In 2008, a mysterious computer programmer, Satoshi Nakamoto, released a nine-page white paper on a new decentralized digital currency, Bitcoin (BTC). The paper led to the rise of cryptocurrencies and innovative blockchain technology.
Simply put, Bitcoin is digital money that facilitates peer-to-peer (p2p) transactions on the internet. It has all the recognizable features of money - a store of value, means of exchange, and a unit of account. However, Bitcoin (BTC) only exists in digital formats, with no fiat versions.
Bitcoin officially launched in 2009, and 14 years later, it is the first successful decentralized cryptocurrency and payment system globally. Since its inception, Bitcoin prices have climbed from a couple of cents to thousands of dollars.
The first distinguishable feature of Bitcoin (BTC) is that it is a decentralized cryptocurrency that bypasses third-party involvement. So, unlike traditional payment systems and government-issued currencies that rely on traditional financial systems, Bitcoin allows all its users to send money to each other without the involvement of the government, banks, or other financial institutions.
All Bitcoin transactions are stashed away on the blockchain, similar to the traditional bank ledger, which logs the inflow and outflow of cash through a customer’s account. But, unlike a bank’s ledger, the blockchain is typically distributed across a network that anyone can join.
That way, no one country, company, or third party may be in control of the system. For further accountability, Satoshi created only 21 million bitcoins, so there’s really no way to inflate or manipulate the system.
New bitcoins are created through a digital process called bitcoin mining. Bitcoin mining is also a way for the network to confirm new transactions and is an important part of the blockchain’s development and ledger maintenance.
The bitcoin mining process involves using sophisticated hardware to solve complex math problems. The first user to solve the problem gets the next batch of bitcoins, and the process restarts. Mining cryptocurrencies is costly, painstaking, and occasionally rewarding. However, BTC mining appeals to investors because miners receive rewards for their efforts. For example, mining software identifies transaction broadcasts from peer-to-peer networks and performs the right tasks to confirm those transactions.
The bitcoin miners then earn transaction fees from users who want faster processing. To be confirmed, new transactions must be included in a block alongside a mathematical proof of work. It’s hard to generate proof of work because the only way to generate them is to solve billions of mathematical calculations by the second.
Generally, a blockchain is a distributed database that electronically stores information in digital formats. Bitcoin uses blockchain technology to facilitate transparent, secure, and decentralized transactions.
But what differentiates blockchain from a regular database is that it collects information in blocks that hold different sets of information. These blocks have different storage capacities, and when full, they are closed and linked to already-full blocks, forming a data chain, otherwise called the blockchain.
Any new information is then added to a new block, to be added to the chain of older blocks once full. So, while a database fits data into tables, blockchain structures them into blocks strung together, creating an irreversible data timeline.
While blockchain facilitates the recording and distribution of digital information, it cannot be edited. Thus, blockchain technology makes it difficult or impossible to change, manipulate or hack the system.
Every transaction is authorized by the facilitator's digital signature, safeguarding it from tampering and securing the information on the digital ledger.
Most people use Bitcoin as an alternative investment option to diversify their investment portfolio. Some others use Bitcoin to make purchases and pay for services. Let’s now consider these popular means of using Bitcoin below:
Bitcoin stands tall as one of the world’s most popular cryptos, and with more people investing in digital currencies, it is widely becoming an acceptable payment method. Many big companies like PayPal, Microsoft, Whole Foods, and even local retailers accept Bitcoin. Some services allow users to connect their debit card(s) to their crypto account(s), allowing them to use Bitcoin in the same way they would use a credit card.
Some countries like El Salvador even adopt the use of cryptos for trading over their own currency.
Generally, Bitcoin allows individuals to store value without relying on government-backed currencies. The global economic crunch that came with the COVID-19 pandemic demonstrated the ups ad downs of investing.
For example, most of those who held on to their investments over the past couple of years have ridden lows and reaped the benefits of the 2021 market highs. Speculative buying is also a feature of uncertain times like these, and the pandemic may account for the growth of cryptocurrencies and trading platforms.
Bitcoin is a favorable coin for investment and speculation- that is, buying a digital asset with the hope that the asset's value will soar in years to come. The odds of getting a good outcome often depend on buyers' irrational behaviors and predictions of specific outcomes based on past patterns.
Virtual cryptocurrencies like Bitcoin are regarded by many as the future of monetary exchange. But, with many prospective investors rushing in to make a killing, it is important to weigh the risks before committing. Here are a few of the risks associated with bitcoin investments:
Like all other cryptocurrencies, Bitcoin prices are volatile because it is still a nascent asset in the financial market. It is common to see prices take wild swings within minutes, or even days, making bitcoin trading a dangerous venture.
With the bitcoin market constantly rippling back and forth, there’s no guarantee that you will get a return on your investments. One way to avoid a loss is to keep an eye on the market.
Bitcoin is not backed by anything; it’s only as strong as the community backing it, making it a risky asset. No regulatory bodies or governments are helping the cryptocurrency retain its price. As such, Bitcoin has no inherent value, and if the market suddenly decides it’s no longer valuable, many investors will lose.
