Cryptocurrencies like Bitcoin are creating a lot of buzz at the moment, not because they have soared, but because they have fallen about 45 percent. You may be considering jumping in: Perhaps your kids already have and made a fortune, giving you a major case of FOMO (fear of missing out). Could now be the right time to buy?
I first wrote about Bitcoin basics in 2017. I frankly expected to be pretty critical but, in the end, came away with more respect for the digital currency than anticipated.
How Bitcoin works
Bitcoin is a cryptocurrency, which means it's not sponsored by any government and exists only electronically. 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.
To create a bitcoin — a process called mining — you need to be able to answer increasingly complex mathematical problems. Bitcoin mining requires extremely fast computers and sophisticated software, as well as a great deal of electricity. Bitcoin is limited to about 21 million total coins.
Bitcoin transactions are secure because they use blockchain technology — a type of database that stores information sequentially across many different computers. Transactions are permanently viewable and available to anyone.
To use bitcoin, you need a “wallet” — a piece of software that allows you to transmit bitcoins between users as well as your bank. Your wallet has a password; if you lose your password, you lose your bitcoin. There is no “reset my password” feature if you forget.
Bitcoin was launched in 2009 and is by far the most widely adopted cryptocurrency, with a total value of over $677 billion. Unlike government-created currency, such as the U.S. dollar, there is a finite amount of bitcoins — 21 million. Investopedia notes 18.6 million coins have been “mined,” leaving about 3.4 million still to be discovered.
Strictly to fact-check what I was told on how one buys bitcoins, I invested a paltry $200 in the cryptocurrency in October 2017. Today, it's up about 800 percent and is worth about $1,800. Yes, I wish I had bought a lot more. In fact, as Bitcoin surged, my brain on Bitcoin kept hounding me to dump my stock index funds in favor of Bitcoin. I fought back that inevitable get-rich-quick urge.