What is Bitcoin?

Everyone's talking about Bitcoin. Here's what it is and why it's important

what is bitcoin bitcoin1100
ChesNot/GettyImages

Bitcoin. It’s a word that was once merely discussed as an academic idea among technology enthusiasts, then became a hushed mention among law enforcement tackling online drug trades — and most recently it was craze for those looking to make a quick buck. But what is Bitcoin? Why are people so interested in it?

People buy Bitcoin for all sorts of different reasons. It’s a store of value, a transactional medium, and an idea that some claim could change the future of economics entirely.

Most notably, it’s not a real, physical thing, but an entirely digital entity (no matter what the header image may suggest) with no middle-man controlling its use. To put it simply, Bitcoin is a cryptocurrency.

A crypto-what?

sec arisebank initial coin offering ether cryptocurrency
Jaap Arriens/Getty Images
Jaap Arriens/Getty Images

A cryptocurrency, of which Bitcoin was the first and still the foremost, is an entirely digital form of currency. Think of it like the way you operate your online bank account or use credit cards. You never have to physically have that money to own it or use it. The same is true with Bitcoin — it’s just numbers in a wallet — but you can do a lot with them.

Bitcoin sits atop the public ledger that is blockchain technology, and is gradually created by a practice called “mining.” Although the specifics of mining go beyond the scope of this article (this one explains it in more detail) in effect, powerful computers run incredibly complicated mathematical formulas to provide the verification for Bitcoin transactions, and at the same time create new Bitcoins. The difficulty of this formula creates scarcity.

There’s also a hard limit on how much can ever be produced — 21 million Bitcoins, to be specific. While we’re a long way to that happening, that limit makes Bitcoin quite different from the dollars and pounds we are so used to. Many successors to Bitcoin have decided not to use a hard-coded limit, so this trait is somewhat unique.

Independent, for better and for worse

Bitcoin differs from traditional currencies, like the U.S. dollar or British pound, in an important way — it isn’t backed by any central organization, or a physical item, like gold.

The value of a single Bitcoin is based entirely on what people consider it to be worth. Much of that is related to what you can use it for and the quantity of product or service you receive in return. Of course, money’s value has long been based largely on a perception of worth. That’s why economic panics can cause a run on a bank, or inflation can go out of control. Yet there’s always been some underlying guarantor — usually a government — offering the promise of stability.

Bitcoin doesn’t have that. It was created independent of any government, and remains independent. Its value is dictated entirely by the market for it. It has soared to incredible heights, but has also experienced huge price shocks, and there’s been many accusations of insider trading, price manipulation, and other dubious tactics. Governments have strict measures to prevent these problems in their currency — though they don’t always work — but Bitcoin, being independent, can’t implement such checks, and attempts at regulation are largely doomed to fail.

Bitcoin as a transactional medium

what is bitcoin
Anthony WallaceAFP/Getty Images
Anthony WallaceAFP/Getty Images

One of the core purposes of Bitcoin, from its original creation, was as a transactional medium. That is, it’s used in place of traditional currency. When stored in a digital wallet like Coinbase, it can be sent to another wallet anywhere in the world to pay for goods or services, and over the years it’s been used for just that.

For those who don’t have the time or computational resources to mine Bitcoin themselves — today you would need to spend thousands on hardware to hope for even a modicum return on your investment — they can buy it. There are a number of ways to do so, but typically it involves sending an amount of traditional currency to a person who owns Bitcoin, who in turn sends the relevant amount of currency to your wallet.

One of the most highly publicized ways Bitcoin has been used for transactions over the years has been for darknet drug sales. Thanks to the anonymous nature of the cryptocurrency, it’s been utilized to pay for illicit substances and other items over Tor-accessible websites like the infamous Silkroad. It’s also facilitated the rise in ransomware.

That’s not to say that Bitcoin is used exclusively for illicit transactions, though. Indeed, it can also be used to give to charities, pay for gift cards, pizzas and airline travel, and it’s even found usage as a day-to-day way of paying for goods in countries with terribly collapsed or inflated currencies of their own.

Bitcoin as a store of value

bitcoin stock
Vyacheslav Prokofyev/TASS/Getty Images
Vyacheslav Prokofyev/TASS/Getty Images

Back when Bitcoin was first created, individual “coins” had no intrinsic value. What they were worth was negotiated, with one person once offering 10,000 Bitcoins for a couple of pizzas. Over time, though, as more uses for the currency have been created and it’s grown more popular, Bitcoin’s value has risen in turn. While a single Bitcoin was worth pennies in 2010, today it’s worth more than $6,000, having peaked at more than $19,000 at the end of 2017.

For this reason, over the past few years and most notably in 2017, people have begun to see Bitcoin as a store of value. Although extremely volatile compared to more typical systems like stocks, shares, or gold, Bitcoin has become a popular way for people to invest their money and for some, it’s paid dividends. Those who purchased Bitcoin at the start of 2017 saw a near 20-fold return on their investment throughout it, leading some to suggest that Bitcoin could be worth seven figures by 2020.

