What Is Bitcoin, and How Does It Work?

After years of skepticism, bitcoin is finally gaining mainstream credibility. This week alone, Tesla said it will soon accept bitcoin as payment for its vehicles, and disclosed it had purchased $1.5 billion in the cryptocurrency as part of its cash holdings. Meanwhile, Uber, Visa and Mastercard also said they plan to start accepting bitcoin. So what is bitcoin and how does it work?

Tesla Takes Huge Bet on Crypto, Buys $1.5bn in Bitcoin

BNY Mellon, the oldest US bank, whose history dates back to Alexander Hamilton’s founding of Bank of New York in 1784 also announced that it has formed a “digital assets” unit. 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 and how does it work?

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. How does it work? At this very moment it can be used everywhere from Overstock.com to PayPal — and that list is expanding quickly. A lot of people also see bitcoin as a good investment. And that’s certainly been true this week, considering that bitcoin hit an all-time high of $49,000 this week.

Bitcoin has doubled in value to hit $40,000 in less than a month;

Bitcoin Hits New High After Support From America’s Oldest Bank, BNY Mellon

Where can I buy bitcoin?

Bitcoin is 100% digital. Marketplaces called “bitcoin exchanges” allow people to buy or sell bitcoins 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 the world’s richest man is very 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.

Bitcoin Holds at $45K With Boosts From Tesla, Mastercard, and Twitter

Is bitcoin safe?

The cryptocurrency is highly volatile, and therefore very 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.