Bitcoin is the first example of what we call cryptocurrencies today, and is the largest one in the market.
Bitcoins aren’t printed, like dollars or euros and there are no physical bitcoins. There are only balances kept on a public ledger called blockchain, that everyone has transparent access to.
Bitcoins are decentralized: they are not issued or backed by any banks or governments. No single institution controls the bitcoin network.
The history of Bitcoin
The idea behind Bitcoin was introduced to the world in Oct. 2008, at the depth of the financial crisis, by a pseudonymous person called Satoshi Nakamoto.
After this, it took more than a year for the first economic transaction to take place.
In May 2010, a Florida man negotiated to have two Papa John's pizzas, valued at $25, delivered for 10,000 bitcoins.
That transaction essentially established the initial real-world price or value of bitcoin at 4 bitcoins per penny. Fast forward to today, and that same transaction would have a value of $114 million.
The price of a bitcoin
The digital currency has seen plenty of wild price swings since it was launched in 2009.
Bitcoin hit a peak of nearly $20,000 (£15,500) per coin in late 2017, before crashing down again.
It is now once again closing in on record highs, topping $18,000 per coin, and has increased by a staggering 140% this year.
What's been driving the peak?
The pandemic has led some to reassess the long-term value of the cryptocurrency as a potential alternative currency, or even as an alternative to gold.
This was accelerated when PayPal announced that its customers would be able to use Bitcoin on their site as a method of payment.
Bitcoin's supply is fixed at 21 million. 18 million bitcoins have already been mined.
Some are hoping that this scarcity and increasing demand will lead to sustained growth in the value of the cryptocurrency.
The Bitcoin question
Bitcoin is at the (very) “high-risk” end of the investment spectrum. Why?
- Volatility: In 2018, the price of bitcoin fell 65% in a month. This means that if you had $1,000 invested, it would have decreased to $350 one month later. That's a very big drop.
- Obscurity: Warren Buffet famously said: “Never invest in a business you cannot understand.” This might be even more true for the still mysterious world of cryptocurrencies.
So, right now, putting money in Bitcoin is seen by many as speculation, rather than an investment.