I must confess that I understand less and less of what Bitcoin is, even as I hear more and more about it. What’s more, a ton of other cryptocurrencies — currencies that use the same or similar encryption and framework to Bitcoin — like Ethereum, Litecoin and Ripple have popped up. However, it can’t be denied that Bitcoin has made a splash in financial markets. It was worth $103 in October 2013, and, at the time of writing, is worth above $57,000 per Bitcoin. The recent news about Tesla investing $1.5 billion in Bitcoin was the final straw that generated interest in the cryptocurrency space — hence this article.

Before looking at cryptocurrencies, let’s look at how regular money works. All governments around the world either issue their currency or share one with other countries. Whenever someone deposits a check, swipes a credit card or makes an online payment, a transaction takes place. The money leaves one account and enters another. The banks processing the transaction record it in their ledger — an account of all transactions — and ultimately add it to the central bank’s ledger once they have verified the transaction. For a transaction to happen digitally, it must pass through a bank. The system works in a way such that you cannot pay the same money to two places at once, just like you cannot have two authentic notes with the same serial number.

Moreover, banks can choose how much they want to lend using customer deposits as long as they keep some money as reserves. This leads to some not-so-ideal situations at times. If you want to transact outside this system, the only way of doing it with regular currency is to use hard cash. But obviously this is difficult, inefficient and can only happen across short distances.

Bitcoin is a decentralized cryptocurrency based on blockchain that uses cryptographic hashes to secure P2P transactions. At its core, Bitcoin is about decentralization. What that means is that instead of the bank holding a central ledger, everyone owns a copy of it. That “copy” is the blockchain — a list that contains all transactions since the beginning of Bitcoin and accounts for the flow of every single Bitcoin in existence. The most important characteristic of the blockchain is that it cannot be changed.

For any Bitcoin transaction, there are two people with bitcoins in their digital wallets, i.e., two peers on a network. These wallets have usernames that are complicated hashes — garbled letters and numbers made by an algorithm — and are also secured by similarly encrypted passwords. When they attempt to execute their transaction, it needs to be verified. Someone needs to check the ledger and ensure there are enough bitcoins in the source wallet to pay for the transaction, including the transfer fees. This is what miners do. When one megabyte worth of transactions pile up, a block forms. The block then needs to be verified by miners and added to the chain. As a reward, they get the transaction fees and newly mined bitcoins.

The actual checking of the public ledger happens quickly with modern computing. However, to avoid exploitation of the records by miners, the Bitcoin protocol makes it artificially hard to complete the verification. It adds a step called proof of work — the “mathematical problems” that computers solve to mine Bitcoin. In essence, it isn’t so much a mathematical problem as it is a guessing game. Miners, or more accurately their computers, must guess a hash that is lower than a target value only known to the system. Imagine a game of limbo where you must dance under a low-held bar. The lower that bar goes, the harder the game gets. However, the system only rewards the first miner to reach proof of work.

A key condition to note here is that the system adjusts the target value in a way that it takes approximately 10 minutes to verify each block. This is to give everyone on the network enough time to reach a consensus on the correct version of the ledger, i.e., the blockchain. This also means that as more and more people join the network as miners, it takes more guesses for a computer to reach the right answer. This is a matter of luck, but you can certainly know where the odds lie. In the early days, miners could just use regular personal computers or laptops to mine, but increased traffic has made that impossible. To be competitive, you need to have enormous computing power on a rig specialized just to mine bitcoin. You and I don’t stand a chance.

Once this verification is complete, the new block is permanently added to the blockchain. This is reflected in everyone’s ledgers, which makes it nearly impossible to erase or manipulate. And the cycle continues.

Bitcoin is designed to be limited. There are only 21 million Bitcoins that can be mined. After every 210,000 blocks are mined, the number of bitcoins released by each block halves. Originally, each block mined would grant the miner 50 bitcoins, but now this ratio is down to 6.25 Bitcoins. It becomes much more difficult to mine Bitcoin as time goes on and more people join in. It is expected that the last bitcoin will be mined in 2140.

The use of cryptographic algorithms makes Bitcoin an anonymous and secure way to conduct transactions online. While the blockchain is publicly visible, there is no personal information attached to any wallet or transaction.

These security features are some of the important reasons why Bitcoin and cryptocurrencies are so valuable today.

Today, Bitcoin is not the only player in the field. There are thousands of other cryptocurrencies. The process to make one is extremely accessible, so it is no surprise that the number is so high. However, with the rise in popularity, fraudulent activity surrounding cryptocurrencies is also on the rise.

In the past few days, we have seen the meme hype surrounding dogecoin — a coin made by the creators just to mock the unnecessary number of cryptocurrencies in existence. In theory, since Bitcoin skyrocketed in monetary value from fractions of a cent to thousands of dollars, there is a lot of potential for other cryptocurrencies. Much like a social media network or a regular currency, a cryptocurrency is only valuable if a large group of people use it. Despite the competition, Bitcoin is still, by far, the dominant cryptocurrency.

When people invest in any cryptocurrency, they are investing in its future value. With no regulatory body and thousands of close substitutes, it is uncertain which currencies will be widely adopted and what they are actually worth. Thus, cryptocurrencies are extremely volatile in value and any single one is highly uncertain of being successful.

For now, anyone who invests their money into a cryptocurrency can have the dream of being a millionaire, but they should also be okay with losing all of it.