Bitcoin is digital money or ‘cryptocurrency’ (‘crypto’ for short). As the internet has grown, and especially in lockdown, more and more of our lives take place online – buying, selling, social contact, listening to music and attending business meetings are just a few areas where we’re depending on the internet more and more. In the digital world, it would make more sense to use digital money for spending and saving, instead of trying to make traditional money fit in. The mechanics of payments would just be more efficient, private and secure with fewer middlemen.
Digital money has been a really hard problem to solve though – if someone could just email you £5 then you would immediately copy and paste it a hundred times and have £500 thank you very much. In 2009, Satoshi Nakamoto (real identity unknown to this day) solved that problem by inventing Bitcoin and did it in a way that is secure and protects your privacy. In 2021, cryptocurrencies are still just getting started. In a lot of ways they’re at the stage the internet was back in the ’90s before most people realised it could be used for shopping, streaming music and surviving a pandemic.
Imagine, instead of cash in your wallet, you can have cryptocurrency that you access through a wallet app on your phone. You can buy things with it or send it to someone almost as quickly as you use cash now. Only you will have control over it and can access it. Similarly, to buy things online or in a shop, use the wallet app to make the payment. No banks or credit card companies are involved – the money goes directly from you to the person or organisation you’re paying.
Money isn’t just used for spending though – people try to save it too. Most people using cryptocurrencies now are doing just that – holding on to it in the hope that it will go up in value. There are big risks if you’re not sure what you’re doing (see my separate article on that), but there are potentially big rewards too. A few companies, like Tesla, PayPal and Visa, are even close to accepting it for payments. Others are buying it as insurance against inflation.
Getting a little bit technical, all Bitcoins are stored purely on the internet, across thousands of computers around the world. No-one has overall control of it – it’s managed by all those computers agreeing with each other who has spent how much with who, kind of like bees managing their hive for the benefit of all but without a queen. They spend most of their time looking out for anyone trying to hack into the system and protecting it.
In the digital world, it will be much easier and more secure for apps and computers to transact in cryptocurrencies than by trying to access your bank or credit card, which add a lack of privacy, fraud risk and errors to the process.
Of course, it’s still early days. Bitcoin certainly isn’t anywhere near being accepted as a common currency yet, its value can soar one day and crash the next, there are hackers and scams aplenty and the current software isn’t always easy to use. But software can be fixed and there are signs that cryptocurrencies are being taken more seriously by the big institutions and many governments. Even Paypal has started accepting it in transactions in a limited way.
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