Bitcoin’s been in the news for years, and with good reason. Over the course of its existence thus far, Bitcoin–alongside other cryptocurrencies–has forced us all to re-examine our investing strategies, our approach to money and markets, and even our fundamental understanding of what a currency is. Despite all the media attention, there are still a number of gaps in the popular understanding of what Bitcoin is and what it does. We’d like to address those here so that we might all make more informed statements and decisions regarding the issue.
What is Bitcoin?
Bitcoin is a cryptocurrency. Also referred to as crypto, cryptocurrencies are secure digital assets that may function as a medium of exchange, i.e. like a real currency you can buy and sell things with it. Individual units of the Bitcoin currency are also referred to as Bitcoins and may be sold either whole or in fractions of a coin. There are several cryptocurrencies in circulation right now, other than Bitcoin, and more appear regularly. While not the first cryptocurrency–there have been efforts going back to the early 1980s–Bitcoin is arguably the first crypto to achieve any real success or popularity. Bitcoin was created in 2008 by an unknown person or group of people working under the name Satoshi Nakamoto. Not much is known about them, and endless speculation abounds.
Bitcoin works by being a secure yet potentially anonymous medium of transaction. It does all of this by making use of a blockchain. In the context of Bitcoin and other cryptocurrencies, blockchains are records of when the currency changed hands and who held it previously. This functions as a ledger of the history of that particular Bitcoin and how it was used. These ledgers are held encrypted over a peer-to-peer network of servers and computers. It’s complicated and involves some fairly complex encryption, but the result is that Bitcoin is both secure, easily verified, and as anonymous as its users would like to make it. This makes it a powerful tool for online digital transactions as people buy and sell over the internet or via apps and other digital outlets.
Bitcoins may be purchased via any number of cryptocurrency exchanges. In order to do so, a digital wallet is needed. Digital wallet functions much like a real wallet or a bank account for cryptocurrencies, giving the holder a safe place to store them that also makes them traceable via the blockchain.
How Does Bitcoin Work?
As we’ve noted above, Bitcoin and other cryptocurrencies can be used to buy and sell just about anything if both parties involved agree to them as a medium of exchange. While Bitcoin was initially the domain of private sales between individuals, as of 2021 many major financial entities have made transactions in Bitcoin. Some of the biggest names in business now accept Bitcoin: Microsoft, Starbucks, Whole Foods, and Home Depot among them. The days of cryptocurrencies being an obscure hobbyist issue are gone; they’re widely accepted now and used daily by all sorts of consumers and businesses.
With that said, the chief focus of many (if not most) Bitcoin purchases is an investment. Over the last several years we’ve seen Bitcoin prices skyrocket to unbelievable heights, collapse and then rise again. This creates potent-if-risky opportunities for those willing to navigate the many potential pitfalls of Bitcoin investment.
Investing in Bitcoin
So, should you put some money into Bitcoin? There’s no good answer to that question, as it depends on your financial situation, your goals and priorities, and your disposable income. What we suggest instead is working with an experienced financial advisor and building an overall investment plan that allows you to fulfill your desires, goals, and needs in both the short and long term. At OmniStar Financial, we strive to offer just that–a way to illuminate the blind spots as you navigate the investment landscape and ensure that your money works for you.