It’s everywhere in the news at the moment. It comes with myriad (lots of) warnings from technology and economics experts, who see investment in it as dangerous and insecure. Each Bitcoin is currently worth over $14,000 (at the time of writing). That’s a lot of money.
But, what actually is it? Unless you work or invest in Bitcoin, most normal people have no idea what it is or how it works. I’m going to try and explain the basics of Bitcoin in the simplest way possible.
Bitcoin is the most famous type of cryptocurrency. A cryptocurrency is a currency, like a British Pound (£) or a United States Dollar ($), but that only exists online, in digital form. A cryptocurrency is independent of any national or international (central) bank, and so cannot be affected by the economic policies of any country.
OK, this is the technical part … cryptocurrencies work by using ‘blockchain’ technology. This technology involves a network of public computers that all have access to a digital record book that records all of the transactions that have been made in the cryptocurrency between people online. Normal members of the public, like you or me, have access to the ‘book’. Therefore, it is normal people (called ‘miners’) who make sure that all transactions are correct and legal, instead of a central bank. These ‘miners’ earn rewards for making sure that the cryptocurrency is transferred correctly.
As a result, making transfers in Bitcoin is almost free, and no personal information is recorded with each transaction. Bitcoin is almost completely untraceable, and therefore anonymous.
Recently, it has become more mainstream as more and more people have invested in the currency. In addition, more companies are offering services that can be paid for in Bitcoin. Its value has therefore increased dramatically – one Bitcoin was worth $750 at the beginning of 2017, and is now worth over $14,000.
Phew. It is complicated, and this blog is brief, but as Bitcoin and cryptocurrencies get more and more popular, they are having a bigger impact on the global economy. There are several very useful YouTube videos that explain the concept of Bitcoin very well, and in a lot more depth than this blog. My personal favourite is by a channel called ‘SciShow’.