How Bitcoin Works

how bitcoin works

How Bitcoin Works is probably one of the most common questions we hear today.  There is a lot of buzz today in the news about Bitcoin and Cryptocurrency.  The majority of the articles and explanations out there are very difficult to understand.  In this article we will provide an easy explanation of how bitcoin works.

What is Bitcoin?

Bitcoin is a virtual monetary system.  Just like the Dollar is a physical monetary system used for purchases, Bitcoin is virtual and can be used for purchases.  When we say virtual we mean you can’t carry a bitcoin in your wallet like you do a dollar.  A bitcoin is a virtual address that sits in what is called a virtual wallet.  It is a unique string of characters that identifies the transaction in the virtual financial system called the Blockchain.  The Blockchain is simply a record keeper of all bitcoin transactions.  Unlike a bank with money, the blockchain does not hold the money and does not regulate the money.  The blockchain simply records all the transactions made with Bitcoin when Bitcoin are purchased and sold.

Why is Bitcoin so Popular?

Bitcoin is popular due to the fact that it is not regulated by the Federal Reserve.  The Federal Reserve and the Government do not have any control over it and cannot determine the value of Bitcoin.  The value of one Bitcoin is determined by the demand.  For example, the US Dollar is always worth $1 regardless of the economy and the demand.  However, Bitcoin and cryptocurrency in general, are very volatile.  The value changes minute by minute.  As of the writing of this article one Bitcoin is worth $49,281 US Dollars!

The other major difference of Bitcoin compared to the US Dollar, is that the Bitcoin trading market never closes unlike the Stock Exchange.  Bitcoin and all crytpocurrencies trade all around the clock 365 days per year.

Why Do People Invest in Bitcoin?

People invest in Bitcoin primarily because of the fear of the US Dollar going down in value.  When the US Dollar goes down in value anything associated with the US dollar also goes down in value, especially stocks and investments.

What is Altcoin?

Altcoin, also known as Alternate Coin, is any virtual currency other than Bitcoin.  There are thousands of Altcoins in existence, the most popular being Ethereum.  However, unlike Bitcoin, not every cryptocurrency is meant to be a type of currency.  We will discuss this more in future articles.

I hope that you have a better basic understanding of How Bitcoin Works.  In future articles we will discuss more details of Bitcoin, Feel free to Contact Us if you have any additional questions.

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