Can you explain Bitcoin to me? Please? I feel like I’m going crazy here.
I want to tell you what I don’t understand about Bitcoin, so that you know what to explain. But, honestly, I feel like I don’t understand any of it! Why is it so popular? Why are people paying so much for it? What actually is a Bitcoin? They don’t really exist like paper dollars, right? So why would anyone want to have one, and why would it be worth anything at all? My friends are so excited about Bitcoin, and some are even trying to invest in it, and I just don’t understand what’s going on at all.
You have a lot of questions! Fortunately, we have answers.
Let’s start with talking about currency in general. Currency is what we exchange for goods and services, of course. You’re right to say that Bitcoin doesn’t “exist” in the way a paper dollar does (more on that in a moment), but it’s worth remembering that a paper dollar (or a cloth dollar, technically--there’s a bit of trivia for you) doesn’t really have an obvious and inherent value, either. You can’t eat dollars, of course, but we all agree that they’re worth something, and we can take some comfort in the fact that the United States government produces and backs the U.S. dollar.
But a currency doesn’t have to be tied to a government, though that is traditionally common. And not all currencies are like U.S. dollars in the sense that the country controls the value (to an extent) by printing more money or adjusting interest rates. So it’s theoretically possible for anyone to start a currency, and more than a few have tried. One popular idea has been the digital currency--a type of money that exists only on computers, tracked by numbers and data.
Just as in the real world, counterfeiting is a real problem with digital currencies. Or, at least, it was--until blockchain technology came along with Bitcoin. Blockchain systems are very secure and are used to record “blocks” of data. Bitcoin transactions are logged in this way and are considered quite safe, so buyers, sellers, and holders of Bitcoin are able to rest assured that the Bitcoin you own will be properly attributed to you on the blockchain.
Blockchain technology is exciting and may have uses beyond cryptocurrency. And cryptocurrency, of course, has taken off: after years of smaller ups and downs, Bitcoin exploded to new heights by rising from under $1,000 in value (per Bitcoin) to $17,900 in the same year (2017)!
Bitcoin took a step back after that, and the cryptocurrency investment news site BuyBlockChain shows it hovering around $10,000 right now. So where will it go next?
Well, that’s hard to say. Bitcoin is very volatile, as are most cryptocurrencies. They’re the subject of a lot of speculation right now, and that’s making them tough to use for their intended purpose (currency, of course) while also making them very attractive to investors with high hopes and a high tolerance for risk. Where Bitcoin goes next is anyone’s guess, but it’s going to be fascinating to watch--and very exciting for the investors who are along for the ride.
“The blockchain does one thing: it replaces third-party trust with mathematical proof that something happened.” -- Adam Draper