Beginners in Cryptocurrency Here's What is Bitcoin

Bitcoin was launched in 2009 and is considered to be the first cryptocurrency. The concept of blockchain technology has been discussed for decades in academic papers, but a paper titled "Bitcoin: A Peer-to-Peer Electronic Cash System" helped to launch the cryptocurrency into reality.



"There is a need for an electronic payment system based on cryptographic evidence rather than trust, which allows two interested parties to transact directly with each other without the need for a trusted third party," wrote Satoshi Nakamoto. Bitcoin Papers - An introduction to open source technology in a white paper. It has come a long way since then, is now accepted as a form of payment by companies like PayPal, Microsoft, and Whole Foods.


The price of bitcoin has risen significantly. In April 2011, the price was $ 1. In April 2021, it hit a record spot price of $ 65,000 before falling back. In early July, bitcoin was trading in a range of $ 32,000 to $ 35,000.


How does bitcoin work?

Each bitcoin (trade symbol "BTC", although "XBT" is also used) is a computer file stored in a digital wallet on a computer or smartphone. To understand how cryptocurrency works, it helps to understand these terms and some context:


Blockchain: BTC is powered by an open-source code known as the blockchain, which creates a shared public ledger. Each transaction is a "block" that is "chained" to the code, creating a permanent record of each transaction. Blockchain technology is at the heart of over 10,000 cryptocurrencies that have been followed by Bitcoin.


Private and public keys: A bitcoin wallet consists of a public key and a private key, which work together to allow the owner to initiate transactions and digitally sign them, providing proof of authorization.


Bitcoin Miners: Miners, or members of peer-to-peer platforms, independently confirm transactions using high-speed computers, usually within 10-20 minutes. Miners are paid in BTC for their efforts.


What is bitcoin mining?

Bitcoin miners - also known as "nodes" - own high-speed computers that independently confirm each transaction and add a full "block" of transactions to an ever-growing "chain" that contains a complete, public and permanent record. . of each bitcoin transaction.


Miners are paid in bitcoins as a reward for their efforts, which encourages the decentralized network to independently verify each transaction. This independent network of miners also reduces the chance of fraud or false information being logged, as most miners must verify the authenticity of each block of data before it is added to the blockchain, in a process known as "proof of work" . is required. "


How does bitcoin make money?

The value of bitcoin follows the law of supply and demand and as demand rises and falls, the price of the cryptocurrency has a lot of volatility.


Aside from bitcoin mining, which requires technical skills and an investment in high-performance computers, most people buy bitcoin as a form of currency speculation, betting that the US dollar value of a bitcoin will be comparable to what it is today in. future. Moreover. But it is difficult to make predictions.


Storing your bitcoins: warm wallet versus cold wallet

Bitcoins can be stored in two types of digital wallets:


Hot Wallet: Digital currency stored in the cloud on a trusted exchange or provider and accessible via a computer browser, desktop, or smartphone app.


Cold Wallet: A portable device encrypted like a USB stick that allows you to download and transport your bitcoins.


Basically, a hot wallet is connected to the internet; Not a cold wallet. But to download bitcoins to a portable cold wallet, a hot wallet is required.


Buying bitcoins: pros and cons

With a speculative asset class like bitcoin, it's best to start with why you should be careful:


Bitcoin: The Cons

price volatility. The rise in the price of bitcoin in 2017 was driven by speculators participating in the bitcoin market. Recent earnings are good news if you bought BTC in December 2018; Those who bought in 2017, when the price of bitcoin was heading towards $ 20,000, had to wait for December 2020 to recover their losses.


Hacking concerns. While proponents say the blockchain technology behind bitcoin is more secure than traditional electronic money transfers, BTC's hot wallet has been an attractive target for hackers. There have been several high-profile hacks, such as the May 2019 news that more than $ 40 million worth of bitcoin was stolen from multiple high net worth accounts on the cryptocurrency exchange Binance (the company covered the loss).


Limited (but increasing) use. In May 2019, telecom giant AT&T joined companies like Overstock.com, Microsoft, and Dish Network in accepting bitcoin payments. But these companies are the exception, not the rule.


Not protected by SIPC. The Securities Investor Protection Corporation insures investors up to $ 500,000 in the event of a brokerage failure or theft of funds, but that insurance does not cover cryptocurrency.


bitcoin: pro

Private and secure transactions at any time, with low potential commissions. Once you own bitcoins, you can transfer them anytime, anywhere, reducing the time and potential expense of any transaction. The transaction does not contain personal information such as names or credit card numbers, eliminating the risk of consumer information being stolen for fraudulent purchases or identity theft. (However, keep in mind that to buy bitcoin on an exchange, you typically need to link your bank account first.)


Huge growth potential. Some investors who buy and hold the currency are betting that once BTC matures, greater trust and more widespread use will follow, and therefore the value of bitcoin will increase.


Ability to avoid traditional banks or government intermediaries. In the aftermath of the financial crisis and the Great Recession, some investors have been eager to adopt an alternative and decentralized currency, essentially beyond the control of regular banks, government authorities, or other third parties. (However, to buy BTC on the US dollar exchange, you will need to link your bank account.)


Where can I buy bitcoins?

There are four ways to get bitcoins:


cryptocurrency exchange. There are many exchanges in the United States and abroad. Coinbase is the largest cryptocurrency exchange in the United States, trading over 30 cryptocurrencies.


investment brokerage. Robinhood was the first mainstream investment broker to offer bitcoin and other cryptocurrencies (Robinhood Crypto is available in most, but not all, US states). Tradestation, eToro, and Sofi Active Investing also offer cryptocurrency trading in most US states.


Bitcoin ATM. There are over 7,000 bitcoin ATMs in the United States (search Coin ATM Radar to find one near you).


Peer shopping. In its core spirit, you can buy bitcoin directly from other bitcoin owners via peer-to-peer tools like Biscay, BitQuick, and localbitcoins.com.


bitcoin mining. You can earn bitcoins through mining, but the technical experience and required computer costs make this option out of reach for most.


Should you buy bitcoin?

Bitcoin is an incredibly speculative and volatile buy. It is worth remembering that stock trading can give you a similar thrill - and collecting shares of established companies is usually less risky than investing in bitcoin. (A good rule of thumb is to dedicate less than 10% of your total portfolio to single stocks or speculative activities like BTC).

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