Bitcoin: What is it, how much is it worth, is it bad for the planet?

The influence this digital currency is undeniable and it has kicked off the cryptocurrency craze around the world.

 A coin representing the bitcoin cryptocurrency is seen on computer circuit boards in this illustrative picture (photo credit: REUTERS)
A coin representing the bitcoin cryptocurrency is seen on computer circuit boards in this illustrative picture
(photo credit: REUTERS)

The cryptocurrency known as Bitcoin has become widespread across the world and many peg it as the future of money as we know it. Others have harsher views about the virtual currency, skeptical of its lasting value and environmental impact.

Regardless, the influence this digital currency has is undeniable and it has kicked off the cryptocurrency craze around the world.

But what is Bitcoin? Who created it? How is it made, how much is it worth and what are the many problems people have with it?

Here is everything you need to know about Bitcoin.

What is Bitcoin? Who created it?

Bitcoins are seen in this illustration picture (credit: REUTERS/ DADO RUVIC)Bitcoins are seen in this illustration picture (credit: REUTERS/ DADO RUVIC)

Bitcoin is a completely decentralized digital currency, also known as a cryptocurrency. As it is decentralized, it does not have a central bank or administrator behind it. This means it can be transferred without an intermediary such as a bank.

The currency itself is believed to have been created in 2008 by an unknown individual or group of people, referred to only by the name Satoshi Nakamoto. It first was first used in 2009.

How much is Bitcoin worth?

Bitcoin's value has fluctuated throughout its time in use. In 2013, for example, one Bitcoin was valued at $13.30, though this quickly spiked by the start of 2014 to $770. This climb in value continued over the years, though some lows were recorded due to a variety of circumstances, such as China's ban on the use of cryptocurrencies and a number of different hacks and thefts.

But while the plummeting was often severe, the value of Bitcoin has skyrocketed since 2020. This is due to a variety of reasons, such as the town of Zug in Switzerland announcing plans to start taking Bitcoins as tax payments, El Salvador voting to make Bitcoin the nation's official legal tender, PayPal allowing users in the United States to pay with Bitcoin and the US Securities and Exchange Commission allowing Bitcoin futures ETF to be traded in mid-October 2021. But among the most prominent voices driving the value of the currency up is Elon Musk, when the billionaire announced plans to accept Bitcoin for buying Tesla cars. 

Currently, one Bitcoin stands at $62,822.60, or NIS 195,356.93.

How are Bitcoins "mined?"

Bitcoins can be obtained through "mining," a complicated process involving keeping track of what are known as blockchains, a public ledger of transactions consisting of different individual blocks, which themselves have more information. The process of mining can be very time-consuming in order to achieve everything needed to actually mine Bitcoins. 

Ownership of these chains is determined through a private key, and losing the key renders the Bitcoins themselves are lost.

What other types of cryptocurrency are there?

Since Bitcoin emerged, other types of cryptocurrencies have been launched. These include Litecoin, Ethereum and Dodgecoin. However, the idea has become more seriously considered in recent years.

Israel develops new 'bitcoin' currency (Illustrative) (credit: JPOST STAFF)Israel develops new 'bitcoin' currency (Illustrative) (credit: JPOST STAFF)

In June, Bank of Israel Deputy Governor Andrew Abir revealed that a pilot test has already been conducted of a digital shekel cryptocurrency, though exactly how it would function would likely be different from Bitcoin.

What are the advantages of Bitcoin?

Aside from being without centralization and being theoretically open to everyone who wants to start mining and getting into it, a major advantage is privacy. Though the transactions are public due to the ledger itself being public, their ownership can be kept anonymous so the trail such commerce leaves might not be as easily identifiable compared to traditional currencies.

What are the disadvantages?

The cryptocurrency field, in general, is filled with criticisms due to a number of scams, price volatility, use in illegal transactions such as over the Dark Web and being essentially a "bubble," in the economic sense of the term, which could lead to a market crash when the bubble bursts.

Another issue with Bitcoin is not about the currency itself, but the mining process.

Bitcoin mining is incredibly complex and while theoretically, anyone can start mining, doing so is in practice extremely difficult due to the sheer amount of computing power and electricity required. Bitcoin mines are often large collections of machines, all working to go through the necessary processes to successfully mine Bitcoin. As a result, the amount of energy consumed is immense. According to a 2021 estimate from the University of Cambridge, Bitcoin consumes over 178 Terawatt-hours of energy every year. To put that in context, if Bitcoin were a nation, it would be one of the top 30 energy consumers on Earth. Essentially, it's about as much as the whole of Argentina.

At current rates, such Bitcoin "mining" devours about the same amount of energy annually as the Netherlands did in 2019, data from the University of Cambridge and the International Energy Agency shows.

Some Bitcoin proponents note that the existing financial system with its millions of employees and computers in air-conditioned offices uses large amounts of energy too.

And its own success has made this problem even worse. Greater demand and higher prices lead to more miners competing to solve puzzles in the fastest time to win coin, using increasingly powerful computers that need more energy.

But energy consumption is not the only negative aspect of Bitcoin mining, the equipment used has also created a very large carbon footprint. This is, in part, because the mining process often relies on fossil fuels, particularly coal. This is especially the case in China, where most Bitcoin miners are found, as they usually use fossil fuels to generate power, except for in the summer.

Bitcoin production is estimated to generate between 22 and 22.9 million metric tons of carbon dioxide emissions a year, or between the levels produced by Jordan and Sri Lanka, a 2019 study in scientific journal Joule found.

There are growing attempts in the cryptocurrency industry to mitigate the environmental harm of mining and the entrance of big corporations into the crypto market could boost incentives to produce "green Bitcoin" using renewable energy.

Some sustainability experts say that companies could buy carbon credits to compensate for the impact.

And blockchain analysis firms say that it is possible in theory to track the source of Bitcoin, raising the possibility that a premium could be charged for green Bitcoin. Climate change policies by governments around the world might also help.

Reuters contributed to this report.