Quite simply, Bitcoin is just a digital currency. In many ways, it operates like any other currency. You can use it to buy goods and services, and you can use it to store value, like you would with money in your bank account.
But Bitcoin doesn’t have any real value, right?
That’s right – the only value Bitcoin has is what people are willing to pay for it. If this sounds a bit crazy, think about the money in your pocket. A $20 note itself is worth nothing (it’s not even backed by gold). That note only has value because shops, banks, and other people all agree that that note can be exchanged for $20 of goods and services.
It’s exactly the same with Bitcoin. Bitcoin has no value in itself, but it is valuable because a community of people agree that it holds worth, just like with that $20 note. And for many people, Bitcoin is a better and more useful currency than the New Zealand dollar.
If it’s all digital, can’t you just create more Bitcoin?
The Bitcoin network sets a limit on how many Bitcoins can ever be created. That limit is 21 million, and currently around 80% of those have been created.
How are Bitcoins created?
The process to create Bitcoin is called “mining”. Miners process transactions on the Bitcoin network, otherwise known as the “blockchain”. If I want to pay you 1 Bitcoin, I ask a miner to record that transaction on the blockchain. As a reward for processing my transaction the miner also receives some brand new Bitcoin, which is how Bitcoins are created.
Can I just buy part of a Bitcoin?
Absolutely. The smallest unit of a bitcoin is 0.00000001 and is called a “Satoshi” after the creator of Bitcoin. Currently 5000 Satoshis are equal to 1 New Zealand dollar.
You can purchase Bitcoin in any amount that you want. However, when you purchase Bitcoin you also need to pay a fee for your transaction to be recorded in the blockchain. At the moment, the fee is around NZD$40, so a transaction of lower value than that wouldn’t be able to be processed. This is one of the downsides to Bitcoin as a currency.
How do I buy Bitcoin?
To buy Bitcoin you need to find someone who wants to sell their Bitcoin, and you need to provide an address where they can send that Bitcoin to. An address is like a bank account number, where funds can be sent to and from. You can create your own address at bitaddress.org , or you can purchase through Easy Crypto where we manage the whole process for you. Easy!