Everything you need to know about bitcoin

Everything you need to know about bitcoin

After years of skepticism, bitcoin is finally gaining mainstream credibility.

Tesla is now accepting bitcoin as payment, and disclosed it had purchased $1.5 billion in the cryptocurrency as part of its cash holdings. Payment processors including PayPal, Mastercard and Visa are trying to streamline crypto payments on their networks.

Meanwhile, Goldman Sachs will reportedly soon offer its private wealth management clients avenues to invest in bitcoin and other digital currencies and Morgan Stanley announced that it will offer its wealthy clients access to bitcoin funds.

There is speculation that as more financial institutions invest in bitcoin, more companies will join. Some investors say 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 shooting up the price of bitcoin.

Still, it’s prone to wild swings. In mid-April, Bitcoin experienced a flash crash and plunged nearly 14% in less than an hour. The cause wasn’t clear, but speculation centered on an unconfirmed Twitter rumor that the US Treasury was planning to crack down on money laundering schemes involving cryptocurrencies. Bitcoin’s value later rebounded.

So if you’ve been ignoring bitcoin thinking it might just be a financial fad, now’s the time to start paying attention. Here’s what you need to know.

What is bitcoin?

Bitcoin is a cryptocurrency created in 2009 by an unknown person using the alias Satoshi Nakamoto. Transactions are anonymous and are made with no brokers or intermediaries.

You can’t physically use bitcoin — it’s a digital currency. And it’s decentralized, meaning that it isn’t controlled by a bank or government. The technology underpinning it is called blockchain, a sort of digital ledger.

At this very moment it can be used on a number of platforms such as Overstock.com and PayPal, and that list is expanding quickly.

Where can I buy bitcoin?

Marketplaces called “bitcoin exchanges” allow people to buy or sell bitcoin using different traditional currencies. Coinbase is a leading exchange, along with Coinmama, CEX.IO and Gemini.

Where do I keep my bitcoin?

Bitcoin is stored in a digital wallet, which is either on the cloud or your computer. It’s like having a virtual bank account. But unlike bank accounts, stored bitcoin isn’t insured by the FDIC.

Wait, what does Elon Musk have to do with this?

Elon Musk, CEO of Tesla and SpaceX, has a history of tweeting support for assets and sending their value soaring, and he is a big bitcoin booster.

“I think [bitcoin] is on the verge of getting broad acceptance by conventional finance people,” Musk said in a recent interview on the audio-only social app Clubhouse.

Not long after that he formalized Tesla’s relationship with the crypto, the corporate announcements started flowing.

Is bitcoin safe?

The cryptocurrency is highly volatile, and therefore risky. For example, in January bitcoin’s value rose to $42,000, fell to $30,000, then rose again to $40,000 — all in the course of one week.

And there some inherent dangers to a digital currency: A hacked server, a deleted file or a lost password could mean the funds are lost forever.

-— CNN’s Paul R. La Monica, Chris Isidore, Tal Yellin and Hanna Ziady contributed to this report.