What Is Bitcoin? Introduction To Digital Cash

Just like a dollar or a Euro can be spent to buy goods or services, Bitcoin can be used to buy – well, almost anything, from a pizza to a Lamborghini.

But instead of holding a piece of paper or a coin when you go to checkout, you hold exclusive access to an encrypted digital asset (called a “private key.”) This allows you to access your bitcoins and transfer them to someone else.

Thousands of merchants around the world accept bitcoins as payment including Overstock.com, Expedia, and Rakuten.

Some argue that Bitcoin is also (or alternatively) a “store of value” similar to gold.

In other words, like gold, it doesn’t have a lot of intrinsic value or use (gold has some manufacturing uses, but most of it is stored by central banks or given ‘value’ by jewelers). We know from looking at the markets that an ounce of gold is worth some number of dollars on any given day. Bitcoin is similar – the people who hold bitcoins, or want to trade them, mutually agree on what they are worth today.

Traders love the volatility of Bitcoin, which is at times extreme. For example, between October 2017 and January 2018, the value nearly quadrupled from $5,000 to $20,000, but then gradually settled back down to $6,000 and (today, at least) around $11,000. It is with no irony that we say Bitcoin (XBT or BTC) is still very much in price discovery phase, and there are some who believe it could be worth hundreds of thousands or even millions eventually.

To keep to the analogy of gold, Bitcoin is also limited in its total supply. Altogether, the total number of bitcoins that will ever exist is just under 21 million. Again, like gold, there is a method for ‘mining’ new bitcoins which rewards the people who put their time, energy, and cash into complex computer calculations to create new ones. Right now, about 16.9 million bitcoins have been created.

Bitcoin can be traded for fiat cash on digital exchanges like Coinbase, Robinhood, and dozens of others. Most exchanges also offer other digital currencies or ‘tokens’ which you can exchange for Bitcoin, and which may have some real-world utility beyond being a means of payment or a store of value. We’ll get to these later.