Bitcoin is a form of cryptocurrency – an electronic coin which uses something called blockchain. The blockchain is a distributed ledger technology – this means that when you spend your bitcoins, the record of them being spent is not stored in a central location – it is stored online on the computers of many different people, who each hold a part of the record. This means that you can’t just edit the ledger to fake a transaction, because there are many other people that hold the same information, and they all need to agree for the record to work.
Bitcoin has exploded in value recently as people have slowly started to accept it as a way of spending money online. It is useful for people who are in need of being able to spend money electronically without being traced – such as political campaigners and those who live in countries where the government does a lot of surveillance. It is also often used by aid workers who need to be able to access money quickly in any country. The usage of money for people in the western world, where cash is ubiquitous and they are spending on credit or debit cards, is more limited – but it is still a useful asset.
Bitcoin is spent in fractions of a coin, and it is ‘mined’ electronically. There is a hard cap of 21 million bitcoins, which will be reached in 2040. New bitcoins cannot be created, but bitcoin can be destroyed – if a wallet is lost because of a corrupted hard drive, then this will mean that the coins inside it are lost. There are approximately 14 million bitcoins in existence, but even now a huge portion of the coins are out of circulation and believed lost.
How can you invest in bitcoin? Well, you can do so by setting up a wallet – either online or on your computer – and then buying bitcoin from a service such as LocalBitcoin or Coinbase. When you set up a wallet, you will get a private key – you must make a note of this and keep it somewhere secure because if you lose it you will end up losing access to the wallet. If you store your wallet on your own computer, make regular backups of it.
Bitcoin is quite a volatile currency. You can trade it, but if you do then you should be wary of fees and of the massive changes in the value of the currency. In the medium term, some people are opting to purchase and hold the currency rather than engage in short-term trading – but it is always advisable to do your own research and not take financial advice from strangers. Coinbase and similar services will hold your wallet for you and protect it, making backups and doing all the tech work for you so that you can send and receive new coins as and when you need to, without needing technical skill yourself.