Bitcoin is a type of digital currency, or cryptocurrency. It’s a form of online exchange. In 2017, the currency gained popularity as its value soared by thousands of dollars in a single year. After a massive drop in 2022 the cryptocurrency soared late 2023 and into early 2024 due to the impending approval of Bitcoin Exchange Traded Funds.
Bitcoin has caused a lot of controversy. From those who believe it is the future currency, to those who call it a speculative boom. What you need to understand about Bitcoin and its workings, as well as some of its downsides.
What is Bitcoin? How does it work and what are the benefits?
Bitcoin was launched in 2009 when the software that underpins the currency came out. The origins of Bitcoin are somewhat mysterious. A person or group known as Satoshi Nakamoto claim credit for the creation of the cryptocurrency.
Bitcoin is managed and tracked by a distributed ledger or decentralized computer network using Blockchain technology. Imagine the distributed ledger as a public record of all the transactions that are taking place. They are rewarded for their efforts with bitcoins , though they decline over time.
The network’s decentralized nature is one of the attractions of Bitcoin and other cryptocurrency . The currency is almost autonomous because users can send money to one another and there is no central bank managing it. The currency is autonomous, and can, theoretically, avoid interference from governments or central banks.
Bitcoin is a mostly anonymous currency. Even though transactions can be tracked to specific users, the name of the user is not directly linked to the transaction. This is true even if it is publicly processed. The ledger of bitcoin transaction is public, so authorities are better able to track bitcoins.
Where does bitcoin come from?
When computers in the network process and verify transactions, bitcoins are “mined”. The miners have high-powered processors to chew through the transactions and earn part of a Bitcoin. Bitcoin needs a large amount of processing power in order to maintain the network, and electricity to run these computers.
The currency can only be created in 21 million units. Experts predict that the remaining bitcoins will be mined around the year 2140. The miners are only rewarded with a transaction fee when this happens.
Although the total number of bitcoins is limited, they can be divided into smaller amounts. In practice, bitcoins can be divided into fractions to make it easier to pay for very small amounts in real currency. The official division of a bitcoin is up to 100 million satoshi, named in honor the founder.
thousands of other cryptocurrencies have been created. Some of the most common include Ethereum, Solana, and XRP.
Users can store and spend bitcoins in a cryptocurrency Wallet. A wallet is a personal location in the distributed ledger which only refers to your currency. Your wallet will provide a unique cryptographic adress to the sender when you purchase bitcoins. You can scan the QR code of a retailer or send money directly to their public address in order to spend or send bitcoins.
Bitcoin: Its advantages
Bitcoin is a popular currency for a variety of reasons, from the utopian and capitalistic to the economic.
1. Decentralized currency management
Bitcoin’s decentralized network, and its limited number of coins promise a utopian version currency. By removing central banks and governments from the currency market, proponents claim that the currency’s value will increase over time. Some say Bitcoin gives power back to the people by removing these entities.
2. Transactions that are anonymous or semi-anonymous
Bitcoin’s relative anonymity is another major feature. Some supporters (such as libertarians), like the fact that the government and other authorities can’t easily track who is using the currency. This anonymity can be used to commit criminal acts.
Every transaction can be tracked to reconstruct the spending of a wallet. The data is public and anyone can track the spending. This creates privacy concerns even if you know who owns a wallet.
3. It is difficult or impossible to counterfeit
Bitcoin’s popularity can also be attributed to a practical reason. The blockchain ledger is a system that constantly verifies the transactions.
4. Popularity is on the rise
Bitcoin is popular as a trading instrument because of the hype that surrounds it. is able to make or lose money more easily with exchange-traded fund, because the value of currency fluctuates so dramatically. The price of bitcoins has risen significantly over the past decade due to the hype surrounding the coins and their perceived rarity.
Bitcoin: Its advantages and disadvantages
Bitcoin has some inherent design flaws, including its limited number of coins and volatility.
1. Bitcoin is a power hog
The operation of large computer mines requires a great deal of energy. Electricity production is costly and pollutes our environment for a project that some critics say has little viability.
How much electricity does Bitcoin consume and how many greenhouse gases does it emit? According to the Cambridge Bitcoin Electricity Consumption Index (April 2023), Bitcoin would be the 27th largest electricity user if it was a country. In terms of greenhouse gas emissions, it would be ranked 70th. These are staggering numbers for an almost never used digital currency.
