Cryptocurrency has been in the news a lot lately. The price of bitcoin has skyrocketed over the past few months, and it has become one of the hottest topics in finance.
Bitcoin is a virtual currency that was invented in 2009 by an unknown person who called himself Satoshi Nakamoto. It is not backed by any government or bank, and it does not have any physical form. It exists only in the internet and is controlled by a network of computers that are connected to each other.
The main advantage of bitcoin is that it can be used anywhere in the world without having to pay transaction fees, and it is anonymous. This means that people can buy anything online with bitcoins, and they do not need to provide their personal information or credit card number.
The disadvantage of bitcoin is that it is extremely volatile. There have been times when the price of a single bitcoin has risen by more than 1000%. Bitcoin prices can also drop by more than 50% in just a few minutes.
It is also very difficult to convert bitcoins into US dollars. Because of this, most people prefer to use bitcoin as an investment tool rather than as a medium of exchange.
In order to understand why bitcoin is so popular, we should first take a look at how traditional currencies work.
In traditional currencies like the US dollar or the euro, there is a central bank that controls the money supply. When a company needs to raise money, it goes to the central bank and asks for a loan. In return, the company gives the central bank some of its assets. These assets are usually stocks, bonds, or real estate.
The central bank then uses these assets to create new money. This new money is given to the company in the form of a check. The company now has more cash than it needs, so it pays back the loan. This process is called fractional reserve banking.
Fractional reserve banking is considered to be a dangerous system because it allows banks to make huge profits by lending out money that they do not have. If a bank lends out $100, and only keeps $10 in its vault, it makes a profit of $90. This is possible because the bank is allowed to keep all the assets that it lent out.
When a company uses bitcoins instead of fiat money, there is no central bank that controls the money. Instead, the system works in a decentralized way. Every bitcoin transaction is recorded in a public ledger known as the blockchain. This ledger is stored in every computer in the bitcoin network.
Every time someone sends or receives bitcoins, this transaction is recorded in the blockchain. This makes it easy for anyone to see how much money is being sent between two different addresses.
Since bitcoins are not controlled by a central bank, there is no need to keep a large amount of cash in the vault. This means that the profits from bitcoin transactions are smaller than those made by banks.
Because of this, the value of bitcoin has fluctuated a lot in the past few years. This is partly due to the fact that bitcoin is still a relatively new technology. People are also skeptical about the future of bitcoin because of the volatility of the price.