Welcome to the World of Bitcoin
Bitcoin is a digital currency that was created in 2009 by an unknown person using the alias Satoshi Nakamoto. Transactions are made with no middle men – meaning, no banks! Bitcoin can be used to book hotels on Expedia, shop for furniture on Overstock and buy Xbox games. But much of the hype is about getting rich by trading it. The price of bitcoin skyrocketed into the thousands in 2017.
Bitcoins are stored in a digital wallet, which exists either in the cloud or on a user’s computer. The wallet is a kind of virtual bank account that allows users to send or receive bitcoins, pay for goods or save their money.
Unlike bank accounts, bitcoin wallets are not insured by the FDIC.
The Bitcoin network is secured by individuals called miners, who are rewarded newly generated bitcoins for verifying transactions. After transactions are verified, they are recorded in a transparent public ledger.
Bitcoin has been a subject of scrutiny amid concerns that it can be used for illegal activities. In October 2013 the US FBI shut down the Silk Road online black market and seized 144,000 bitcoins worth US$28.5 million at the time.
The use of bitcoin by criminals has attracted the attention of financial regulators, legislative bodies, law enforcement, and the media.
Bitcoins can be bought on digital currency exchanges.
According to Tony Gallippi, a co-founder of BitPay, “banks are scared to deal with bitcoin companies, even if they really want to”.
In 2014, the National Australia Bank closed accounts of businesses with ties to bitcoin, and HSBC refused to serve a hedge fund with links to bitcoin.
Bitcoin’s legal status varies from country to country and is still undefined or changing in many of them.
Regulations and bans that apply to bitcoin probably extend to similar cryptocurrency systems.
Bitcoin prices were negatively affected by several hacks or thefts from cryptocurrency exchanges, including thefts from Coincheck in January 2018, Coinrail and Bithumb in June, and Bancor in July. For the first six months of 2018, $761 million worth of cryptocurrencies was reported stolen from exchanges.
Bitcoin’s price was affected even though other cryptocurrencies were stolen at Coinrail and Bancor, as investors worried about the security of cryptocurrency exchanges.
In September 2019 the Central Bank of Venezuela, at the request of PDVSA, ran tests to determine if bitcoin and ether could be held in central bank’s reserves.
Bitcoin is “not actually usable” for retail transactions because of high costs and the inability to process chargebacks, according to Nicholas Weaver, a researcher quoted by Bloomberg. High price volatility and transaction fees make paying for small retail purchases with bitcoin impractical, according to economist Kim Grauer.