Bitcoin was created to be a peer-to-peer electronic cash system, but it has also attracted crypto-curious investors as a store of value currency, comparable to gold. Bitcoin token balances are maintained by public and private keys, which are long strings of numbers and letters linked through the mathematical encryption algorithm that creates them. The public key (comparable to a bank account number) serves as the address published in the world and to which others can send Bitcoin. Bitcoin exchanges are fully digital and, as with any virtual system, are at risk of hackers, malware and operational failures.
If a thief gains access to the hard drive of the Bitcoin owner's computer and steals his private encryption key, he could transfer the stolen Bitcoin to another account. Users can only avoid this if their bitcoins are stored on a computer that is not connected to the Internet, or if they choose to use a paper wallet that prints Bitcoin's private keys and addresses and doesn't store them on a computer. Bitcoin was created as a way for people to send money over the Internet. The digital currency was intended to provide an alternative payment system that operated without central control, but would otherwise be used in the same way as traditional currencies.
Bitcoin is the first implementation of a concept called cryptocurrency, which was first described in 1998 by Wei Dai on the cypherpunks mailing list, suggesting the idea of a new form of money that uses cryptography to control its creation and transactions, rather than a central authority. Bitcoin miners are processing transactions and securing the network using specialized hardware and collecting new bitcoins in exchange. The way Bitcoin works allows both individuals and businesses to be protected against fraudulent chargebacks, while giving the consumer the option to ask for more protection when they are not willing to trust a particular merchant. Because all computers running the blockchain have the same list of blocks and transactions and can see these new blocks transparently as they are filled with new Bitcoin transactions, no one can fool the system.
The blockchain technology underpinning Bitcoin has attracted considerable attention, even from Bitcoin skeptics, as a basis for enabling reliable record keeping and trading without a central authority. Each bitcoin (trading symbol “BTC”, although “XBT” is also used) is a computer file stored in a digital wallet on a computer or smartphone. Approximately every four years, the software makes it twice as difficult to mine bitcoins by reducing the size of rewards. Another reason could be the possibility that Bitcoin will cause a major disruption to the current banking and monetary systems.
However, this situation is not to suggest that markets are not vulnerable to price manipulation; significant amounts of money are not yet needed to drive up or down the market price, and therefore Bitcoin remains a volatile asset until now. Current Cash, Credit Cards and Banking Systems Vastly Outperform Bitcoin in Terms of its Use to Fund Crime. Bitcoin wallet files that store the necessary private keys can be accidentally deleted, lost or stolen. Others have used it as an investment, although several regulatory agencies have issued investor alerts about bitcoin.
Because the algorithm that produces Bitcoins makes them at an almost constant rate, early Bitcoin miners obtained them more often than later miners because the network was small. Someone in possession of that amount of Bitcoin could become the target of criminals, especially considering that Bitcoin is less like stocks and more like cash, in which the private keys needed to authorize spending could be printed and literally kept under a cushion. During the early days of Bitcoin, liquidity was scarce and there were very few investors in the cryptocurrency markets. This is partly due to the fact that the narrative around Bitcoin has changed from a currency to a store of value, in which people buy and hold for long periods of time rather than using it for transactions.