Bitcoin has been a pretty divisive topic since it gained popularity in 2011.
The digital currency first gained media attention as a way to buy and sell (mostly illegal) goods on the infamous Silk Road and thus gained a bad reputation. Since then, though Bitcoin has continued to percolate and acquire a growing user base it still hasn’t reached mainstream currency status. Last Wednesday, you most likely saw articles about Bitcoin pop into your news feeds due to its value reaching a symbolic high: one bitcoin reached a value of $10 000 USD. Since, it has soared to over $15 000 USD. This might also explain why the developer at your office who always wears a t-shirt with the Bitcoin logo on it was holding their head a little higher that day. If you’ve been interested in learning more and potentially investing, we thought we’d compile a basic FAQ to get you started.
What is bitcoin? Bitcoin is a decentralized digital currency, first described and published in 2009 on a “cryptocurrency mailing list” by an unidentified person named Satoshi Nakamoto. Since then Nakamoto has stepped back from Bitcoin, but a community of other developers have come on board to manage it. Mainstream media first started to report on Bitcoin around 2011, (when the value of 1 Bitcoin was only $0.75). There is no bank or central currency bureau involved – it’s transferred person to person. There is no physical representation of a bitcoin – It only exists in digital form.
Who monitors Bitcoin? Though no one owns Bitcoin, it’s monitored on the blockchain – a shared public ledger where all bitcoin transactions take place and are authenticated. Everyone who uses bitcoin must use software and download wallets that all follow the same rules. Because not one person or entity owns it, there must be a complete consensus amongst all users about all aspects of what Bitcoin is worth and what constitutes a transaction. As Bitcoin’s webpage explains, “This ledger contains every transaction ever processed, allowing a user’s computer to verify the validity of each transaction. The authenticity of each transaction is protected by digital signatures corresponding to the sending addresses, allowing all users to have full control over sending bitcoins from their own Bitcoin addresses.”
Because it’s deregulated, it’s in the best interest of all users and developers to maintain a consensus, as inconsistencies can lead to volatility and a drop in bitcoin value for everyone.
How do you acquire bitcoin? It’s actually quite easy to get started. First you must download a wallet ( regardless of your device or provider preference there is an option for you). There are quite a few things to consider when choosing a wallet, so make sure to do your homework. Once you have a wallet you can purchase Bitcoins at a bitcoin exchange, exchange them with someone near you, or earn them through mining. Here is a really comprehensive guide on all the ways to buy Bitcoins.
Can you purchase things with Bitcoin? Yes, as more influential businesses (think Microsoft and Square) jump on board to accept bitcoins, their validity increases. Currently, you can use Bitcoin to split a bill with friends, and can even withdraw it from ATMs in Canada. Because it’s a decentralized currency, Bitcoin isn’t affected by political events happening around the world. People living in countries experiencing political turmoil, and as a result, with devaluing currencies, have turned to Bitcoin as a lifeline. For example, thousands of people in Venezuela have turned to mining to protect themselves against the what is currently the highest inflation rate in the world.
I thought Bitcoin was anonymous, can people see what I purchase? Technically yes and no. You can buy with without verification or ID but only in very small amounts. Because Bitcoin is moderated on the block chain, part of what keeps it going is the fact that ever single transaction must be validated by the blockchain community. So yes, every transaction you make is public and viewable, but if you were to send out multiple transactions from many different wallets it would make your purchases harder to track.
One bitcoin is now valued at over $15 000 USD, is it too late to get in and invest? No. Though only 21 million Bitcoins will ever be created, each one can be broken down to eight decimal places: each unit of bitcoin (0.00000001) is called a satoshi. Companies like Coinbase will let you buy as little as 1$ of bitcoin. Always be weary of fees associated when buying, as users can charge whatever they want to sell it to you, just as you will also be able to do the same once you’re in possession of a bitcoin amount.
Do financial analysts expect it to stabilize? Yes, eventually. In light of what’s possible, only a very small portion of the population is currently using Bitcoin. This means that a few large transactions or a turbulent activity (like a fraudulent sale or a hack) could take place and visibly affect the entire blockchain, as has happened often in the past. Three years ago The Washington Post predicted that eventually Bitcoin will stabilize, by looking at its historical “boom and bust” cyclical investment pattern:
1. Bitcoin gains a bit of media attention, which attracts more users, leading to further media attention, causing Bitcoin’s value to climb.
2. It reaches a record high, but the bubble bursts, often caused by bad news (hacking has been extremely prevalent in Bitcoin’s history) causing panic selling and price falling.
3. After everyone calms down and people stop selling, it eventually leads to another period of stability, generally with a higher value than before the bubble. The cycle continues as Bitcoin gains more and more users, each time with a higher valuation than before.
There are also analysts who believe that it’s going to continue to skyrock, such as John McAfee, who took to twitter to declare he would eat his own genitals if Bitcoin doesn’t reach $1 Million by 2020.
For more answers about bitcoin check out the official FAQ page. If you’re interested in learning more than surface level information, dive down the rabbit hole in one of their longer guides. While we hope this has made you feel a bit more in-the-know regarding this exciting new cryptocurrency, we want to note: it’s extremely important to do your homework before investing any large sums into a new technology or startup. People have lost millions of dollars, (some pushed so far as to take their own lives) as a result of the volatility of this currency. Though Bitcoin is growing in popularity, it’s still considered “new” and is thus extremely unpredictable.