You’ve likely heard of Bitcoin by now, but perhaps you aren’t completely familiar with it and how it works, or maybe even where it comes from. In recent years, it has become a worldwide phenomenon and it now traded by millions of people around the world.
The basics of cryptocurrency can best be described as digital currency, much like any other currency used around the world, it has value but by different means than that of traditional money used around the world.
Bitcoin is not backed by any governmental entity nor centralized bank system. It is traded online in a person-to-person fashion that has little to no regulatory oversight. But is it real money? We will dive into that here.
How Does Bitcoin Work?
The first step in the Bitcoin process is the creation of new Bitcoin which aptly called Bitcoin mining. Mining is completed by users who solve complicated puzzles and post them to the blockchain, and a Bitcoin is born.
Once Bitcoin has been created, it is able to be bought and sold on the open market through various cryptocurrency exchanges available throughout the world wide web.
Bitcoin traders are equipped with crypto wallets, which are also available widely throughout the internet, in which they can buy and manage their Bitcoin investments. You can also connect your wallet to your bank account, so you have options to liquidate your Bitcoin into many different forms of currency.
Can I Use Bitcoin for Transactions?
Bitcoin is 100 percent a digital currency, this means that there are no physical bills or coins that you can possess to use at store, however you do have options to spend it.
Many online vendors have taken to accepting Bitcoin as a form of payment, and even athletes have elected to have their paychecks come in the form of Bitcoin, so it is gaining traction on a worldwide scale.
However, the issue with Bitcoin in its current state is not all countries will recognize it as a legitimate form of currency. For example, in countries like China, Bitcoin is banned from use for any transaction as they do not recognize it as legitimate money.
Many other countries, including Canada and Australia, are moving toward accepting Bitcoin as a legitimate form of payment, meaning that the tide is turning in Bitcoin’s favor as we move toward the future.
Is Bitcoin Safe?
Bitcoin is as safe as you want it to be and the risks you take with it. Most people use Bitcoin as an investment much like stocks or bonds. In this form, Bitcoin can be extremely risky as it is one of the more volatile investments available today.
Because its value is derived strictly from demand, the price can often fluctuate drastically, and in a short period of time. This means an investor needs to be extremely careful and risk adverse when trading Bitcoin in order to not lose a boat load of money.
Due to the fact that Bitcoin is not backed or insured by a central bank or government nor is it tied to a commodity, there are inherent risks to owning it there as well. Its value is completely driven by scarcity, meaning there is a set number of coins, and the demand for those coins drives the value. Bitcoin will also have value as long as people believe it has value.
There is also risk in maintaining an online wallet. We’re sure you’ve heard the horror stories of Bitcoin owners losing their wallet passwords or being locked out of their accounts, leaving millions of dollars worth of crypto value stuck in the cloud.
Again, because it’s not backed by anyone or insured, there is no one and no way to recover the monetary value behind the lost Bitcoin.
So, Is Bitcoin Real Money?
It depends on who you ask. Many economists view it less as a true currency and more like a stock or bond that is backed by real currency and traded as such.
Additionally, the value of Bitcoin varies drastically from day to day, week to week, and month to month making it hard for vendors to accept it as payment.
While it’s gaining more traction worldwide as a form of payment, it’s still not widely accepted as means to complete a transaction. Online vendors have become keener to accepting as a form of payment which is a step in the right direction.
There is certainly a monetary value behind Bitcoin, but its more so an investment for the trade of other denominations of currency around the world in its current state.
As the world evolves and cryptocurrency is more widely accepted, we might see a time when Bitcoin trends more in the direction of real currency like the American Dollar or the Euro in the not-so-distant future.