Bitcoin is one of the more popular digital currencies available. The cryptocurrency can be stored and traded electronically. The currency is stored in a digital wallet and is traded through a downloadable software or through a third party provider. The main thing traders should understand is that the Bitcoin is itself is considered a form of currency and not just an online service to transfer U.S. dollars. [Understanding The Proposed Bitcoin ETF: 5 Key Questions]
Many users utilize the currency because the bitcoin is decentralized – there is no central bank issuing or monitoring the currency. Every transaction is validated by a Bitcoin miner – miners are entities within the Bitcoin network that validate the transaction by solving a mathematical proof. This system prevents double counting of Bitcoins and keeps a record of all transactions.
Bitcoin prices have gained widespread attention when the value of the currency skyrocketed above $1,000. However, the cryptocurrency has stumbled in 2014, declining 58.7% year-to-date to about $315.
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Max Chen contributed to this article.