Often described as the first cryptocurrency, Bitcoin was launched back in 2009. It’s a form of virtual or digital currency, something like an online version of cash which one can use to buy products and services. Transactions involving Bitcoins eliminate the need for traditional intermediaries such as banks and government institutions, which is one of the many reasons Bitcoin has become so popular.
“What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party,” said the mysterious Bitcoin creator who goes by the alias Satoshi Nakamoto.
The value of Bitcoin broke all records in February 2021, rising above $58,000 on February 21. With such a meteoric rise, much of the hype about Bitcoin is about making money by trading it. Elon Musk recently tweeted that Bitcoin is a ‘good thing,’ which led to a significant increase in its value.
That said, the head of the Bank of England, Andrew Bailey, suggests otherwise. In October 2020, he expressed his concern over the highly volatile nature of Bitcoin, saying it makes him ‘very nervous.’
With all this hype about Bitcoin, let’s take a better look at how Bitcoin works.
Each Bitcoin is essentially a computer file stored in a digital wallet on your smartphone or PC. You can send Bitcoins to other people using Bitcoin Prime. Other people can send Bitcoins to your digital wallet, similar to how we transfer money online. Every Bitcoin transaction gets recorded in a public log powered by an open-source code known as ‘blockchain.’
As the name suggests, blockchain comprises units called blocks containing information about each transaction. Each block is chained to the code in chronological order, which creates a permanent record of each transaction. And even though every Bitcoin transaction is recorded in a public log, names o buyers and sellers are never revealed – apart from their wallet IDs. This allows Bitcoin users to buy or sell anything without easily tracing it back to them. Blockchain also greatly reduces the risk of fraudulent Bitcoin transactions, as these unique codes are incredibly hard to duplicate.
How to get Bitcoins
Several marketplaces called ‘bitcoin exchanges’ allow people to buy or sell bitcoins using different currencies. Besides, you’ll need a digital wallet to buy Bitcoins, an online app that holds your cryptocurrency. You create an account on crytpocurrency trading exchange such as ‘Coinbase’, and then transfer real money to buy and sell cryptocurrencies such as Bitcoin.
Besides, you can earn bitcoins through mining. However, unlike early days when an average person could mine Bitcoin, that’s no longer the case now. Bitcoin mining requires powerful computers and technical expertise. Besides, rising computational and electrical costs have also put this option out of reach for most.