It is important to note that this extreme optimism has given rise to a lot of uninformed investment in what is still a relatively unproven digital medium. It is far closer to gambling in terms of its potential for financial gain and loss, and there have been many sad stories of people losing huge sums during big downturns in the currency’s value.

The lasting legacy

There are many people who have a lot to say about Bitcoin, both bad and good. Some see it as a way to make a quick buck as it jumps up and down in value, while others see it as an entirely new economic model. It’s also possible that Bitcoin itself, as impactful as it has been, will be most successful as the progenitor of underlying technologies like the blockchain and newer altcoins like Ethereum.

The future of Bitcoin is far from guaranteed, but its impact on the world of finance, online transactions, and on many people’s bank balances, cannot be denied. It’s been a force for good, for bad, and everything in between — and it will be well remembered, even if it doesn’t reach the heady heights that so many predict.

Computing

Intel’s new Core i9 processors bring 8-core power to laptops

Intel announced a new line of ninth-generation mobile processors that bring eight-core Core i9 processors to laptops. In addition, the company announced a slate of new desktops CPUs that bring the rest of the lineup up to date.
Mobile

Best iPhone 7 Plus screen protectors to shield your big, beautiful display

Cracked screens are expensive to replace. Fortunately for you, we've rounded up what's available in terms of protection for Apple's large iPhone 7 Plus. Here are the best screen protectors you can buy.
Gaming

Your PlayStation 4 game library isn't complete without these games

Looking for the best PS4 games out there? Out of the massive crop of titles available, we selected the best you should buy. No matter what your genre of choice may be, there's something here for you.
Movies & TV

The best shows on Netflix right now (April 2019)

Looking for a new show to binge? Lucky for you, we've curated a list of the best shows on Netflix, whether you're a fan of outlandish anime, dramatic period pieces, or shows that leave you questioning what lies beyond.
Gaming

10 Nintendo Switch tips and tricks to get the most out of your hybrid console

Have a new Nintendo Switch? Awesome! It's a great console from the moment you turn it on, but owners can make it even better by using a few simple tips and tricks. Here's what every Switch owner should know.
Computing

Pain in the wrists? Type in comfort with one of these great ergonomic keyboards

Long typing sessions can leave anyone's wrists aching, but if you have one of the best ergonomic keyboards, that doesn't have to be the case. Our list of favorites will support good typing posture while being comfortable to use.
Product Review

Without 4K or Core i9, the new Razer Blade Pro trades features for polish

Razer hasn’t updated its 17-inch gaming laptop for a couple of years, while showering most of its attention on the smaller sibling. The new Razer Blade Pro takes a lot of cues from the 15-inch model, stretching it out for the big screen.
Computing

Lenovo Legion, IdeaPad gaming laptops sport 9th-gen CPUs and 16-series graphics

Lenovo is expanding its gaming laptop range with a line of new Legion and IdeaPad notebooks that sport Intel's latest, ninth-generation Core CPUs up to an i7 and a choice of Nvidia graphics with options for everything up to an RTX 2080…
Computing

Asus launches a fleet of ROG gaming laptops with 240Hz screens and 9th-gen CPUs

Asus launched updates to nearly every gaming laptop line they have, ranging from the high-end Zephyrus to the budget-level TUF Gaming. The naming schemes might be hard to parse, but there are some impressive options in Asus' new lineup.
Computing

Nvidia’s new GTX 1660 Ti and 1650 graphics cards for laptops start at $799

Nvidia announced the GTX 1660 Ti and GTX 1650, two new mobile graphics cards to flesh out the Turing lineup for laptops. These GPUs don't have the ray tracing capabilities of the RTX 20 series, but start at much lower prices.
Computing

Microsoft reverses decision and extends lifeline to MS Paint for Windows 10

Microsoft reversed its decision to deprecate the classic MS Paint software on Windows 10. Microsoft announced on Twitter that the mainstay free image editor that comes pre-installed with Windows will live on for now.
Computing

Acer gives Predator, Nitro gaming notebooks CPU and GPU upgrades

Acer's latest gaming notebooks will be getting a processor and graphics boost. The company announced that Intel's ninth-generation mobile CPU and Nvidia's GTX 1660 Ti will land on the Predator Helios 300, Nitro 7, and Nitro 5 laptops.
Computing

Dell’s XPS 15 steps up its game with next-gen Intel, Nvidia chips

Dell announced a redesigned XPS 15 with a webcam positioned up top, and the internals make this Ultrabook an even better gaming laptop. The XPS 15 can be configured with Intel's 9th-Gen processors and Nvidia's GTX 16-Series GPU.
Computing

From simple work tools to high-end gaming peripherals, these are the best mice

If you're looking to buy the best mouse for you, whether it's for gaming or work, we have something for you. We've put together a list of our favorite mice, all of which have great features and sell at a great price.