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Bitcoin, Bitcoin, Bitcoin! Maybe you’ve heard the term used in the news recently, overheard some coworkers talking about it, or read some random Facebook rant about it. Bitcoin, has become the talk of the town these days and you may find yourself wondering, what exactly is Bitcoin? With Bitcoin making it’s way into mainstream media, for the sake of being in “the know”, I’ve put together some information to help you understand what Bitcoin is and how to talk the (“Bitcoin”) talk.

First things first, Bitcoin is a digital, P2P (peer-to-peer or a network of computers setup to allow files and folders to be shared), decentralized (no government oversight although that’s changing) cryptocurrency. To sum all that up, Bitcoin is a cryptocurrency, a form of digital/internet money, that isn’t processed through a bank. It was introduced back in 2009, for $0 dollars, by some random programmer that no one really knows much about.

What exactly is a cryptocurrency? A cryptocurrency, as defined by Investopedia.com, “is a digital or virtual currency that uses cryptography for security“. Basically, cryptography is a way or method of storing and/or transmitting encrypted data or in the case of Bitcoin, encrypting a string of data to create a unit of currency.

Bitcoin is one of many cryptocurrencies in circulation. In fact, there are hundreds of cryptocurrencies in circulation around the world today. Bitcoin just happens to be the most popular, most expensive, most mainstream and one of the most mined cryptocurrencies there is.

*Chart from coinmarketcap.com

The chart above shows some other cryptocurrencies you may have heard of like Ethereum, Ripple, and Litecoin. If you’re interested in what other types of cryptocurrencies are out there, check out coinmarketcap.com, it’s like a yahoo finance (one stop shop website) but for cryptocurrencies. You’ll be able to see an extensive list of cryptocurrencies (hundreds), what each coin’s market cap is, current trading price, volumes, etc.



What is mining? Mining is the process of solving very complex math puzzles with special software and A LOT of computer processing power. If you solve the puzzle, you are rewarded for your efforts with Bitcoin. Anyone can mine bitcoin as long as you have all the right resources like the computer software, and hardware to do so. As Bitcoin’s popularity grows, the puzzles get harder and harder to solve. Alternatively put by bitcoinmining.com, “Bitcoin mining is the process of adding transaction records to Bitcoin’s public ledger of past transactions or blockchain.” The ledger (think of this as the books & records for Bitcoin) is used to confirm the transactions that have taken place.

Bitcoin, according to the rules, has a cap of 21 million coins which means there will never be more than that in circulation or created. Once all 21 million coins are mined, that’s it! To date, there are roughly over 10,800,000 bitcoins in circulation that have already have been mined and people think all 21 million will be mined by 2140.



How do transactions take place? People buy, sell, and transfer Bitcoins to one another via an online digital wallet. Coinbase and Blockchain are two of the more popular mobile apps people use to buy and sell Bitcoin. All you have to do is download the app, setup an account, and click buy.

What can you buy with Bitcoin? Given that the whole cryptocurrency space is still relatively new, most retailers have been pretty hesitant to get onboard and recognize Bitcoin as a legitimate unit of currency for the exchange of goods and services. There are however a few online merchants and retailers that DO accept bitcoin like overstock.com & expedia.com

If you can’t really buy much with Bitcoin, what can you really do with it? Since it’s inception, Bitcoin’s value has sky rocketed, rising over 1500%.

The chart above shows the price of Bitcoin back in 2013 and how much it’s risen just in the last year.

Back in Jan. 2013 Bitcoin was trading at $13.36. For the first time this year, it exceeded $1,000.00 and has been smashing records ever since. As I write this post, Bitcoin surpassed $15,000 for the first time today. In essence, this means that people are holding onto their Bitcoins with the expectation that they will continue to grow in value over time and it will become a legitimate widely accepted currency in the future.

Prices yesterday morning for Bitcoin started around $15,000 and peaked just north of $18,400 just to drop back down $3,000.00 back to the $15,000 mark all in 1 day.

Investing in Bitcoin is not for the faint of heart, Bitcoin can be widely volatile and experience huge fluctuations in price on any given day. Outside of the cryptocurrency’s volatility issue, it faces a whole slew of other problems. A lot of people in the finance industry, including Warren Buffet himself (famous investor and best buds with Bill Gates), believe that Bitcoin is a bubble that will eventually pop. A bubble, meaning that a lot of speculators are buying Bitcoin because they think they can gain a ton of money from the high volatility in the price and will wait for the right moment to sell it all off. Speculators are not buying and holding Bitcoin because they really believe in it, they are buying it because they see dollar signs and quick gains. Bitcoin also runs up against security concerns (coin replication, hacking, etc), may be a used as a potential conduit for money launders, and other issues like the large amount of energy these super computers are using to mine Bitcoin.

Bitcoin is a new wave that has taken the world by surprise. Whether you think it will be a viable currency one day or you think that it’s just another bubble waiting to pop (like the housing market back in 2008), I hope this article helped you understand Bitcoin a little better.

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Written by Carmen

Creator of www.makerealcents.com, a blog dedicated to all things personal finance and money. Crushed over 38k in debt in less than 18 months and I’m on a mission to help others achieve financial freedom.