What Is Bitcoin?
Bitcoin Definition and Example
Bitcoin is a form of digital currency that is created and stored electronically on a computer. Bitcoins are not physical money like dollars, nor are they recognized as currency by central banks or monetary authorities, although in 2021 El Salvador adopted bitcoin as legal tender.
Bitcoin is widely considered to be the first cryptocurrency. It is produced, or extracted, using advanced computer software that solves mathematical problems.
Notice
The Commodity Futures Trading Commission (CFTC) in the United States designates Bitcoin as a commodity since Bitcoin exchanges offer derivative contracts or options on the value of the cryptocurrency. Even with the introduction of bitcoin-related ETFs, bitcoin is difficult to categorize as it is still new and different from other available assets.1
Bitcoin has several attributes that set it apart from traditional currencies as a global medium of exchange. Central banks or monetary authorities do not control the amount of bitcoins. Bitcoin is also decentralized, which effectively makes it global. If you have a computer, you can set up a bitcoin address to receive or transfer bitcoins in seconds. Bitcoin is somewhat anonymous and allows you to maintain multiple addresses. Setting up an address does not require any personal information.
how bitcoin works
"Mining" is the term for the work done to create bitcoin. Mining software solves an increasingly complex math problem. When a bitcoin is created, it enters circulation and can be used in transactions or stored.
A bitcoin is also divided into smaller increments, called "satoshis." There are 100 million satoshis for one bitcoin that can be used in transactions depending on its market value.2 For example, if one bitcoin is worth $66,000, then one satoshi is worth $0.00066. You would need 1515 satoshis to buy an item that costs $1.
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Bitcoin is a fixed asset, as there are only 21 million bitcoins. There are almost 19 million in circulation.3
One of Bitcoin's most exciting inventions is Distributed Ledger Technology (DLT), also known as the "blockchain." DLT has incredible potential for businesses and consumers who need a secure way to record asset transactions. The blockchain cannot be modified by anyone, tracks ownership, and allows for immediate and efficient bitcoin transfers.
You can use Bitcoin through a computer, phone, or other devices to pay for items regardless of banks or government authorities. For this reason, it is often stereotyped as the currency used in black market transactions. However, as the technology grows in popularity, brick-and-mortar retailers are beginning to adopt it as a means of payment.
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Bitcoin does not go through the traditional banking system; rather, it circulates from one digital wallet to another. Bitcoin cannot be held or kept in a pocket or physical wallets like coins or paper money; it is purely a computerized medium of exchange.
Notable events
The anonymous creators of bitcoin, known as Satoshi Nakamoto, first proposed Bitcoin in a 2009 white paper as a means of payment based on mathematics. The idea behind bitcoin was to create a monetary system that did not involve banks; instead, it would operate using a decentralized ledger known as a “blockchain.”4
Bitcoin's value first topped $1,000 in January 2017 before hitting a high that same year. Since then, its value has seen periods of phenomenal growth, as well as huge sales. The price of Bitcoin skyrocketed to over $19,000 at the end of 2017, but fell to almost $3,000 a year later. It peaked at nearly $65,000 in April 2021. This peak was broken in October 2021, when ProShares introduced the first bitcoin-pegged ETF on the New York Stock Exchange.35
Is Bitcoin legal?
Bitcoin and other cryptocurrencies are legal in the United States and in several other countries around the world. However, they are not legal tender, which means they are not backed by any government; therefore, consumers or businesses using cryptocurrency do so at their own risk.6
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