What Bitcoin actually is
Bitcoin is the first and best-known cryptocurrency. It is a digital currency that runs on a public network of computers instead of being issued by a bank or government. The idea was described in a 2008 paper by someone using the name Satoshi Nakamoto, and the network started running in January 2009. Nobody knows who Nakamoto is.
You can send bitcoin to anyone in the world without a bank in the middle. Every transaction is recorded on a shared public ledger called the blockchain, which thousands of computers keep a copy of.
How it works
New transactions are bundled into blocks and added to the chain by “miners”, who spend computing power to compete for the right to do it. This system is called proof of work. It makes the history extremely hard to alter, because an attacker would have to redo an enormous amount of work.
Miners are paid in newly created bitcoin plus transaction fees. The rate of new coins is cut roughly every four years in an event known as the halving, and the total supply is capped at 21 million coins. The large majority has already been mined.
Why people buy it
- Scarcity. The fixed supply is the main argument for it, and is why it is often compared to digital gold.
- Independence. No central issuer can change the rules or create more.
- Access. Anyone with an internet connection can hold it.
In the United States, spot Bitcoin ETFs began trading in January 2024, which made it easier to buy through a normal brokerage account.
The dividend question
Bitcoin does not pay a dividend or interest. A company’s share price is supported by its profits and the cash it can return to owners. Bitcoin has no profits, so its price depends on what other people are willing to pay. That is the key difference from the stocks and ETFs on this site: you can only gain by selling for more than you paid.
What to keep in mind
- Extreme volatility. Prices have fallen by half or more several times.
- No cash flow. There are no earnings to value it by.
- Custody risk. If you lose your keys or an exchange fails, funds can be lost for good.
- Regulation. Rules differ by country and can change quickly.
- Energy use. Mining uses a lot of electricity, which is debated.
Quick take
Bitcoin is a speculative asset with a fixed supply and no income. If you consider it at all, many investors keep it to a small share of a portfolio, and never money they cannot afford to lose.