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When Bitcoin emerged in 2009, each one was worth less than a penny. Now, after a wild ride of ping-ponging up and down for years, they're worth over six figures apiece, piquing interest among older adults who are curious about investing in Bitcoin but may be unfamiliar with it.
With each Bitcoin surpassing $100,000 in value, now is a good time to brush up on how this type of cryptocurrency works, where it began, and other key information you'll want to know.
How does Bitcoin work?
Bitcoin is a cryptocurrency, which means it's not sponsored or managed by any government and exists only electronically — not as paper bills or metal coins. And unlike U.S. dollars, which can be minted by the Federal Reserve, there is a finite amount of Bitcoins. New Bitcoins are created through a process called "mining," essentially using powerful computers to solve complex mathematical problems, but the total number of Bitcoins that will exist is capped at around 21 million.
Although it's becoming increasingly common to be able to buy things with Bitcoin, if you want to take profits in Bitcoin, you have to translate them into dollars by making transactions. You can buy and sell fractions of Bitcoins, so each transaction doesn't need to add up to $100,000.
Bitcoin transactions are considered secure because they use “blockchain” technology, a type of database that records transactions across many different computers. Because Bitcoin transactions are anonymous, scammers often target Bitcoin holders (more on that below).
To buy or sell Bitcoin, you need a “digital wallet” — a piece of software that can transmit Bitcoins between users. Don't worry about technology challenges: You can open a digital wallet pretty easily from numerous sources, such as Coinbase, Binance and Trezor. If you want to invest in Bitcoin but not actually go through the hassle and expense of owning it, you can invest in exchange-traded funds (ETFs) that track the price of Bitcoin. The value of the ETF, a cross between a stock and a mutual fund, goes up and down along with Bitcoin's price. You can buy and sell ETFs through a basic brokerage account with a firm like Fidelity, E-Trade or Charles Schwab.
In addition, you can transfer money between your digital wallet and someone else’s anonymously to buy a pizza, purchase jewelry or even sell a car, provided the other party in the transaction accepts Bitcoins.
But know this: Your digital wallet is password-protected, and if you lose your password, you lose access to your Bitcoin (and other cryptocurrencies stored in it). There is no “reset my password” feature if you forget it. According to a recent study by Fortune and blockchain analysis firm Chainalysis, there are an estimated 1.8 million "lost" Bitcoins.
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