Bitcoin is the first decentralized digital cryptocurrency. It enables users to send money over the Internet without going through a bank or financial intermediary.
Each user stores their Bitcoins in a software program on their computers or mobile devices, and that program acts as both an account number and wallet. When buying something, that amount is deducted from your Bitcoin balance. The program keeps track of all your transactions, which are then stored in a public ledger called the blockchain.
This information doesn’t identify anyone because Bitcoin uses cryptography, which masks the identity of senders and recipients. However, it does make it possible to keep track of who has how much money at all times. More importantly, this transparency makes counterfeiting impossible—a Bitcoin can only be moved between accounts once someone verifies that transaction with their own computer.
Buying Bitcoin in 2022
Most Bitcoins are bought on online exchanges where people pay dollars or other traditional currency for them. People also sell goods and services through Bitcoin and receive payments in the form of that currency or sometimes cash value via an ATM. Bitcoins can even be purchased through ATMs using QR codes printed off by either physical paper wallets or web services. And although transactions are public, the parties remain anonymous unless they chose to link themselves to a transaction by using an online profile.
Bitcoin, What Does It Mean To Be Decentralized?
Bitcoin is decentralized, meaning no central governing authority issues new Bitcoins or tracks them. The currency isn’t tied to any kind of government regulation, either, which is why it’s so attractive to people who mistrust banks and the Federal Reserve. There are places where you can use Bitcoin in lieu of regular money—mostly local businesses that accept it because their customers demand it. But the vast majority of users buy and sell them on exchanges like Coinbase or Robinhood in order to trade for profit. People who want more Bitcoins than they can acquire through mining will have to buy them from someone else using traditional currency.
Another important point is that Bitcoins aren’t tangible—in the sense that you can’t withdraw them from an ATM or store them in your wallet. They don’t exist as coins or paper bills. Rather, they are kept inside the digital wallet of each user which resides on their hard drive. You could compare it to having thousands of dollars stored in a PayPal account, but for Bitcoins instead of regular money.
Unlike bank accounts and credit cards, no one knows who owns what Bitcoin since there’s no central authority tracking transactions—and identifying people involved in pseudonymous transactions like these is notoriously difficult anyway. Also unlike PayPal where transaction fees tend to be relatively high (about 2% per transaction), transferring Bitcoins costs almost nothing compared to traditional currencies.
Investing in Bitcoin
Bitcoin has also come to be used as a speculative and highly volatile investment commodity and payment system over the past few years, more than tripling in price since the beginning of 2013. Because governments around the world treat Bitcoin differently (some countries have outlawed it while others consider it a legitimate currency), various websites track its exchange rate against other currencies as well as numerous goods and services including precious metals like gold and silver as well as major fiat currencies like US dollars, Japanese Yen, or Chinese yuan.
What Makes Bitcoin Appealing
One thing that makes Bitcoins appealing is that they’re not subject to government regulation, which means they can’t be confiscated by law enforcement or mismanaged by banks on behalf of their customers. Bitcoin also allows people to buy things without having to use their real names, which is attractive to both privacy advocates and criminals. It’s for this reason that Bitcoin has been associated with online black markets like Silk Road where users sell drugs illegally.
Benefits of Bitcoin
There are benefits to using Bitcoins instead of traditional currency as well, however. Because it doesn’t represent a physical thing, Bitcoin provides an easy way for people who don’t have access to bank accounts or credit cards to perform financial transactions through the internet—something that’s especially beneficial in developing countries with expensive banking infrastructure. There are also legal benefits since some businesses won’t accept credit cards or PayPal because of the possible chargeback feature which allows customers to receive refunds after receiving goods even if they’ve decided not make the purchase. Accepting only irreversible cashless payments prevents this problem, as do Bitcoins.
Disadvantages of Bitcoin
Of course, there are also disadvantages to using Bitcoin as well. Without government regulation or a third party to reverse transactions that have been made, the currency is inherently risky because it forces buyers and sellers who don’t know each other into a grey area of legal responsibility—which means they’ll either have to find some way of solving disputes out-of-pocket or risk going bankrupt if things go badly. At least with credit cards both parties get certain protections from fraud and chargebacks—something more difficult to guarantee when performing online financial transactions in Bitcoin. There’s also the possibility that someone can guess your digital wallet password and take your money without you being able to do anything about it since Bitcoin transactions are irreversible.
This volatility could be one of the reasons why Apple has chosen to ban any Bitcoin wallet apps from appearing on its App Store. It’s not just that Bitcoin transactions are difficult to perform, but also that their value is especially volatile compared to traditional currencies. While it’s true that fiat currencies are subject to inflation and deflation over time, the average person would rather have 1 dollar today than 50 cents ten years from now given current market conditions. However, in an hour or two Bitcoins could feasibly lose half their value or double—allowing people to essentially make money by doing nothing in the short term while risking bankruptcy if they make a mistake in guessing where prices will go in the long run.
How Is Bitcoin Valued in 2022?
There is still much about Bitcoin which isn’t known, including how much Bitcoin should be worth. While the Census Bureau calculates that there are slightly over 7 billion people on Earth, not all of them can feasibly use Bitcoins to buy goods online or perform other transactions because some countries treat the currency as an investment but don’t allow it to be used for purchases—meaning its value is largely dependent upon guesswork and market fluctuations. Likewise, even though Bitcoins are only distributed through mining it’s estimated that nearly 11 million have already been released into circulation which means competition for acquiring them will inevitably increase their price over time.
Of course, the price of any electronic commodity is ultimately decided by what people are willing to pay for it, so Bitcoin could theoretically go up in value or down depending upon what speculators do with their money. Bitcoins could also be lost due to people accidentally deleting them, explaining why Bitcoin is often compared to digital gold—meaning the number of Bitcoins in circulation will remain relatively constant over time until all 21 million are released by 2140.
Since Bitcoins can’t currently be used for transactions involving any large scale organization like Walmart or McDonald’s thanks to the cost and sheer amount of time it would take for a blockchain containing millions of records to update, it’s unlikely that they’ll replace standard currency anytime soon. However, the technology involved could eventually change how business is done on the internet. As mentioned before, more than half of all internet traffic goes through Microsoft’s Azure cloud computing service which processes information by using private blockchains rather than public ones, meaning they can’t be viewed by the general public but are perfectly functional for corporate needs.
Blockchain Development
Of course, using blockchain technology to perform online transactions isn’t exactly a new idea either since it’s been around for over eight years now. But all of the previous attempts have used centralized servers—meaning that while data was decentralized and distributed across multiple devices like hard drives or cloud storage, there was always someone in control of each individual part. Thus making them inherently less secure than blockchains powered by community labor.Â
One advantage of Microsoft’s particular implementation is that it’s built on top of Ethereum, another type of digital currency that functions like Bitcoin except it allows users to add organization-specific rules (like taxes or transaction fees) into its blockchain. While there are currently few apps or programs designed to use Ethereum’s public blockchain due to its relative newness compared to Bitcoin, Microsoft is confident that they’ll eventually be used for everything from signing contracts to tracking supply chains. Meaning blockchains could do more than provide a secure form of currency; they may also become the backbone of the modern internet.
What Does The Future Look Like for Bitcoin?
While it will probably still take several years before most people start using this technology, what remains clear is that Bitcoins and other digital currencies like it represent not only the future of financial transactions but potentially all types of electronic communication in general. Meaning both the government and private companies need to decide how best to integrate blockchains into existing infrastructure while balancing individual rights with legitimate concerns about security and transparency.