Bitcoin just hit a record high of $11,000 per coin. That is a lot of dollars. According to market watchers, in January, a bitcoin cost about $700 and in less than a year who soared to past $10,000. I’m not a mathematician, and I genuinely don’t normally use stocks, but that seems like a huge increase. Many people are seeing this as a sign that bitcoin is here to stay. And since I have money in bitcoin, oh do I hope it’s here to stay.
Trader Tom Dante tweets, “Getting really bored of seeing people say, ‘Bitcoin is a bubble,’ and that it will crash. Makes me think they’ve never witnessed a proper bubble.”
But other people are not so sure what to make of the news.
Paul Bassett Davies writes, “If I had a bitcoin for every time someone tried to explain bitcoins to me I’d have a lot of bitcoins, and no idea what to do with them.” You might have heard of bitcoin, but maybe you’re confused about “cryptocurrency.”
So how does it all work?
Cryptocurrencies are a digitally created currency. Instead of cash being regulated by a central or federal bank, cryptocurrencies are administered by thousands of computers networked all across the world. And this decentralization — meaning that the government is not involved in the money at all, they don’t regulate it, they don’t have anything to do with it — is what makes cryptocurrency so revolutionary. And just because you’ve been hearing the word bitcoin in the news doesn’t mean that bitcoin is the only cryptocurrency out there.
Cryptocurrency is like Ripple, LiteCoin and Aetherium use similar technology and have also gone up in value. So if you feel like you’ve missed that bitcoin train you can always go and invest in LiteCoin or Aetherium or any of the other many cryptocurrencies out there. But what a lot of people don’t realize, is that when you buy a bitcoin you don’t have to actually buy a full coin. Right now if bitcoin is up to $9,000 that does not mean that you have to spend $9,000 to get a coin. You can actually get a fraction of a bitcoin.
So if you have $50 in your pocket and you’re like, ‘I got nothing to do with this $50. Let’s see if I can make some money off of it,’ and you want to throw it into a Bitcoin, you might end up with like .00009 of a bitcoin, but that $50 could easily become $100 by tomorrow at the rate that bitcoin is going. But just remember the bitcoin is like a stock, so just like other cryptocurrencies, is it can go up or down or just crash completely leaving you with nothing. As bitcoin has recently surged in value, Ethereum also has seen a record high. Bitcoin, however, is still the market leader.
The same computers that processed Bitcoin transactions are also creating new bitcoins in a process called, “mining.”
The computers “mine” bitcoins by solving increasingly difficult puzzles with a special piece of software. The transactions form a block of information called a “blockchain.” Miners that donate their CPU power to allow Bitcoin to process transactions are awarded with bitcoins. However, the reward is then cut in half after a certain number of transactions. It is estimated that around the year of 2140, the currency will reach its predetermined limit of 21 million bitcoins.
So with a limited supply, or a finite supply and increased demand, it means that the price ultimately should go up, but again this is a stock and it’s all based on how much confidence the public has on it in order for it to thrive.
And I can’t help wonder who is the strange genius who invented bitcoin. The truth is that no one actually even knows.