Bitcoin has smashed through $US20,000 ($A26,440) for the first time amid increased institutional and corporate interest.

The cryptocurrency hit an all-time peak of $US20,800 and was last up 6.4 per cent at $US20,675.

It has gained more than 170 per cent this year, buoyed by demand from larger investors attracted to its potential for quick gains, purported resistance to inflation and expectations it will become a mainstream payment method.

Its been a wild year for bitcoin, which has soared more than 175% since the end of 2019.

Prices plunged below $4,000 in March as markets around the globe plummeted due to the COVID-19 economic crisis.

But bitcoin has rallied sharply in the past few months as the US dollar weakened.

Crucially, the cryptocurrency has also skyrocketed into the mainstream.

Payments giants Square (SQ) and PayPal (PYPL) both now allow their customers to buy and sell bitcoin.

Money management giant Fidelity is launching a bitcoin fund for wealthy investors.

Bitcoin futures contracts are even trading on the Chicago Mercantile Exchange.

Bitcoin is a (relatively) new currency that was created in 2009 by an unknown person using the alias Satoshi Nakamoto.

Transactions are made with no middle men meaning, no banks.

Bitcoin can be used to book hotels on Expedia, shop for furniture on Overstock and buy Xbox games.

But much of the hype is about getting rich by trading it.

The price of bitcoin skyrocketed into the thousands in 2017.

Bitcoins can be used to buy merchandise anonymously.

In addition, international payments are easy and cheap because bitcoins are not tied to any country or subject to regulation.

Small businesses may like them because there are no credit card fees.

Some people just buy bitcoins as an investment, hoping that theyll go up in value.

Buy on an Exchange

Many marketplaces called bitcoin exchanges allow people to buy or sell bitcoin using different currencies.

Coinbase is a leading exchange, along with Bitstamp and Bitfinex.

But security can be a concern: bitcoins worth tens of millions of dollars were stolen from Bitfinex when it was hacked in 2016.

Transfers

People can send bitcoin to each other using mobile apps or their computers.

Its similar to sending cash digitally.

Mining

People compete to mine bitcoins using computers to solve complex math puzzles.

This is how bitcoins are created.

Currently, a winner is rewarded with 12.5 bitcoins roughly every 10 minutes.

Bitcoin are stored in a digital wallet, which exists either in the cloud or on a users computer.

The wallet is a kind of virtual bank account that allows users to send or receive bitcoin, pay for goods or save their money.

Unlike bank accounts, bitcoin wallets are not insured by the FDIC.

Bitcoin wallet in cloud: Servers have been hacked. Companies have fled with clients bitcoin.

Bitcoin wallet on computer: You can accidentally delete them. Viruses could destroy them.

Though each bitcoin transaction is recorded in a public log, names of buyers and sellers are never revealed only their wallet IDs.

While that keeps bitcoin users transactions private, it also lets them buy or sell anything without easily tracing it back to them.

Thats why it has become the currency of choice for people online buying drugs or other illicit activities.

No one knows what will become of bitcoin.

It is mostly unregulated, but some countries like Japan, China and Australia have begun weighing regulations.

Governments are concerned about taxation and their lack of control over the currency.

- with CNN

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Bitcoin cryptocurrency price is at an all-time high, but what is it exactly? - 7NEWS.com.au