Bitcoin has been around since 2009. It's been in the news almost non-stop since its sudden rise at the end of 2017. And yet for people who aren't involved in the world of cryptocurrencies every day, it can still be a bit of a mystery. Here are five questions about Bitcoin that you always wanted to ask but were afraid to bring up:
Can you spend Bitcoin?
In theory. In practice, not so much at the moment. Sure, Bitcoin is supposed to be a currency. It was designed to act as a kind of online dollar that made buying goods and services online cheap, fast and reliable anywhere in the world. It hasn't quite worked out that way--at least not yet.
The problem is that when the value of Bitcoin can rise or fall a dozen percentage points in a day, it's too unreliable for sellers to accept and buyers to offer. Outlets like Steam that were among the first to accept Bitcoin have pulled out, citing rising transfer costs, slow confirmations and changing prices. As Bitcoin stabilizes, expect retailers to start coming back.
Where do I keep it?
Bitcoin has no physical notes or coins. You can't keep them in your pocket or look at a pile of Bitcoins in a bank vault. What you can see are numbers linked to a line in a ledger. What you keep is a record of that line, the amount and a password you need to enter to transfer those Bitcoins to someone else. You keep that information in a "wallet." That "wallet" could be a piece of paper, an app or even a small device that can't be hacked.
What affects the price of Bitcoin?
The price of a currency is affected by the demand for that currency, which itself is a factor of trade flows and interest rates set by a central bank. Bitcoin has none of those things. Countries and corporations aren't buying Bitcoins to settle debts or purchase goods, and there's no central authority that sets interest rates or changes the amount of currency in circulation. Instead, the price of Bitcoin is determined by market sentiment, by news (of hacks, regulations and the entry of new, large investors) and by technical changes. It's a new environment with new influences--which is part of what makes it all so exciting.
What's this blockchain thing?
The blockchain is the digital ledger used to keep track of the location of each Bitcoin. Anyone can download a copy of that ledger, which is updated automatically as new transactions are added. Because copies of the ledger are distributed across thousands of computers, it's impossible for any one person or group to change the entries or spend the same Bitcoins twice. Digital currencies are the best known use of the technology but companies are now investing millions in trying to figure out other uses for it, such as keeping track of supply chains and items in the sharing economy.
Will Bitcoin last?
No one knows for sure but it's unlikely to disappear. The recent price decline might actually be a good thing for the future of Bitcoin which needs to stabilize before it can be used again as a currency. It also needs to solve its scaling problem, increase the speed of transactions and lower their costs. But even if Bitcoin were to fade from popularity, hundreds of other digital coins have been launched and one of them would be likely to replace it. Predicting the future is never easy but cryptocurrencies and blockchains are likely to be a part of it.