Guide: What is Bitcoin and how does it work?

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 Guide: What is Bitcoin and how does it work?

When the richest person in the world gives his support to a virtual currency you know it's big business.


Elon Musk has told users of an online social media app that he thinks the virtual currency, Bitcoin, is a "good thing."


His comments resulted in the value of Bitcoin rising significantly.


So much so, that a singular Bitcoin went from being worth £3,600 in March last year to more than £27,000 now.


As talk of the currency has gone global, the Bank of Singapore has suggested that the 12-year-old currency could replace gold as its store of value.


However, in October, the head of the Bank of England, Andrew Bailey, warned about the unpredictability of Bitcoin, saying it makes him, "very nervous".


With all this talk you're probably wondering - what is Bitcoin and how does it all work?


Here's everything you need to know.


What is Bitcoin?

Bitcoin, often described as a cryptocurrency, a virtual currency or a digital currency - is a type of money that is completely virtual.


It's like an online version of cash. You can use it to buy products and services, but not many shops accept Bitcoin yet and some countries have banned it altogether.


However, some companies are beginning to buy into its growing influence.


In October last year, for example, the online payment service, PayPal, announced that it would be allowing its customers to buy and sell Bitcoin.


The physical Bitcoins you see in photos are a novelty. They would be worthless without the private codes printed inside them.


How does Bitcoin work?

Each Bitcoin is basically a computer file which is stored in a 'digital wallet' app on a smartphone or computer.


People can send Bitcoins (or part of one) to your digital wallet, and you can send Bitcoins to other people.


Every single transaction is recorded in a public list called the blockchain.


This makes it possible to trace the history of Bitcoins to stop people from spending coins they do not own, making copies or undo-ing transactions.

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