Bitcoin is a digital asset and a payment system invented by Satoshi Nakamoto. Transactions are verified by network nodes through cryptography and recorded in a public dispersed 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.
Bitcoin has been criticized for its use in illegal transactions, its high electricity consumption, price volatility, thefts from exchanges, and the possibility that bitcoin is an economic bubble.
Bitcoin is a decentralized digital currency, and as such, it has certain inherent risks associated with it. These include the lack of government oversight, the potential for high volatility, and the lack of consumer protection. Additionally, Bitcoin transactions are not reversible, anonymous, and can be subject to cyber-attacks. Finally, there is a risk of double-spending and other fraudulent activities that can occur with Bitcoin transactions. As such, it is important to understand all of the risks associated with Bitcoin before investing in or using this type of currency.
Price volatility – The price of Bitcoin is notoriously volatile. This makes it difficult to use as a currency, since its value can change so rapidly.
For example, in 2013 the value of Bitcoin dropped by over 80% in just a matter of days.
High electricity consumption – Bitcoin mining consumes large amounts of electricity. In 2015 it was estimated that the annual electricity consumption of the Bitcoin network was more than twice that of the whole of Ireland.
Thefts from exchanges – There have been several high-profile thefts from Bitcoin exchanges. In 2014 MtGox, then the largest exchange, filed for bankruptcy after losing 750,000 Bitcoins.
In 2016 Bitfinex lost 119,756 Bitcoins (worth $72 million at the time) to hackers.
Possibility of an economic bubble – Many analysts have compared Bitcoin to other asset bubbles such as housing or tech stocks. They argue that the limited supply of Bitcoins combined with increasing demand will eventually lead to sky-high prices that are not sustainable.