What Is Bitcoin | U.S. News

Bitcoin was the first and is the most popular cryptocurrency. It is a blockchain-based, decentralized digital currency powered by a network of users that allows financial transactions without relying on a central authority or intermediary.

Bitcoin and other cryptocurrencies are an alternative to fiat currencies such as the U.S. dollar, which are backed by federal governments and central banks. Bitcoin is secured by cryptography, with transactions verified by a process known as mining in which users compete to verify transactions by solving complex mathematical puzzles using powerful computers. This is known as proof of work, or PoW.

Bitcoin is essentially a private, digital currency that is engineered to be immune from government interference or manipulation. Like other forms of money, it is seen as a store of value and a means of payment or exchange. Bitcoin allows users around the world who are connected to the internet to complete financial transactions in a matter of minutes without the need for a bank or other go-between.

Bitcoin transactions are verified and secured using blockchain technology. The Bitcoin blockchain is a framework that uses a network of computers, or nodes, that independently record each transaction and update a public ledger. The blockchain system creates many different copies of the public ledger, generating a high degree of security. The Bitcoin blockchain software is “open source,” meaning anyone can download the software and contribute to the network. Once a majority of the computers in the network agree on a transaction, it is permanently recorded in the public ledger.

Bitcoin is stored in digital wallets and accessed via a private key, typically a 256-bit number that serves as a password.

Bitcoin mining is the process used to verify transactions and record them on the blockchain. Bitcoin miners use powerful computers to complete advanced mathematical functions called hashes. This method of transaction verification is called proof of work because miners must prove they have done the work of solving these complex math problems to earn the right to verify a new block of Bitcoin transactions.

Miners typically use specialized graphics processing units, or GPUs, and application-specific integrated circuits, otherwise known as ASICs. As of late December 2021, Bitcoin miners earn 6.25 BTC in rewards for mining a single block. A block is like a single page in the blockchain ledger.

Investors can buy Bitcoin on popular cryptocurrency exchanges, such as Coinbase, Gemini and Binance. Bitcoin trades under the symbol BTC. Many online brokers allow investors to buy Bitcoin, as well. Robinhood, Webull and TradeStation are three brokers that allow Bitcoin investing. Investors can also buy Bitcoin through popular digital payment apps Cash App, Venmo and PayPal. Finally, investors can buy Bitcoin in person at a physical Bitcoin ATM. There are more than 26,000 of these ATMs in the U.S. No matter how buyers choose to purchase Bitcoin, they must then store it in a digital wallet.

There are several ways to invest in Bitcoin other than buying the cryptocurrency directly. The ProShares Bitcoin Strategy ETF (ticker: BITO) is an exchange-traded fund that made history in October 2021 by becoming the first cryptocurrency ETF allowed to trade on a major U.S. exchange. For years, the U.S. Securities and Exchange Commission rejected all proposed Bitcoin ETFs out of concerns for investor safety. Instead of holding Bitcoin itself, the BITO fund and the similar Valkyrie Bitcoin Strategy ETF (BTF) hold Bitcoin futures contracts. The Grayscale Bitcoin Trust (GBTC) is a popular trust that trades over-the-counter and holds actual Bitcoins.

Bitcoin wallets are digital versions of physical wallets. Instead of storing dollar bills, Bitcoin wallets store the private keys needed to send or receive cryptocurrency. Anyone with access to a wallet’s private keys controls all the cryptocurrency associated with that wallet. Bitcoin wallets can be either physical or digital. Hardware wallets are similar to USB sticks, but Bitcoin investors can also store their crypto in digital wallet apps right on their smartphones. Bitcoin wallets connected to the internet are called “hot” wallets, while wallets that are not connected are referred to as “cold.”

Some cryptocurrency investors see crypto as the universal global online currency of the future, and Bitcoin is the currency that is best positioned for that role. Bitcoin’s market capitalization of more than $900 billion (as of late December 2021) makes it by far the most valuable cryptocurrency in the world. In fact, Bitcoin accounts for about 40% of the entire cryptocurrency market.

Regardless of whether Bitcoin eventually becomes the world’s preferred currency, many Bitcoin enthusiasts see it as an investable asset in itself. Since the maximum number of Bitcoins is capped at 21 million, Bitcoin advocates consider the cryptocurrency a hedge against fiat currency inflation and a long-term store of value. So far, Bitcoin has been a spectacular long-term investment. Its price is up more than 6,000% in the past five years.

Bitcoin transcends banks and borders, allowing any users with access to the internet to complete transactions around the world within minutes, 24 hours a day, 365 days a year. Bitcoin transactions are transparent, public and secured by blockchain technology, but they do not include sensitive private information about the parties involved.

Governments cannot interfere with Bitcoin transactions or the blockchain ledger, and they can’t dilute the value of Bitcoin by printing additional coins. Finally, Bitcoin has been an exceptional long-term investment up to this point, significantly outperforming the S&P 500 and most other major asset classes.

Bitcoin’s long-term price gains have been impressive, but extreme volatility in the Bitcoin market has made the crypto subject to large boom-and-bust cycles. This extreme volatility makes Bitcoin unsuitable as a short-term store of value.

Global governments can’t stop Bitcoin transactions, but they can restrict or ban Bitcoin outright, making it potentially dangerous and risky to use or store. Because Bitcoin is decentralized, governments and central banks will not take measures to support its price if it crashes. The Federal Deposit Insurance Corporation or other government entities will not insure your Bitcoin holdings or reimburse you if your crypto is lost or stolen.

Bitcoin was created in 2009 by a person or group of people called Satoshi Nakamoto, a likely pseudonym listed on the original Bitcoin white paper in 2008 that described how the cryptocurrency would work. Over the years, several people have publicly stepped forward claiming to be the real Satoshi Nakamoto, but none have provided sufficient evidence to support their claims.

In the first seven months following the launch of Bitcoin, Satoshi reportedly mined up to 1.1 million Bitcoins. At 2021 prices, those Bitcoins would be worth tens of billions of dollars.