Should I join the euphoria of investing in Bitcoin?
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(CNN) -
After years of skepticism, bitcoin is finally gaining credibility from a wide audience.
Tesla reported last month that it will soon accept bitcoin as a form of payment for the purchase of its vehicles, revealing that it bought $ 1.5 billion worth of bitcoin as part of its inventory.
Meanwhile, Uber and Mastercard also said they plan to start accepting bitcoin.
BNY Mellon and BlackRock are investigating the cryptocurrency and Jay Z and Twitter CEO Jack Dorsey announced the creation of a bitcoin development fund.
Tesla to accept bitcoins for the purchase of electric cars 1:08
It is speculated that as more financial institutions invest in bitcoin, more companies will join.
Some investors believe it could be a good hedge against inflation and a weak dollar.
The Federal Reserve cut interest rates in March 2020, severely weakening the US dollar and spiking the price of bitcoin.
So if you've been ignoring bitcoin thinking it might be a financial fad, this is the time to start paying attention.
This is what you should know.
What is bitcoin?
Bitcoin is a currency that was created in 2009 by an unknown person using the alias Satoshi Nakamoto.
Transactions are made without intermediaries.
Bitcoin cannot be used physically, it is a digital currency.
And it is decentralized, which means that it is not controlled by any bank or government.
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Right now it can be used on many sites from Overstock.com to PayPal.
And the list grows rapidly.
Many people also see bitcoin as a good investment.
And that has been true this week, considering that it exceeded US $ 60,000.
In January, the cryptocurrency hit records of more than $ 40,000.
Bitcoin exceeds $ 60,000 0:55
How does it work and how to buy the cryptocurrency?
Bitcoins can be used to buy goods anonymously.
In addition, international payments are easy and cheap due to the fact that they are not linked to any country or subject to regulation.
Small businesses may like it because there are no credit card charges.
There are three ways to buy bitcoin:
Buying on bitcoin exchange (digital) sites
Bitcoin is 100% digital.
Markets called "bitcoin exchange sites" allow you to buy or sell bitcoins using different traditional currencies.
Coinbase is one of the major changes, along with Coinmama, CEX.IO, and Gemini.
Transfers
People can send bitcoins to each other using mobile apps or their computers.
It is similar to sending cash digitally.
Mining
People compete to "mine" bitcoins using computers to solve complex math puzzles.
This is how bitcoins are created.
Bitcoin wallet: how does it work?
Bitcoins are stored in a "digital wallet", which exists in the cloud or on the user's computer.
The wallet is a kind of virtual bank account that allows users to send or receive bitcoins, pay for goods, or save money.
Unlike bank accounts, bitcoin wallets are not insured by the Federal Deposit Insurance Corporation.
The anonymity of bitcoin
Although every bitcoin transaction is recorded in a public record, the names of buyers and sellers are never revealed, only their wallet IDs.
While that keeps bitcoin users' transactions private, it also allows them to buy or sell anything without easily being tracked.
That is why it has become the currency of choice for people buying drugs or other illicit activities online.
What does Elon Musk have to do with this?
Elon Musk's influence on the cryptocurrency market 0:45
Elon Musk, CEO of Tesla and SpaceX, has a history of tweeting his support for certain assets and causing values to skyrocket.
And the richest man in the world is a great promoter of bitcoin.
"I think (bitcoin) is on the verge of gaining widespread acceptance from mainstream finance people," Musk said in a recent interview on the Clubhouse social app.
Shortly after he formalized Tesla's bond with cryptocurrency, announcements from other companies began to flow.
Is bitcoin safe?
The cryptocurrency is very volatile and therefore very risky.
For example, in January the value of bitcoin rose to $ 42,000, fell to $ 30,000 and rose again to $ 40,000, all in one week.
And there are some dangers inherent in a digital currency: a hacked server, a deleted file, or a lost password could mean funds are lost forever.
Paul R. La Monica, Chris Isidore, Tal Yellin, and Hanna Ziady contributed to this report.
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