“The reason why it’s worth money is simply because we, as people, decided it has value—same as gold,” says Anton Mozgovoy, co-founder & CEO of digital financial service company Holyhead.
Since its public launch in 2009, Bitcoin has risen dramatically in value. Although it once sold for under $150 per coin, as of March 1, 2021, one Bitcoin now sells for almost $50,000. 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.
Blockchain is decentralized, which means it’s not controlled by any one organization. “Its like a Google Doc that anyone can work on,” says Buchi Okoro, CEO and co-founder of African cryptocurrency exchange Quidax. Nobody owns it, but anyone who has a link can contribute to it. And as different people update it, your copy also gets updated.
These codes are long, random numbers, making them incredibly difficult to fraudulently produce. In fact, a fraudster guessing the key code to your Bitcoin wallet has roughly the same odds as someone winning a Powerball lottery nine times in a row, according to Bryan Lotti of Crypto Aquarium. This level of statistical randomness blockchain verification codes, which are needed for every transaction, greatly reduces the risk anyone can make fraudulent Bitcoin transactions.
To entice miners to keep racing to solve the puzzles and support the overall system, the Bitcoin code rewards miners with new Bitcoins. “This is how new coins are created and new transactions are added to the blockchain, says Okoro.
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 the number of vendors that accept the cryptocurrency is still limited.
Big companies that accept Bitcoin include Overstock, AT&T and Twitch. You may also find that some small local retailers or certain websites take Bitcoin, but youll have to do some digging.
That said, PayPal has announced that it will enable cryptocurrency as a funding source for purchases this year, financing purchases by automatically converting crypto holdings to fiat currency for users.
“They have 346 million users and theyre connected to 26 million merchants,” says Spencer Montgomery, founder of Uinta Crypto Consulting. “It’s huge.
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. “Crypto.com and CoinZoom are two services that have regulation in the U.S.,” Montgomery says.
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,” Montgomery says. It gives people an option to hedge for a worst-case scenario. You’re already seeing people in countries like Venezuela, Argentina, Zimbabwe—in countries heavily in debt, Bitcoin is getting tremendous traction.”
That said, when you use Bitcoin as a currency, not an investment, in the U.S., you do have to be aware of certain tax implications.
Most people buy Bitcoin via exchanges, such as Coinbase. Exchanges allow you to buy, sell and hold cryptocurrency, and setting up an account is similar to opening a brokerage account—you’ll need to verify your identity and provide some kind of funding source, such as a bank account or debit card.
Major exchanges include Coinbase, Kraken, and Gemini. You can also buy Bitcoin at a broker like Robinhood.
Regardless of where you buy your Bitcoin, you’ll need a digital wallet in which to store it. This might be whats called a hot wallet or a cold wallet. A hot wallet (also called an online wallet) is stored by an exchange or a provider in the cloud. Providers of online wallets include Exodus, Electrum and Mycelium. A cold wallet (or mobile wallet) is an offline device used to store Bitcoin and is not connected to the Internet. Some mobile wallet options include Trezor and Ledger.
A few important notes about buying Bitcoin: While Bitcoin is expensive, you can buy fractional Bitcoin from some vendors. You’ll also need to look out for fees, which are generally small percentages of your crypto transaction amount but can really add up on small-dollar purchases. Finally, be aware that Bitcoin purchases are not instantaneous like many other equity purchases seemingly are. Because Bitcoin transactions must be verified by miners, it may take you at least 10-20 minutes to see your Bitcoin purchase in your account.