You may have heard the terms bitcoins and cryptocurrency, but like many people, you are confused about how it all works. Here are the answers to four frequently asked questions about this relatively new type of digital currency.
What Exactly Are Bitcoins?
Just because it contains the word coins, doesn't mean that bitcoins are something you can actually carry around in your pocket. Instead of being a type of currency that you give to a cashier as a form of payment, bitcoins are actually entirely digital. There is no government that controls bitcoins; in fact they can't even be controlled by banks. Instead, the transactions that get placed with this type of cryptocurrency is organized on an online ledger known as a blockchain.
What Are Bitcoins Worth?
While it's easy to figure out the worth of money when you're holding it in your hand, it can be a little trickier with bitcoins. Plus, when you have a quarter you know that it will always be worth 25 cents.
This isn't the case with bitcoins. Instead, they can actually increase in value, which is why many people are investing in them. About one year ago, a bitcoin was worth about $572 per token. Just recently, the worth of a bitcoin rose to $4,880.
What Are Some Benefits of Bitcoins?
You might wonder why it would be advantageous to use bitcoins instead of just using an online banking account. Here are some benefits bitcoins have to offer:
- You can purchase merchandise anonymously
- Bitcoins aren't tied to a country, which means international payments are easy to make
- Bitcoins aren't subject to regulation
Some small businesses are finding that one of the biggest benefits associated with bitcoins is that there are no credit card fees.
What Is the Downside to Bitcoins?
While it seems new and intriguing and you may be tempted to jump on the bitcoin bandwagon, some financial experts are saying it is too risky for the average consumer to invest in bitcoins. Some things consumers need to be aware of when it comes to bitcoins include:
- Bitcoins gets stored in a digital wallet on the computer that is not insured by the FDIC
- Digital wallets can get hacked into, get accidentally deleted, and get destroyed by viruses
- Bitcoins are often used for illegal activity
Another downside to bitcoins is that there is a finite number of them, which means all of them could be wiped out of existence in one single hack.