Bitcoin explained: what is it and how can you buy one?
Price of the volatile cryptocurrency has hit an all-time high of more than $20,000
Roslan Rahman/AFP/Getty Images
What is bitcoin?
Bitcoin is a unit of digital currency and a worldwide payment system. “It has no physical form and exists only as a string of computer code,” The Times says. Bitcoin is bought and sold online, generally in exchanges and stored in an online “wallet”. Bitcoin code can also be stored on memory sticks or computer hard drives.
How much is a single bitcoin worth now?
Bitcoin is incredibly volatile and its price varies wildly. At 9am on Thursday 17 December 2020, CoinMarketCap valued a single coin at $22,861.07 (£16,832.26). By the time you read this, it will probably have changed.
Crypto investor Anthony Pompliano predicted that bitcoin could surge to $100,000 (£73,647) by the end of 2021, Business Insider reported. But other analysts have dismissed such predictions as “outlandish”, Sky News said.
How do you buy bitcoin?
Investors can only get their hands on bitcoin through an exchange. These include Coinbase, a popular online exchange that can be accessed through an app or a computer.
Bitcoin can be purchased in fractions, meaning investors don’t need to spend thousands to get hold of the virtual currency. For instance, an investor can hold £10 worth of the cryptocurrency, which would equate to roughly 0.00058 of bitcoin.
Investors can store and manage their bitcoin in a virtual “hot wallet” on Coinbase. Some investors prefer a “cold wallet”, which takes the form of a small USB drive. These cost around £100 and are less vulnerable to cyber attacks.
How do you spend bitcoins?
Bitcoin has gone a bit mainstream. Some coffee shops in London and New York accept it as payment, as do many online retailers. Even cosmetics giant Lush takes the virtual currency at its online store, as do Microsoft and Wordpress.
If you want to buy something using bitcoin, you need to make sure the seller accepts the cryptocurrency. If they do, you need the anonymous identification number attached to the seller’s “wallet” so that you can move coins from your virtual wallet to theirs.
The “anonymity” of these transactions has made the currency particularly popular with drug dealers, says ABC News.
What drives the bitcoin market?
The digital currency is a highly speculative venture that typically appeals to investors hunting for higher yields. A chunk of the market is driven by the “bitcoin whales” – the 1,000 or so individuals who own 40% of the market.
“A few massive investors can rock it with a shrug,” Bloomberg says. “They can send prices plummeting by selling even a portion of their holdings. And those sales are more probable now that the cryptocurrency is up nearly twelvefold from the beginning of the year.”
Other external factors can have a significant impact on the value of cryptocurrencies. According to BBC News, a price crash in 2018 was attributed to China and South Korea’s crackdown on digital coin exchanges, which led to a sell-off “across the market globally”.
Business Insider says a cryptocurrency price crash is often followed by a rally. One such example is Japan. In April 2017, the market quickly recovered from a crash after the country announced bitcoin would be accepted as legal tender.
Who invented bitcoin?
Good question. The identity of the mastermind behind bitcoin is a Japanese developer who goes by the pseudonym “Satoshi Nakamoto”, The Daily Telegraph says. Ted Nelson, one of the web's founding fathers, has suggested Nakamoto is actually mathematician Shinichi Mochizuki.
In 2014, Newsweek claimed the founder was Dorian Prentice Satoshi Nakamoto, a 64-year-old father-of-six living near Los Angeles, although a brief interview with Nakamoto garnered no concrete evidence of this.
However, Australian entrepreneur Craig Wright told the BBC that he was part of a team of people who created the currency that is collectively known as Satoshi Nakamoto. Wired later said Wright may have been a “hoaxer” looking to capitalise on the bitcoin bandwagon.