INVESTING

What Is Bitcoin?

DEFINITION

Bitcoin is a cryptocurrency decentralized that makes use of peer-to-peer technology to make instant payments between businesses or individuals. It is able to be purchased and is used as a form of currency as well as a form of investment.

Key Takeaways

  • Bitcoin is a digital currency that is stored on computers and is not controlled by a single national, bank or monetary authority.
  • The Commodity Futures Trading Commission (CFTC) considers Bitcoin as an asset.
  • The IRS considers cryptocurrencies like Bitcoin as a property item and tax them accordingly.
  • Since late 2017 the price of a single bitcoin has fluctuated between $3000 and $67,000. 

 

Definition and Example of Bitcoin

Bitcoin is a type of digital currency digitally created and stored in computers. Bitcoins aren’t physical currency like dollars or dollars, nor are they considered a currency for exchange from central banks, or other monetary authorities. However, in 2021, El Salvador adopted bitcoin as legal tender.

The Bitcoin cryptocurrency is widely believed as the very first crypto. It is created by, also known as “mined,” using advanced computer software that can solve mathematical issues.

Note

The Commodity Futures Trading Commission (CFTC) in the U.S. designates Bitcoin as an commodity because Bitcoin exchanges provide the possibility of derivative agreements or even options to determine the value of Bitcoin. Despite the advent of ETFs linked to bitcoin, it is hard to categorize Bitcoin since it’s still in its early stages and is different from other investments that are available. 2

Bitcoin is a cryptocurrency with a variety of characteristics that distinguish it from conventional currencies, as it is a global means of exchange. Central banks or the monetary authorities don’t have control over the amount of bitcoins. It is additionally decentralized which makes it essentially worldwide. If you have a PC and a bitcoin address, you can create an account with bitcoin for receiving or transferring bitcoins in a matter of minutes. Bitcoin is not completely secure and allows you to manage multiple addresses. Creating an account requires no personal details.

How Bitcoin Works

“Mining” can be the name used to describe the work carried out to create bitcoin. Mining software helps solve a complicated mathematical issue. When bitcoins are created, it is released into circulation and is utilized in transactions or even stored.

Bitcoins can also broken down into smaller amounts, referred to as “satoshis.” The number of satoshis is 100 millions in one bitcoin which can be used to make transactions according to their value in the market. 3 For instance, if a bitcoin’s worth is $66,000 the satoshi will be worth $.00066. It would take 1,515 satoshis purchase an item worth $1.

Note

Bitcoin is a fixed-value asset since there are only 21,500,000 bitcoins. There are almost 19 million bitcoins in circulation. 

The most fascinating innovations introduced by Bitcoin is the distributed ledger technology (DLT) which is also known as”the ” blockchain.” DLT is a fantastic technology for consumers and businesses that require a safe method to track the transactions of assets. The blockchain can’t be altered by anyone else, it tracks ownership, and allows quick and efficient bitcoin transactions.

It is possible to use Bitcoin on your computer, mobile or other devices to purchase items that are not the responsibility of government agencies or banks. This is why Bitcoin is often portrayed as the currency used in black market transactions. But, as technology gains popularity mainstream retailers are starting to accept it as a method for payment.

Note

Bitcoin does not move through conventional banking systems, instead, it moves through one wallet digital to the next. Bitcoin cannot be kept or stored in a pocket or physical wallet like the paper currency or coins. it is solely an exchange system that is computer-based.

 

Notable Happenings

The elusive creator(s) of Bitcoin, also known as his title Satoshi Nakamoto, first suggested Bitcoin in 2009 on white paper to be a method of payment based on math. The concept behind bitcoin was to create a money system that did not rely on banks. Instead, it was a decentralized ledger referred to as”blockchain. “blockchain. 

The value of Bitcoin surpassed $1,000 in January of 2017, before it surpassed $1,000 later that year. Since then it has experienced significant growth, and massive selling. Bitcoin’s value soared to greater than $19,000 at the close of 2017, but it plummeted to around $3,000 just one year after. It hit a peak of almost $65,000 by April 2021. This record-breaking high was set to fall in the month of October 2021, when ProShares unveiled the first bitcoin-linked exchange traded funds that traded on the New York Stock Exchange. 

 

Is Bitcoin Legal?

Bitcoin and other cryptocurrency are legal in the U.S. and several other nations around the globe. However, they’re not legally valid and, therefore, they do not have the backing of any authority; consequently those who buy or sell products that make use of cryptocurrency use it on their own responsibility. 

Note

Then, in June of 2021 El Salvador became the first country to recognize bitcoin as a legal tender. 

Where Are Bitcoin Transactions Prohibited?

Certain countries have banned transactions with cryptocurrencies, such as Bitcoin. The most recent report from the Library of Congress lists countries which have banned cryptocurrencies: 

  • Algeria
  • Bolivia
  • Morocco
  • Nepal
  • Pakistan
  • Vietnam

In September 2021, China has banned all cryptocurrency transactions within this country. 

Common Bitcoin Restrictions

There are some countries that do not prohibit cryptocurrency completely, but do have limitations which make it hard to conduct transactions. For instance, Qatar and Bahrain prohibit cryptocurrency locally, yet citizens can use cryptocurrency from outside their borders. Countries like Bangladesh, Iran, Thailand, Lithuania, Lesotho, and Colombia indirectly restrict cryptocurrency transactions through imposing restrictions on financial institutions that could facilitate their use. 

 

Do You Need to Pay Taxes on Bitcoin?

Bitcoin is considered real estate by Internal Revenue Service. If you earn profits from selling and buying Bitcoin, the IRS will require you to report the gain as capital gains like the sale and purchase of other properties.

If you receive payment by bitcoin to provide an activity or a sale of a product, you are required to declare earnings that are equal to the amount of of bitcoin you were paid at the date the money was received. 

 

Alternatives to Bitcoin

Bitcoin isn’t the sole cryptocurrency however its market cap is greater than the top  cryptocurrencies. Bitcoin’s market capitalization has reached 2 trillion. Ethereum’s market value is around $500 billion, while Binance is worth more than $80 billion. The list of cryptocurrency and their worth is growing. are more than 20 cryptocurrency with market capitalizations of at minimum $10 billion. 

the authorAaron Krause

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