2. The number of coins available is limited
The number of coins in Bitcoin is limited by its nature. This poses a problem when using Bitcoin as currency. This limit prevents the money supply from increasing, which can be valuable in times of recession. Bitcoin, if used in an entire economy, could cause destructive spirals of deflation, as was more common when economies were run on the gold standard. This concern was a major reason for the elimination of the gold standard.
When consumers and others hoard money during difficult economic times, a challenging situation can arise. Money that doesn’t move slows down the economy. A deflationary spiral could occur without a central authority, such as a banking institution to stimulate the economy. Consumers will not spend money because they know that goods will be cheaper in the future. This creates a deflationary spiral.
Bitcoin’s fixed number of units doesn’t allow for the flexibility required to manage a currency system-wide.
3. The value of a volatile currency is worthless
Imagine that the price of a meal changes every day by up to 10 percent. This is exactly why Bitcoin as a currency is almost worthless. Bitcoin’s volatility is attractive to traders but makes it worthless as an exchange medium.
When making spending decisions, consumers need to understand what they can purchase with a particular currency. When consumers expect that the currency will rise, or even skyrocket, they are less likely to use it.
4. The government is regulating itself
The government has been slow to respond to the introduction of cryptocurrency. However, many are now taking notice and studying how to regulate it. China has banned cryptocurrency outright while other countries are looking into it. Others, like the United States are looking at ways to regulate cryptocurrency more efficiently.
The U.S. regulatory structure is still unclear. However, President Joe Biden has asked the federal government to study cryptocurrencies and the threats they pose to national security and financial stability, as well as the impact on the environment and the potential for a digital currency.
In light of the recent collapse of TerraUSD, an stablecoin cryptocurrency intended to have a fixed value, it is important to move towards a clearly defined regulatory framework. Private cryptocurrencies may become less appealing with the creation of a digital currency that is stable and backed by real dollars.
5. Reporting any transaction to the IRS
Cryptocurrency is difficult to use because of the laws that surround it.
You must now declare in your tax return whether you have had any cryptocurrency transactions during the tax year. If you use a cryptocurrency to buy or sell something, then you may have a tax liability. You’ll have to keep a record of all your purchases and sales if you use digital currency. Otherwise, you could be in violation of the law or face a large tax bill.
What is Bitcoin?
Bitcoin is a type of digital currency, or cryptocurrency. It’s a form of online exchange. In 2017, the currency gained popularity as its value soared by thousands of dollars in a single year. After a massive drop in 2022 the cryptocurrency soared late 2023 and into early 2024 due to the impending approval of Bitcoin Exchange Traded Funds.
Bitcoin has caused a lot of controversy. From those who believe it is the future currency, to those who call it a speculative boom. What you need to understand about Bitcoin and its workings, as well as some of its downsides.
What is Bitcoin? How does it work and what are the benefits?
Bitcoin was launched in 2009 when the software that underpins the currency came out. The origins of Bitcoin are somewhat mysterious. A person or group known as Satoshi Nakamoto claim credit for the creation of the cryptocurrency.
Bitcoin is managed and tracked by a distributed ledger or decentralized computer network using Blockchain technology. Imagine the distributed ledger as a public record of all the transactions that are taking place. They are rewarded for their efforts with bitcoins , though they decline over time.
The network’s decentralized nature is one of the attractions of Bitcoin and other cryptocurrency . The currency is almost autonomous because users can send money to one another and there is no central bank managing it. The currency is autonomous, and can, theoretically, avoid interference from governments or central banks.
Bitcoin is a mostly anonymous currency. Even though transactions can be tracked to specific users, the name of the user is not directly linked to the transaction. This is true even if it is publicly processed. The ledger of bitcoin transaction is public, so authorities are better able to track bitcoins.
Where does bitcoin come from?
When computers in the network process and verify transactions, bitcoins are “mined”. The miners have high-powered processors to chew through the transactions and earn part of a Bitcoin. Bitcoin needs a large amount of processing power in order to maintain the network, and electricity to run these computers.
The currency can only be created in 21 million units. Experts predict that the remaining bitcoins will be mined around the year 2140. The miners are only rewarded with a transaction fee when this happens.
Although the total number of bitcoins is limited, they can be divided into smaller amounts. In practice, bitcoins can be divided into fractions to make it easier to pay for very small amounts in real currency. The official division of a bitcoin is up to 100 million satoshi, named in honor the founder.
thousands of other cryptocurrencies have been created. Some of the most common include Ethereum, Solana, and XRP.
