Brocker.Org: Bitcoin is soaring — here’s what the cryptocurrency is all about

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Andrew Burton/Getty Images

Bitcoin is a currency just like the US dollar or Mexican peso.
It’s also back in the
headlines
 for soaring in value. One bitcoin was worth
$2,800 on May 25, up from $1,200 at the end of April.

In
countries that accept it
, you can buy groceries and clothes
just as you would with the local currency. Only, bitcoin is
entirely digital; no one is carrying actual bitcoins around in
their pocket.

Bitcoin is divorced from governments and central banks. It’s
organized through a network known as a blockchain, which
is basically
an online ledger
that keeps a secure record of each
transaction all in one place. Every time anyone buys or sells
bitcoin, the swap gets logged. Several hundred of these
back-and-forths make up a block.

No one controls these blocks, because blockchains are
decentralized across every computer that has a bitcoin wallet,
which you only get if you buy bitcoin.

Why bother using it?

True to its origins as an open, decentralized currency, bitcoin
is meant to
be a quicker, cheaper, and more reliable
form of payment than
money tied to individual countries. In addition, it’s the only
form of money users can theoretically “mine” themselves, if
they (and their
computers
) have the ability.

But even for those who don’t discover using their own
high-powered computers, anyone can
buy and sell bitcoin
, typically through online exchanges like
Coinbase or LocalBitcoins.  

A
2015 survey
showed bitcoin users tend to be overwhelmingly
white and male, but of varying incomes. The people with the most
bitcoins are more likely to be using it for illegal
purposes.

Each bitcoin also has a complicated ID code, known as a
hexadecimal code, that is many times more difficult to steal
than someone’s credit card information. And since there is a
finite number to be accounted for, there is less of a chance
bitcoin or fractions of a bitcoin will go missing. 

But while fraudulent credit card purchases are reversible,
bitcoin transactions are
not
.


Bitcoin ATMREUTERS/Bogdan
Cristel

21 million

Bitcoin is also unique in that there are a finite number of them:
21 million. Satoshi Nakamoto,
bitcoin’s enigmatic founder
, arrived at that number by
assuming people would discover, or “mine,” a set number of blocks
of transactions on a daily basis.

Every four years, the number of bitcoins released relative to the
previous cycle gets cut in half, as does the reward to miners for
discovering new blocks. (The reward right now is 12.5 bitcoin.)
As a result, the number of bitcoin in circulation will approach
21 million, but never hit it.

This also means bitcoin never experiences inflation. Unlike US
dollars, whose buying power the Fed can dilute by printing more
of them, there simply won’t be more bitcoin available in the
future. That has
worried some skeptics
, as it means a hack could be
catastrophic in wiping out people’s bitcoin wallets, with less
hope for reimbursement.

The future of bitcoin

Historically, the currency has been extremely volatile. But go by
its recent boom — and
a forecast by Snapchat’s first investor, Jeremy Liew,
that it
will hit $500,000 by 2030 — and nabbing even a fraction of a
bitcoin starts to look a lot more enticing.

Bitcoin users predict 94% of all bitcoin will have been released
by 2024. As the total number creeps toward the 21 million mark,
many suspect the profits miners once made creating new
blocks will become so low they’ll become negligible. But with
more bitcoin in circulation, people also expect transaction fees
to rise, possibly making up the difference.

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