While there are hundreds of articles about the recent crazy speculation in Bitcoin (over $20,000 per Bitcoin as I write this), this one from Ars Technica, “Bitcoin: Seven questions you were too embarrassed to ask” seems to sum it up best. It has enough technical information to explain the basics accurately while still being readable by the non-techie reader.
Despite this, here is a TL:DR (too long, didn’t read) version.
- Bitcoin is a completely “virtual” currency with no basis in physical reality.
- “Owning” Bitcoin means that a 32 digit Bitcoin account number (1AzGguw… etc.) has an entry in the database of the Bitcoin network that associates it with a certain amount of “Bitcoin.”
- A person who has the password for this account (hopefully the owner) has access to this Bitcoin. Hackers like stealing Bitcoin because once the Bitcoin “wallet” is hacked, they can transfer it and disappear without a trace.
- The Bitcoin database is called the “Blockchain” and the Bitcoin network synchronizes it across many computers across the globe. No one person, country, company, etc. owns or controls it.
- The database is called the Blockchain because it is a chain of blocks of Bitcoin transaction data. Each block can be validated mathematically as belonging to the chain of blocks that preceded it so no one can cheat the system by creating a fake transaction.
- Bitcoin is created by a digital “mining” system where an increasingly complex math problem is solved to create a new Bitcoin. It is so complex that the computers mining Bitcoin (and processing transactions) are estimated to be using the same amount of energy as the entire country of Denmark.
- Outside the miners, others get Bitcoin like any other form of currency. They can take it as payment or transfer standard currency to somebody who then transfers Bitcoin back to them.
- It is hard to spend Bitcoin. There are a few Bitcoin “ATMs” as well as a few businesses that take it. The most well known are Tesla and Virgin Atlantic. The rest are mostly tech companies. Also, there are significant transaction fees for Bitcoin, up to around 15%.
In my opinion, the current price of Bitcoin is a bubble. At least with the “Tulip Mania” bubble of the 17th century, people ended up with tulips. Bitcoin certainly has its place in some parts of the world with significant financial uncertainly, but probably not a good investment and definitely not practical for daily use.