What is bitcoin? A guide to investing, mining and risks

While countless cryptocurrencies such as Ethereum, XRP, and Solana have surfaced and gained widespread popularity, Bitcoin (BTC) has long been distinguished as the first cryptocurrency. Launched in 2009 by an anonymous person or group under the pseudonym Satoshi Nakamoto, Bitcoin is a digital currency that allows users to make peer-to-peer transactions without the need for third-party intermediaries, such as a bank or credit card company. Instead, to authenticate transactions, Bitcoin uses cryptographic algorithms, which are recorded in the blockchain.

In total, there can only be 21 million bitcoins created, meaning there is a limited supply. And, of that 21 million, a little more than 19.8 million (and counting) have already been mined as of December 2024.¹

By design, Bitcoin is public and decentralized. Theoretically, anyone with a computer and internet can become a miner. No one person or group owns or controls Bitcoin nor does it have a single server, organization, or computer “running Bitcoin.” Instead, different stakeholders control different aspects. Note, mining bitcoin and investing are different. An investor may purchase, hold on to, or sell bitcoin in an effort to realize a profit, while the purpose of a miner is to validate and record transactions on a cryptocurrency network in exchange for small transaction fees and cryptocurrency.

The Bitcoin network includes two main components:

1. Bitcoin (BTC): The actual currency.
2. The Blockchain: The technology behind transaction verification that records all bitcoin transactions. Approximately every 10 minutes a new block of transactions is added to the blockchain.

Mining bitcoins is the process of authenticating and recording transactions on the Bitcoin network’s blockchain to ensure accuracy and privacy. Miners are the people that use their computing power to make the Bitcoin network run. They are continuously competing with other miners to verify Bitcoin transactions by solving intricate math problems. The first miner to validate the pending transactions and add a new block to the blockchain is awarded a newly minted bitcoin.

While technically anyone can mine bitcoin, the amount of processing power and electricity needed to mine competitively is huge. This means most mining is done by specialized companies or groups who pool their resources together to maximize their chances of successfully solving the complex math problems required to unlock new bitcoin.

While enthusiasts may look to Bitcoin as a pioneering digital asset in financial markets, there are significant risks that come with investing in Bitcoin. Here’s what you should consider:

Proceed with caution. While Bitcoin is popular with many and often in the news, it is still relatively new. The fate of Bitcoin remains undetermined, and new challenges are likely to emerge.

Investors who are looking to gain exposure should do their homework. Get familiar with the unique crypto terminology, use cases, investment products, and risks.

Ultimately, all investing decisions should align with financial goals and individual risk tolerance.

Article Footnotes

¹ CoinMarketCap, https://coinmarketcap.com/currencies/bitcoin/

² Cryptocurrencies and U.S. Sanctions Evasion: Implications for Russia, December 20, 2022, https://www.csis.org/analysis/cryptocurrencies-and-us-sanctions-evasion-implications-russia

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