If you own bitcoin, it might be a bad day for you.
Bitcoin’s price plunged below $8,000 for the first time in 11 weeks. The volatile digital currency fell as low as $7,695.10 on Friday according to data from CoinDesk, the first time it has fallen below the $8,000 level since Nov. 24. The price of bitcoin recovered to $8,618 mid-Friday morning.
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As the digital currency Bitcoin surges in popularity, curious investors and entrepreneurs alike are watching closely to see what happens with the fluctuating prices. Don’t understand the basics of bitcoin? Here’s what you need to know:
What is bitcoin?
Bitcoin is a cryptocurrency, or a digital token, that can be sent electronically and directly from peer to peer. There is no physical backing and it is a decentralized currency — meaning it is not controlled by any government or banking entity. Bitcoin is the first cryptocurrency ever created, and remains the most popular one to date.
"I tell people it's a digital currency and it's a program," said Jad Mubaslat, Wright State University graduate student and founder of BitQuick.co, a bitcoin trading platform. "For the first time in history, it allows anyone anywhere in the world to send any amount of money instantly. Most importantly, it;s without a third party … like a bank or a government. Now, you can truly send your money without somebody telling you what you can or cannot do."
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The record of all bitcoin exchanges and transactions are record on what is called the blockchain, which is a network of decentralized computers.
How was bitcoin created?
Bitcoin was created by an unknown programmer going by the name Satoshi Nakamoto in 2008. He communicated only through email and social messaging, and no one truly knows Nakamoto’s identity. He released the software globally in 2009, and now anyone can use and download it.
How do you buy bitcoin and other cryptocurrencies?
In the U.S., several websites have popped up where you can buy and sell bitcoin online. One of the most popular websites is Coinbase and others include Mubaslat's BitQuick.co, Coindesk.com and bitcoin.com. Investors can also meet with other bitcoin users in person and trade bitcoin via their virtual wallets on their phones. After meeting another bitcoin user through websites like Craigslist or LocalBitcoin.com, a user simply scans a QR code with another person's wallet to transfer bitcoin.
Some people prefer to buy bitcoin in person or through a bitcoin ATM because the bitcoin transfer over faster than when they buy it online — it can take up to seven days, and sometimes longer, for bitcoin to show up in a virtual wallet after purchasing it online.
Why do some criminals use cryptocurrency for illegal transactions?
Some criminals use bitcoin because users can open a wallet to send and receive bitcoin without giving a name or identity. There is no bank or central authority, like a government, to control this information. Bitcoin also became a popular method for making ransom payments when a computer system is taken over by ransomware.
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However, bitcoin is not completely anonymous and transactions can be traced by police through bitcoin trading websites. Other untraceable cryptocurrencies, like Monero, are becoming popular for dark web uses including drug trafficking and human trafficking.
How is the worth of bitcoin decided?
The price — and ultimate worth — of bitcoin fluctuates, and experts are calling the cryptocurrency extremely volatile. The price is determined by open-market bidding on Bitcoin exchanges. The worth of bitcoin could be compared to the way that gold prices fluctuate — in the sense that gold has value because people believe it does.
What exactly is bitcoin mining?
Mining is the process that creates new bitcoins in the blockchain, or network of computers. The bitcoin miners race to process new transactions, and the fastest computers ge a chunk of new bitcoin. A miner wins the race about every 10 minutes, which will happen until there are 21 million bitcoins in the world. No new bitcoins will be created after the blockchain has 21 million, which is expected to happen in 2140.
Anyone can set their computer up to mine bitcoin, but programmers with specialized hardware are usually the only ones to win bitcoin now.
Are there any other cryptocurrencies as popular as bitcoin?
Other cryptocurrencies also exist, but bitcoin is the most popular one right now. Other popular cryptocurrency includes Ethereum, Bitcoin Cash, Ripple, Litecoin and Monero. Digital cryptocurrencies are being created for all types of uses like PotCoin, which is a digital currency and banking solution for the global legal marijuana industry. There’s Titcoin, a cryptocurrency for the adult entertainment and sex worker industry.
What are the legal uses of bitcoin?
Most transactions on the bitcoin network aren’t illegal — it’s typically people buying and selling bitcoin to each other. People in countries with high inflation or unstable governments are putting their money into bitcoin to avoid losing their savings. It’s also used to transfer large sums of money internationally. It is quicker to transfer bitcoin than it is to go through a bank transfer, which can take weeks.
Some businesses also accept bitcoin including Overstock.com, Wikipedia, backpage.com and Square. For a short time, a local franchise of Firehouse Subs in Cincinnati accepted bitcoin. The restaurant, in Clifton, shut down a few years ago. "Firehouse Subs didn't do very many transactions in Bitcoin, but it has generated buzz around the shop," the Cincinnati Business Courier wrote.
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