Cryptocurrencies are technology-based, leaving these investments prone to cyberattacks. What’s worse? There’s no way to retrieve stolen or lost bitcoins, and many investors lose their money via mining and on exchange platforms.
For example, even with a smart wallet, exchange platforms are still susceptible to hacking. Plus, if you forget your key, there’s little chance of recovering your coins.
The Bitcoin market is rife with a fair share of fraud. Sellers and buyers alike are in the market to trade their bitcoins, and with the cryptocurrency’s growing popularity, there’s a high chance of fake exchanges infiltrating the system.
The Securities Exchange Commission even warns against transactions where fraudulent exchanges dupe unsuspecting investors of their bitcoins.
Bitcoin is a good investment for anyone who wants to take a chance on financial technology with a high potential to change the world. Since it is a scarce digital asset with limited supply, Bitcoin is not as inflationary as regular fiat currencies.
It has, over time, proven to be a wise long-term investment that many investors have used to hedge against fiat depreciation due to monetary policy mismanagements. Provided the Bitcoin technology remains valid and the network secure, it will remain a good investment, despite its high volatility.
One of the popular ways of making money through cryptos like Bitcoins is the principle of ‘Buy and HODL.’ This way, interested investors buy coins and hold them until their value rises, after which they sell for a profit.
Bitcoin has maintained regular price fluctuations over time, making it a seemingly safe cryptocurrency to buy and HODL. Another way to make money from Bitcoins is through day trading. In practice, day traders buy and sell assets on the same day to make a quick profit. But it is a risky strategy, as cryptocurrency prices can change at any minute, decreasing or increasing their value. An almost risk-free way to make money through Bitcoin is to stake the cryptocurrency. That is, locking up your Bitcoins in exchange platforms for interest or rewards from the platform. Many exchange platforms run staking protocols with decentralized and centralized options. Alternatively, you can stake your Bitcoins with hardware wallets. By staking a stablecoin like Bitcoin, you reduce the risks associated with cryptocurrency fluctuations.
Like any crypto wallet, a Bitcoin wallet is a digital pouch for storing Bitcoin. However, they do more than hold your precious coins; they secure your cryptocurrency with a unique key that only you or anyone you give the password to can open.
Think of it like an online bank account with a secure password or like a debit card. While your debit card is not money, it grants you access to your money, exactly like the Bitcoin wallet key. Some bitcoin wallets only support basic transactions, while others have extra features like built-in access to dApps.
Bitcoin mining is the process of bringing new coins into existence and maintaining the bitcoin network. Generally, all transactions are broadcasted on the blockchain network, and miners bundle these transactions together by completing certain transactions.
The first miner to solve the equation broadcasts it to the blockchain network, and if the answer is correct, it is then added to the blockchain. Then, the miner gets some newly minted bitcoins as a reward.
However, the bitcoin software has a cap of 21 million coins, meaning there can never be more than that amount of bitcoins in circulation. As such, the bitcoin system reduces the rewards every four years, making it extra difficult to mine bitcoin.
It was easy to mine bitcoin at its inception, even with a basic computer. But now, one needs high-end equipment to crunch through mathematical calculations. Combined with the volatile bitcoin price, it can make bitcoin mining more expensive than its actual worth.
Crypto swapping refers to the exchange of one token or coin for another. Platforms like Swapzone allow you to swap Bitcoin for other cryptos and vice versa. For instance, if you want to swap BTC to ETH, follow these steps:
Like any asset, you can convert your BTC to cash through different cryptocurrency exchange platforms. Most recent p2p Some businesses even accept bitcoins as a means of payment, but there is no official mechanism to convert bitcoin to another currency.
Many elements secure Bitcoins from theft, and the use of a distributed ledger technology or blockchain makes it impossible to tamper with transactions. The blockchain’s transparency makes all transactions public information while keeping the individual(s) anonymous, reducing the chances of a breach.
However, Bitcoin’s strengths have not deterred hackers from attacking vulnerable exchange platforms where users trade cryptocurrencies, make payments or store their Bitcoins.
The first step to buying bitcoins is to choose a crypto trading service. The best places to buy cryptocurrencies like Bitcoin are cryptocurrency exchanges, brokerages, and payment services, and Crypto exchanges are the most convenient option because of their versatile features.
Registering on a crypto exchange platform typically allows you to buy, sell, and hold your coins. After choosing your preferred crypto exchange platform, connect your account to a payment option, like credit or debit cards. Once done, place an order and wait for your coins to hit your wallet.
Bitcoin has faced a downward spiral since hitting an all-time high of over $65,000 in 2021. So, it is an extremely volatile investment.
But, if you’re willing to take the chance, make sure you have an investment strategy and a deep understanding of what you plan to invest in. Above all, ensure that your desire to invest is not based on your fear of missing out.
Learn how to exchange cryptocurrency with the lowest fees or zero fees as well as how to find the best crypto exchange rates and choose the safest cryptocurrency exchange provider.