Bitcoin is a type of cryptocurrency and can act as a currencies, Bitcoins are not backed or secured by any assets or government entity. Bitcoin is a digital currency, a bit of computer code, that can be traded and exchanged almost anonymously online. All of these transactions are maintained in a single ledger that can be accessed with enough computing power. Bitcoin was originally created with the idea of developing a universally accepted currency to facilitate peer-to-peer transactions by eliminating standard currencies, processors, and banks. When Bitcoin was created in 2009, it was essentially worthless and would remain that way until it started gaining notoriety in the black market. However, Bitcoin was able to push past its seedy beginnings and into the national spotlight.
How does Bitcoin have value?
The reason Bitcoin has any value is like that of any currency because someone is willing to accept it for goods and services. In July 2020, a district court ruled that Bitcoin could be deemed as money under D.C. Financial Services Law. This development led to companies like Square and Paypal opening their own currency exchanges where one can buy and sell Bitcoin. Additionally, Bitcoin’s blockchain technology, which houses the digital public ledger of all Bitcoin transactions, holds promise for other potential decentralized applications.
Should you buy Bitcoins?
Bitcoins are an extremely speculative and risky investment. There are many reasons to temper expectations regarding the value of Bitcoin. While we mentioned above that blockchain technology showed promise and could be used for future applications; it is not proprietary. Many other cryptocurrencies, over 5,000, exist all based on blockchain technology, and an infinite number more could be created. Bitcoin just happened to be the first creation. It is important to note that being first does not always equate to long-term success. Bitcoins appear to be very valuable now as the price per coin is roughly $62,000 (Chart 1). A similar occurrence happened at the end of 2017 when the price of one Bitcoin almost reached $20,000. However, less than one year later, Bitcoin lost nearly 85% of its value, with the price per coin falling to around $3,000 at the end of 2018.