Bitcoin has emerged as a powerful technology that has quickly become the most popular online currency. You’ve probably heard that term and wondered why it’s trending and maybe even wondered what it is. Bitcoin is changing the way companies do business and it’s quickly becoming the currency of the future.
What is bitcoin?
Bitcoin is digital currency that was invented by a shadowy entity called Satoshi Nakamoto in 2009. Its purpose was to create a new electronic cash system, free from institutions and governments. There are no coins or bills like actual currency that you use when purchasing goods or services.
How does it work?
Most people who want to obtain Bitcoin (“Miners”) purchase computing chips designed specifically for the Bitcoin process. The special software is used to solve complex math puzzles which in turn gives them a certain number of bitcoins in exchange for completing the puzzles. Unlike banks and other financial institutions, Bitcoin operates on the foundation of a public ledger system. Banks can confirm when transactions occur, while Bitcoin nodes need to approve the transactions that occur. Bitcoin nodes are made up of miners around the world. This practice incentivizes people to mine the currency making mining a key function of Bitcoin.
You can also send bitcoin to others using mobile apps or your computer. It’s like using PayPal or Venmo with digital currency. Bitcoin is stored in your digital wallet either on your computer or in the cloud. It’s important to note that bitcoin wallets are not insured by the FDIC.
How can bitcoin be used?
Bitcoin can be used to purchase goods from over 100,000 merchants. Like actual currency, it’s legal if you are not using it to purchase illicit goods or services. You can “mine” bitcoin in online marketplaces called bitcoin exchanges, which allow people to buy or sell bitcoins by using different currencies.
What are the risks?
Bitcoin transactions do not reveal the names of the buyers and sellers. The anonymity is especially attractive for criminals, as you can’t trace it back to them easily. You may recall that many ransomware attacks often require businesses to use bitcoin to retrieve the files and data they are holding hostage.
Bitcoin is a financial tool that should be approached with caution. Before determining if Bitcoin is something you explore, consider your individual goals and objectives.