What is Bitcoin and how does it work? (2024)

It’s always a matter of big concern when any important personality or institution starts supporting any institution or platform. The same was the case with digital currency–Bitcoin. It happened with Bitcoin in the same way when Elon Musk who is the richest person in the world announced his support for Bitcoin. He has told users of an online social media app that he thinks the virtual currency, Bitcoin, is a “good thing.”

This short yet inspiring comment resulted in the value of Bitcoin rising significantly.

As the market of cryptocurrency has become global, the Bank of Singapore has suggested that the 12-year-old currency could replace gold as its store of value.

However, in October, the head of the Bank of England, Andrew Bailey, has serious concerns about the volatile nature of Bitcoin, saying it makes him “very nervous”.

Coming up with all these comments, you’re probably wondering – what is Bitcoin and how does it all work?

Here’s everything you need to know.

What is Bitcoin?

Bitcoin as we all know is the most well-known form of cryptocurrency, a virtual currency or a digital currency – is a type of money that is completely virtual. You can understand it as an online version of cash. It is also possible to use it to shop products and services, but not many shops accept Bitcoin yet and some countries have banned it altogether.

Fortunately, some companies are beginning to buy into its growing influence.

As we see that in October last year, the online payment service, PayPal, announced that it would be allowing its customers to buy and sell Bitcoin. There is no physical existence of Bitcoin as you see in some of the internet images. You can never use them without the private codes printed inside them.

How does Bitcoin work?

All the Bitcoin are basically computer files. These files are stored in a ‘digital wallet’ app on a smartphone or computer. The users can send Bitcoins (or part of one) to their digital wallet using bitcoin equaliser, and they can also send Bitcoins to other people. Blockchain records all the transactions.

This public ledger works to trace the history of Bitcoins. In this way, irrelevant people cannot spend the coins they do not own, making copies or undo-ing transactions.

How do people get Bitcoins?

There are three main ways people get Bitcoins.

• You can buy Bitcoins using ‘real money.
• Selling different items having Bitcoins in return.
• Or they can be created using a computer.

How are new Bitcoins created?

To make the Bitcoin system work, people can make their computer process transactions for everybody.

Computers are made to solve difficult mathematical problems. Most of the time they are rewarded with a Bitcoin for the owner to keep.

Powerful computers are needed just to try and get Bitcoins. This is called mining.

Sadly enough, these mathematical problems are getting more and more complex to stop too many Bitcoins from being generated. You may end up spending more money on electricity for your computer than the value of Bitcoin.

Why are Bitcoins valuable?

In the financial market, you can find out lots of things other than money which we consider valuable like gold and diamonds. As we see that the Aztecs used cocoa beans as money!

Bitcoins are becoming worthy as more and more people are now ready to exchange them for real goods and services, and even cash.

Why do people want Bitcoins?

The feature of anonymity in Bitcoin transactions attracts several people. No government or bank regularizes Bitcoins.

Bitcoin holders spend their Bitcoins fairly anonymously. All of its transactions are recorded and nobody can access your account until you tell them.

Elon Musk, the world’s richest man, in one of his online chats with social media users in January 2021, Elon Musk, revealed that he is a big supporter of Bitcoin.

His immense inspiration is quite visible when he even changed his Twitter bio to “#bitcoin”.

His constant interest in digital currencies seems to be ever-growing.

This particular liking led to the value of Bitcoin rising significantly.

Is it secure?

As we know that all the transactions are recorded publicly so it’s very difficult to copy Bitcoins, make fake ones, or spend ones you don’t own.

There is also a hazard that you might misplace your Bitcoin wallet or delete your Bitcoins and lose them forever. There have also been many cases of scams and thefts from websites. The volatile nature of Bitcoin price over the years since its inception in 2009 instigated some people to doubt its safety and use it as real money.