Hand holding bitcoin logo representing the cryptocurrency

Cryptocurrency 101: What Is Bitcoin and How Does It Work? 

There’s no denying that cryptocurrency has grown and gained popularity over the years. Among the different digital currencies that have emerged, Bitcoin (BTC) still holds the top spot as it is considered one of the pioneers of the industry.  

While Bitcoin has been the talk of the town, there are still a lot of people who are not familiar with it. If you’re interested in learning more about this trend, our accounting professionals at Tostrud & Temp, S.C. are here to walk you through the things you need to learn about digital currency. 

Getting Down to the Basics: What Is Bitcoin? 

Bitcoin or BTC was created by an anonymous developer who goes by the alias “Satoshi Nakamoto”. While digital currencies like eCash, E-Gold, Bit Gold, and B-Money existed as early as 1983, the public only paid attention to crypto when BTC was introduced in 2009. Now, what makes this financial technology unique? 

Unlike real money, Bitcoin can be bought, sold, and exchanged directly without the interference of third-party organizations like banks or the government. All transactions are done through peer-to-peer software that is protected by cryptographical algorithms. This ensures that all digital data are safe from malicious threats or adversaries. 

Every activity is recorded through a public online ledger called a blockchain, which is accessible to everyone on the platform. This setup makes it difficult for people to reverse or fake any Bitcoin transaction they’ve made. 

Understanding the Process: How Does Bitcoin Work? 

Every Bitcoin transaction is recorded in small data units called a block. Each block contains crucial information such as: 

  • Identities of the buyer and seller 
  • Date and time of exchange 
  • Total Bitcoin value bought or sold 
  • A unique identifying code for each transaction 

Blocks are still subject to review by other Bitcoin holders or miners. People who mine cryptocurrencies use powerful computing hardware to solve mathematical problems, a crucial step in verifying transactions. Once the puzzle is solved, the block will be added to the blockchain and the miner will be rewarded 6.25 BTC—which is equal to almost $190,000. 

Should You Invest in Bitcoin? 

People invest in cryptocurrencies for various reasons. Some want to build their portfolio, others are attracted to their long-term store of value and equity potential. However, one must understand that Bitcoin mining requires time, as well as a huge amount of money to buy the necessary computing hardware to solve puzzles.  

Regardless of your motivation for getting into this endeavor, it’s still important to weigh the pros and cons. That is exactly what Tostrud & Temp, S.C. is here for. We’re certified public accountants who provide the highest quality and timely financial advice.  

Understanding digital currency does not have to be complicated. Let our professional staff guide you in making well-informed investment decisions. Contact us today to get more information. Our team will be more than happy to help you.