Bitcoin is a cryptocurrency, a form of electronic cash. It is a decentralized digital currency without a central bank or single administrator that can be sent from user-to-user on the peer-to-peer bitcoin network without the need for intermediaries.
Transactions are verified by network nodes through cryptography and recorded in a public distributed ledger called a blockchain. Bitcoin is unique in that there are a finite number of them: 21 million.
Bitcoins are created as a reward for a process known as mining. They can be exchanged for other currencies, products, and services.
As of February 2015, over 100,000 merchants and vendors accepted bitcoin as payment.
The European Banking Authority and other sources have warned that bitcoin users are not protected by refund rights or chargebacks. The use of bitcoin by criminals has attracted the attention of financial regulators, legislative bodies, law enforcement, and the media.
The FBI prepared an intelligence assessment, dated July 24, 2013, titled “Bitcoin Virtual Currency: Unique Features Present Distinct Challenges for Deterring Illicit Activity”. They concluded that “it [is] possible to use Bitcoins without having an ID” and “therefore it [is] difficult to trace illegal activity.”.
In 2014, the National Australia Bank closed accounts of businesses with ties to bitcoin, and HSBC refused to serve a hedge fund with links to bitcoin. Australian banks in general have been reported as closing down bank accounts of operators of businesses involving the currency.
In 2017 article stated that the number of new businesses accepting bitcoin had declined sharply. In January 2018 Business Insider reported that the largest chain of Bitcoin ATMs in the United Kingdom had been closed down due to “regulatory hurdles”.
There is no physical bitcoin coin; only balances kept on a public ledger in the cloud, that – along with all Bitcoin transactions – is verified by a massive amount of computing power. Bitcoins are not issued or backed by any banks or governments, nor are individual bitcoins valuable as a commodity.
Despite its not being legal tender, Bitcoin charts high on popularity, and has triggered the launch of other virtual currencies collectively referred to as Altcoins.
When you zoom out, Bitcoin looks like any other bubble in history: irrational exuberance followed by a price crash. But there’s one key difference this time around: after the price crash comes widespread adoption.
We’re already seeing this happen with institutional investors pouring billions into cryptocurrency exchanges such as Coinbase; Square allowing customers to buy Bitcoin; and PayPal beginning to offer similar services later this year. So even if the price of Bitcoin crashes again (as it most likely will), there’s still a good chance it will recover and continue its march towards becoming mainstream global currency.