Yahoo Finance Everything you need to know about Bitcoin in 2021
The good, the bad, the Doge: with recent price dips and increased scrutiny around the industry, everyone is talking about cryptocurrency as a whole right now.
But by and large, the most well-known cryptocurrency is Bitcoin. Bitcoin has gained notoriety for being volatile, contributing to global warming and for being an all-round cowboy’s game.
But there’s a lot more to Bitcoin than meets the eye.
Here’s everything you need to know about it.
What the hell is Bitcoin?
If you’ve been living under a rock since 2012, Bitcoin is a cryptocurrency. Going back one step further, cryptocurrency is digital money - cash that’s stored online.
Bitcoins can be bought, sold or traded, or used as payment for goods - like any currency. But not every shop accepts Bitcoin. In fact, many don’t. Instead, the most common way Bitcoin is used is as an investment - a use that’s made a lot of people a lot of money.
It exists on the Bitcoin blockchain. Without getting too technical, you can think of the blockchain like a receipt. It’s a full transaction history of every bitcoin past and present, all the way back to when the first bitcoin was “mined” back in 2009.
Bitcoin gets mined? What, like gold?
Not quite.
To stop dodgy behaviour, like transacting the same bitcoin twice, Bitcoin’s mysterious founder, Satoshi Nakamoto, invented bitcoin “mining”.
“Miners” act as auditors, and solve complex math problems to verify each bitcoin transaction, which then gets added to a chain of other verified transactions (in the right order).
When miners verify transactions, they get rewarded with bitcoin.
There are only 21 million Bitcoins in the world. Around 18.5 million of these are already in circulation, which means there are less than 3 million left to be mined.
Who controls Bitcoin?
The first proof of concept for bitcoin was published in 2009 by Satoshi Nakamoto.
Nakamoto left the project in late 2010, but nobody actually knows who they are. It isn’t even confirmed if Nakamoto is a singular person, or a group of people.
But Bitcoin is free software, and any developer can access it. In fact, since Nakamoto left, many have. Anyone with the right tech specs can review the code, and make their own modified version.
As a result, no one actually owns the Bitcoin network.
Bitcoin is controlled by bitcoin users, and users are able to use whatever software version they want to transact Bitcoin.
How does Bitcoin work?
To your everyday Joe Blow, Bitcoin works like an online banking app. Every Bitcoin is like a computer file stored on a digital wallet app, like CoinSpot or Coinbase, on your iPhone or computer.
You can send and receive Bitcoins via the app, and every single transaction will be recorded on the bitcoin blockchain.
How much is bitcoin worth today?
At the time of writing (4 July 2021), one bitcoin was worth $47,257. This time last year, one bitcoin was worth just $13,157.
And while that sounds like incredible growth, bitcoin is actually down right now. On 15 April this year, Bitcoin was worth $81,585 - it’s extremely volatile.
Why is bitcoin so volatile?
Like anything, the price of bitcoin is determined by supply and demand.
According to the Godfather of Bitcoin, American investor Michael Terpin, Bitcoin also has cycles, similar to stock market cycles. And just like stock market cycles, you should buy during a crash, and sell during a boom.
“Cycles in Bitcoin are pretty well established, and relate to Bitcoin ‘halving events’,” he said.
“Every four years, the number of bitcoins that come onto the market - that are mined - halve. That means every four years, you end up all of a sudden having a much lower supply. And yet, demand is linear.”
So when supply falls but demand stays constant, the price of bitcoin gradually increases.
But to add another layer to it, the price of bitcoin is often impacted by how regulators respond to the industry.
And, in the last few months, it’s copped a lot of heat. Here’s a taste of what’s happened:
Elon Musk did a U-bomb on his decision to allow bitcoin as a form of payment for Teslas, saying he was concerned about “rapidly increasing use of fossil fuels for Bitcoin mining”.
The FBI recovered most of the Bitcoin ransom paid to Colonial Pipeline hackers, which led investors to question just how off-the-grid Bitcoin transactions really are.
China banned financial institutions and payment companies from providing services related to cryptocurrency transactions.
Is investing in bitcoin worth it?
That depends on the investor.
Digital asset fund manager at Digital X, Matt Harry, told Yahoo Finance that volatility is just the price you pay for outsized gains.
Bitcoin podcaster Stephan Livera also told Yahoo Finance he’s lived through huge dips, but says the returns are worth it.
“We are talking about returns that are four of five times [the S&P].”
But that said, if you can’t take the heat, get out of the kitchen. Meaning, if you can’t deal with this emotional toll of market dips, investing in bitcoin may not be for you.
Instead, you might want to consider investing in low-risk exchange-traded funds instead.
Read more: What’s an ETF?
Is it safe to invest in bitcoin?
There are risks with every investment.
And like any investment, you need to do your research. Harry recommends going to sources like CoinDesk, Brave New Coin and TheBlockCrypto.com to learn about Bitcoin.
However, it’s true that there are major security risks associated with bitcoin, because it relies so heavily on technology. Bitcoin users have reported being duped out of their cash in fraudulent transactions, or forgetting their password to million-dollar portfolios.
But there are safe ways to transact. Choosing a transparent and secure crypto exchange is key.
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