What is Bitcoin and is it safe?
In today’s rapidly evolving financial landscape, a new class of assets has emerged and gained recognition from financial news outlets like CNBC and the Wall Street Journal as well as on social media and other internet websites. These assets are collectively called “cryptocurrencies” and the largest among them is Bitcoin. A recent survey by NYDIG suggests that as many as 22% or 1 in 5 Americans own Bitcoin. So, what is Bitcoin, and is it safe?
Bitcoin is a form of digital money or digital gold that is governed by computer code running across thousands of computer servers around the world. This network of Bitcoin servers allows for the transfer of value from one person or entity to another anywhere in the world quickly, efficiently, and without the need for a trusted third party like a bank or government.
There is a hard-coded limit of 21 million Bitcoin that will ever exist on the Bitcoin blockchain, making it one of the world’s first digitally scarce assets. The issuance of new Bitcoin is governed by the computer code with new Bitcoin being created roughly every 10 minutes. The last Bitcoin is projected to be created around the year 2140.
The Bitcoin network started out small in January of 2009 with only a few computers & laptops running the code. Since then, the network has grown and today is supported by specialized computer servers called “mining rigs” that are very powerful. While no system is completely foolproof, the Bitcoin network is one of the most secure networks that exists. The Bitcoin network guarantees the security of the transactions processed and stored on the network and is considered very secure.
Does that mean there are no security concerns? Unfortunately, it does not. While the Bitcoin you own is stored on the Bitcoin network and is very secure, accessing your Bitcoin requires the use of a set of digital, cryptographic keys. If these keys are not safely stored, owners of Bitcoin risk the loss or theft of all their Bitcoin. Here are a few ways to store your Bitcoin keys:
There are two basic kinds of wallets, hot or cold. A hot wallet is on your computer, phone, or other connected device and provides quick access to your Bitcoin but also exposes the wallet to potential theft or loss. This can occur when someone gains unauthorized access to your wallet or when you upgrade a device and forget to transfer the keys to the new device.
Cold (Hardware) Wallets
Cold wallets are small devices that are specifically designed to hold your Bitcoin keys offline and away from the internet. You connect them to a computer and verify your identity only when you need access to your Bitcoin. Hardware wallets are considered quite safe but aren’t as accessible as many of the other options.