Bitcoin has surged in popularity in recent years and seems to always appear in financial headlines. For the longest time, I didn’t really understand it or investigate it to learn more. It became hard to ignore when I saw headlines about it on a daily basis as I was researching other financial topics. So, I thought, “If I don’t really understand it, then there’s probably a lot of people like me out there who need a primer on it.” That’s exactly what I put together for your benefit. Below, I give you a summary of bitcoin, so you’ll know what people are talking about when it comes up in conversation. Yes, I did have to research it before posting about it. The result is below…
Bitcoin(BTC) was introduced in 2009 by a person going by the name of Satoshi Nakamoto. It has become the most popular cryptocurrency in the world(as of this posting). Cryptocurrency is simply a digital currency, meaning it doesn’t work like coins or dollars, but only operates in the digital world, so you can’t touch it. Investopedia defines Bitcoin as “A cryptocurrency, a virtual currency designed to act as money and a form of payment outside the control of any one person, group, or entity, and thus removing the need for third-party involvement in financial transactions.”
How do you get Bitcoin?
One way to get bitcoin is to purchase it on a cryptocurrency exchange, similar to buying stock. As of this writing, bitcoin is worth about $96,500. That means most people can’t simply purchase an entire bitcoin, but would need to purchase a portion of it. The good news is that buying a portion of it IS possible, just like a mutual fund. One place to do this is Coinbase, among others.
You can also purchase bitcoin at places like CVS or 7-Evelen and some ATMs. Basically, bitcoin is easy to purchase. I’ll add a note here from my banking experience that fraudsters like to use bitcoin to scam people out of money. They tell people who go buy bitcoin and then send it to them, which they’ll redeem wherever they are. So, if someone online is telling you to buy bitcoin and you don’t really know them—don’t do it.
Another way to get bitcoin is to mine it. This was probably my single biggest area of confusion about bitcoin, so I’ll try to explain it in layman’s terms.
Mining bitcoin doesn’t mean you grab your pickaxe and find a special cave where there are stores of bitcoin. Remember, it is 100% digital. Bitcoin uses something called Blockchain Technology. The blockchain is a shared database of information that is spread out over various computers and locations. It is encrypted data that is maintained by automated programs on numerous computers to keep it operating. Think of it like your body being automatic when it comes to things like digesting your food—you don’t have to do anything special because your digestive function in your body is automatic. Going into further detail about blockchains will probably make your mind explode, so I’ll simply tell you here to picture a bunch of separate chains coming together to form a “block” of information. These blocks do contain encrypted information from previous blocks as well, and it goes all the way back to the very first block created at the beginning of Bitcoin.
Can you explain more about mining for me?
If gold is mined by people using pickaxes and chipping away at rocks to find the gold, bitcoin works in a similar fashion. Miners are simply people at a computer trying to solve complex equations with software. When bitcoin was released, there weren’t many miners around and there was a greater reward for your efforts. Now, there are so many miners in the field that it can take a very long time to get the smallest portion of bitcoin.
There is a reward for verifying bitcoin transactions as well. Think of how banks have ledgers of transactions. If you transfer funds from Bank A to Bank B, there will be a debit entry at Bank A and a credit entry at Bank B. For bitcoin, this verification process takes place through miners and the blockchain process I mentioned earlier. No banks are involved.
Gold has a limited supply, and so does bitcoin. Only 21 million bitcoins are in existence, and that number doesn’t change. As of this writing in 2024, about 19.9 million bitcoins have already been mined. It is estimated that the last bitcoin will be mined in the early 2100s. What happens when it all runs out? That is anyone’s guess at this point.
Why is bitcoin so popular?
One major appeal of bitcoin and other cryptocurrencies is that there is no corporate middleman. No company or person actually owns bitcoin. Yes, you can mine or purchase your shares of it, but it isn’t like the US Dollar which is printed by the government. Even the founder of bitcoin doesn’t own it(beyond the shares that he maintains).
Another factor is that it’s anonymous. That means your personal information isn’t tied to it like it is for a debit card transaction. This is a big reason why it’s become the currency of choice for digital fraudsters. I’ve seen numerous examples of someone overseas scamming an older lady in the United States and teller her to purchase and send bitcoin to him. The currency isn’t tied directly to the fraudster, so there is less risk. If a lady wired funds to a bank account overseas, it’s traceable and tied to someone’s personal information(even if the information is fake).
There’s also the “new and cool” factor. Its rising popularity in online investment clubs has caused a lot of people to look into it. You have Gen Z jumping in as the youngsters; you have conspiracy theorists buying it and waiting for cash to disappear; you have billionaires investing in it expecting a great return; you have the anti-establishment crowd trying to stick it to the man, etc. Lots of people are jumping on the bandwagon.
Bottom line
Bitcoin and other cryptocurrencies have gotten a lot of attention lately. Anytime we face economic hardships or reports of the US dollar decreasing in value, there is a new resurgence of interest in bitcoin. It is another means of currency exchange. I have no reason to believe it is replacing anything currently in existence—it’s just an alternative. Hopefully, this brief summary helps clear it up for you. Is it still confusing? Yes! But, perhaps you’ll now be able to hold our own at your next neighborhood BBQ.
There are numerous videos and webpages out there dedicated to giving a deeper explanation of bitcoin. My hope is that you feel more comfortable with it and no longer simply gloss over when you hear the term. This is a very basic explanation. If you want to learn more, please check out other resources online.
