Think back to when hard currency was first introduced. Civilizations around the world had spent centuries trading gold and goods, only to have all that gradually change to the use of clay coins and paper money. As confusing as it was, the adoption of money as tender is now something that we barely think about as complex, and that is exactly what will happen with Bitcoin eventually. Anyone who has been online during the past few years has undoubtedly heard about the world of cryptocurrencies in general, and Bitcoin in particular. This digital currency has taken the world by storm and flipped the global financial system on its head. But how does it work? Let’s find out.
Launched in 2009 by an unknown person or group of people known as Satoshi Nakamoto, Bitcoin was the first cryptocurrency and remains the most popular. It is also by far the most expensive cryptocurrency, currently trading for around $32,000 but at one point grazing the $60,000 mark.
In order to understand how Bitcoin works, we must first examine the technology upon which it is built. “Blockchain” is the technology behind bitcoin and it can be described as a decentralized system that records transactions on a distributed ledger. Every transaction results in the creation of an additional block on the chain, and the blocks cannot be broken or re-organized, and are thus hack-proof and use high-grade cryptography for additional security. The end result is a long “chain” of events showcasing the different ownership and value of Bitcoin. Through the use of cryptography, Bitcoin also creates a digital asset that is secure and private due to the fact that names are never revealed, just chains of numbers and keys. This makes Bitcoin an asset that cannot be “confiscated” by a government of a central authority, making it desirable for those who wish to achieve financial autonomy.
Since every transaction of Bitcoin (transfer or receipt) is recorded on the blockchain, this makes the digital currency inherently immutable (impossible to alter) and very secure. Moreover, by eliminating the middleman normally needed for financial transactions (banks, financial servicing agents, etc.), Bitcoin and cryptocurrencies give people control over their own money. While many typical transfers can take up to a week before they are processed by financial authorities, Bitcoin transfers are instantaneous and boast very low fees in comparison to traditional means of cash transfer. There also is an absence of the traditional fees you get hit with through banks and financial custodians, such as fees for account maintenance, minimum balance, overdraft charges, and many others. These are virtually nonexistent in the world of cryptocurrency.
Let us briefly examine how you can get or acquire Bitcoin:
1. You can purchase Bitcoin (or parts of it) using fiat currency
This is possible online at the many exchanges that offer Bitcoin, or alternatively at a Bitcoin ATM. It is as simple as using your debit or credit cards (or hard cash at the ATM) in exchange for Bitcoin.
2. You can begin selling products or services in exchange for Bitcoin
Opening a digital wallet and beginning charging Bitcoin in exchange for goods and services is yet another way to acquire Bitcoin!
3. You can mine Bitcoin using a computer
This is the trickiest way to gain Bitcoin as it can be very energy intensive, using a ton of electricity and expensive hardware that may set you back a good amount. Additionally, mining fees are no longer what they used to be, so you may not get a decent bang for your buck unless you know what you are doing.
You can buy a part of a Bitcoin, or as many as you’d like! You store them in digital wallets and transfer them to other wallets in order to make purchases or payments. As of now, many companies and global corporations have started accepting Bitcoin as a form of payment, and with its value rising, it is a great investment and hedge against inflation. While some opt to purchase Bitcoin and HODL (hold on for dear life) as a form of investment, others are happy to simply deal in Bitcoin in order to enjoy the benefits or secure and private payment methods.
Investment and commercial banks as well as financial institutions have started offering Bitcoin and cryptocurrency services to their clients. It appears to be merely a matter of time before Bitcoin becomes completely mainstream, and adopted as legal tender globally. In fact, most recently, El Salvador became the first country to adopt Bitcoin as legal tender, paving the way for other South American countries to follow suit.
So, as complex as it may seem, cryptocurrencies and Bitcoin are fairly straightforward. They are a digital currency that can be used to purchase goods and services, as well as a clever way to invest your money.