What is Bitcoin?
Bitcoin is decentralized digital cash that eliminates the need for intermediaries like banks and governments, using instead a peer-to-peer computer network to confirm purchases directly between users.
Bitcoin was launched in 2009 and is regarded as the first cryptocurrency. Fiat money (like the U.S. dollars in your bank account) is backed and regulated by the government that issues it.
Bitcoin, on the other hand, is powered through a combination of peer-to-peer technology a network of individuals, much like the volunteer editors who create Wikipedia and software-driven cryptography, the science of passing secret information that can only be read by the sender and receiver.
This creates a currency backed by code rather than items of physical value, like gold or silver, or by trust in central authorities like the U.S. dollar or Japanese yen.
How does Bitcoin work?
Each bitcoin (trading symbol “BTC,” though “XBT” is also used) is a computer file stored in a digital wallet on a computer or smartphone. To understand how the cryptocurrency works, it helps to understand these terms and a little context:
Blockchain: Bitcoin is powered by open-source code known as blockchain, which creates a shared public ledger. Each transaction is a “block” that is “chained” to the code, creating a permanent record of each transaction. Blockchain technology is at the heart of more than 10,000 cryptocurrencies that have followed in Bitcoin’s wake.
How does Bitcoin make money?
Bitcoin value follows the law of supply and demand and because demand waxes and wanes, there’s a lot of volatility in the cryptocurrency’s price.
Besides mining bitcoin, which requires technical expertise and an investment in high-performance computers, most people purchase bitcoins as a form of currency speculation betting that the U.S. dollar value of one bitcoin will be higher in the future than it is today. But that's difficult to predict.