Users can store and spend bitcoins in a cryptocurrency Wallet. A wallet is a personal location in the distributed ledger which only refers to your currency. Your wallet will provide a unique cryptographic adress to the sender when you purchase bitcoins. You can scan the QR code of a retailer or send money directly to their public address in order to spend or send bitcoins.
Bitcoin: Its advantages
Bitcoin is a popular currency for a variety of reasons, from the utopian and capitalistic to the economic.
1. Decentralized currency management
Bitcoin’s decentralized network, and its limited number of coins promise a utopian version currency. By removing central banks and governments from the currency market, proponents claim that the currency’s value will increase over time. Some say Bitcoin gives power back to the people by removing these entities.
2. Transactions that are anonymous or semi-anonymous
Bitcoin’s relative anonymity is another major feature. Some supporters (such as libertarians), like the fact that the government and other authorities can’t easily track who is using the currency. This anonymity can be used to commit criminal acts.
Every transaction can be tracked to reconstruct the spending of a wallet. The data is public and anyone can track the spending. This creates privacy concerns even if you know who owns a wallet.
3. It is difficult or impossible to counterfeit
Bitcoin’s popularity can also be attributed to a practical reason. The blockchain ledger is a system that constantly verifies the transactions.
4. Popularity is on the rise
Bitcoin is popular as a trading instrument because of the hype that surrounds it. is able to make or lose money more easily with exchange-traded fund, because the value of currency fluctuates so dramatically. The price of bitcoins has risen significantly over the past decade due to the hype surrounding the coins and their perceived rarity.
Bitcoin: Its advantages and disadvantages
Bitcoin has some inherent design flaws, including its limited number of coins and volatility.
1. Bitcoin is a power hog
The operation of large computer mines requires a great deal of energy. Electricity production is costly and pollutes our environment for a project that some critics say has little viability.
How much electricity does Bitcoin consume and how many greenhouse gases does it emit? According to the Cambridge Bitcoin Electricity Consumption Index (April 2023), Bitcoin would be the 27th largest electricity user if it was a country. In terms of greenhouse gas emissions, it would be ranked 70th. These are staggering numbers for an almost never used digital currency.
2. The number of coins available is limited
The number of coins in Bitcoin is limited by its nature. This poses a problem when using Bitcoin as currency. This limit prevents the money supply from increasing, which can be valuable in times of recession. Bitcoin, if used in an entire economy, could cause destructive spirals of deflation, as was more common when economies were run on the gold standard. This concern was a major reason for the elimination of the gold standard.
When consumers and others hoard money during difficult economic times, a challenging situation can arise. Money that doesn’t move slows down the economy. A deflationary spiral could occur without a central authority, such as a banking institution to stimulate the economy. Consumers will not spend money because they know that goods will be cheaper in the future. This creates a deflationary spiral.
Bitcoin’s fixed number of units doesn’t allow for the flexibility required to manage a currency system-wide.
3. The value of a volatile currency is worthless
Imagine that the price of a meal changes every day by up to 10 percent. This is exactly why Bitcoin as a currency is almost worthless. Bitcoin’s volatility is attractive to traders but makes it worthless as an exchange medium.
When making spending decisions, consumers need to understand what they can purchase with a particular currency. When consumers expect that the currency will rise, or even skyrocket, they are less likely to use it.
4. The government is regulating itself
The government has been slow to respond to the introduction of cryptocurrency. However, many are now taking notice and studying how to regulate it. China has banned cryptocurrency outright while other countries are looking into it. Others, like the United States are looking at ways to regulate cryptocurrency more efficiently.
The U.S. regulatory structure is still unclear. However, President Joe Biden has asked the federal government to study cryptocurrencies and the threats they pose to national security and financial stability, as well as the impact on the environment and the potential for a digital currency.
In light of the recent collapse of TerraUSD, an stablecoin cryptocurrency intended to have a fixed value, it is important to move towards a clearly defined regulatory framework. Private cryptocurrencies may become less appealing with the creation of a digital currency that is stable and backed by real dollars.
5. Reporting any transaction to the IRS
Cryptocurrency is difficult to use because of the laws that surround it.
You must now declare in your tax return whether you have had any cryptocurrency transactions during the tax year. If you use a cryptocurrency to buy or sell something, then you may have a tax liability. You’ll have to keep a record of all your purchases and sales if you use digital currency. Otherwise, you could be in violation of the law or face a large tax bill.
What you need to Know about Crypto Taxes .
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