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What Is Bitcoin?

Bitcoin is a decentralized digital currency that you can buy, sell and exchange directly, without an intermediary like a bank. Bitcoin’s creator, Satoshi Nakamoto, originally described the need for “an electronic payment system based on cryptographic proof instead of trust.”
Every Bitcoin transaction that’s ever been made exists on a public ledger accessible to everyone, making transactions hard to reverse and difficult to fake. That’s by design: Core to their decentralized nature, Bitcoins aren’t backed by the government or any issuing institution, and there’s nothing to guarantee their value besides the proof baked in the heart of the system.
“The reason why it’s worth money is simply that we, as people, decided it has value—same as gold,” says Anton Mozgovoy, co-founder & CEO of digital financial service company Holyheld.
Since its public launch in 2009, Bitcoin has risen dramatically in value. Although it once sold for under $150 per coin, as of June 8, 1 BTC equals around $30,200. Because its supply is limited to 21 million coins, many expect its price to only keep rising as time goes on, especially as more large institutional investors begin treating it as a sort of digital gold to hedge against market volatility and inflation. Currently, there are more than 19 million coins in circulation.

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How Does Bitcoin Mining Work?

Bitcoin mining is the process of adding new transactions to the Bitcoin blockchain. It’s a tough job. People who choose to mine Bitcoin use proof of work, deploying computers in a race to solve mathematical puzzles that verify transactions.
To entice miners to keep racing to solve the puzzles and support the overall system, the Bitcoin code rewards miners with 6.25 BTC for each new block. That amount of BTC equates to nearly $190,000.
“This is how new coins are created,” and recent transactions are added to the blockchain, says Okoro.
It was possible for the average person to mine Bitcoin in the early days, but that’s no longer the case. The Bitcoin code is written to make solving its puzzles more and more challenging over time, requiring more and more computing resources. Today, Bitcoin mining requires powerful computers and access to massive amounts of cheap electricity to be successful.
Bitcoin mining also pays less than it used to, making it even harder to recoup the rising computational and electrical costs.
“In 2009, when this technology first came out, every time you got a stamp, you got a much larger amount of Bitcoin than you do today,” says Flori Marquez, co-founder of BlockFi, a crypto wealth management company. “There are more and more transactions [now, so] the amount you get paid for each stamp is less and less.” By 2140, it’s estimated all Bitcoins will have entered circulation, meaning mining will release no new coins, and miners may instead have to rely on transaction fees.

How to Use Bitcoin

In the U.S., people generally use Bitcoin as an alternative investment, helping diversify a portfolio apart from stocks and bonds. You can also use Bitcoin to make purchases, but there are some vendors that accept the original crypto.
Big companies that accept Bitcoin include Microsoft, PayPal and Whole Foods, to name a few. You may also find that some small local retailers or certain websites take Bitcoin, but you’ll have to do some digging.
You can also use a service that allows you to connect a debit card to your crypto account, meaning you can use Bitcoin the same way you’d use a credit card. This also generally involves a financial provider instantly converting your Bitcoin into dollars.
In other countries—particularly those with less stable currencies—people sometimes use cryptocurrency instead of their own currency.
Bitcoin provides an opportunity for people to store value without relying on a currency that is backed by a government. It gives people an option to hedge for a worst-case scenario. You’re already seeing people in countries like Venezuela, Argentina and Zimbabwe (countries heavily in debt) where Bitcoin is getting tremendous traction.
When you use Bitcoin as a currency, not an investment, in the U.S., you do have to be aware of certain tax implications.