto,
bitcoin’s enigmatic founder, arrived at that number by
assuming people would discover, or “mine,” a set number of blocks
of transactions daily.
Every four years, the number of bitcoins released relative to the
previous cycle gets cut in half, as does the reward to miners for
discovering new blocks. (The reward right now is 12.5 bitcoins.)
As a result, the number of bitcoins in circulation will approach
21 million, but never hit it.
This means bitcoin never experiences inflation. Unlike US
dollars, whose buying power the Fed can dilute by printing more
greenbacks, there simply won’t be more bitcoin available in the
future. That has
worried some skeptics, as it means a hack could be
catastrophic in wiping out people’s bitcoin wallets, with less
hope for reimbursement.
The future of bitcoin
Historically, the currency has been extremely volatile. But go by
its recent boom — and
a forecast by Snapchat’s first investor, Jeremy Liew, that it
will hit $500,000 by 2030 — and nabbing even a fraction of a
bitcoin starts to look a lot more enticing.
Bitcoin users predict 94% of all bitcoins will have been released
by 2024. As the total number creeps toward the 21 million mark,
many suspect the profits miners once made creating new blocks
will become so low they’ll become negligible. But with more
bitcoins in circulation, people also expect transaction fees to
rise, possibly making up the difference.