Bitcoin is currently the hottest topic in the world of amateur and professional investing.
Its rapid rise in value over recent years, coupled with its sharp decline, has made hundreds of early investors extremely wealthy.
At the time of writing, Bitcoin's capitalization is about $154 billion, and there are slightly more than 18 million coins in circulation.
General information about Bitcoin
Bitcoin is a virtual currency launched in 2009 by an anonymous person under the pseudonym Satoshi Nakamoto. This coin was the first type of asset called cryptocurrency, a decentralized form of digital cash that eliminates the need for financial intermediaries (banks and other financial institutions) to complete financial transactions.
Bitcoin was created in order to change the structure of the global financial system and take the place of the dominant currency in the world. This cryptocurrency is not backed by physical items such as gold or silver. And also Bitcoin is not printed or released physically, it is created using computer code by solving complex mathematical problems and equations. These equations are solved using “mining”. Previously, when the complexity of the network was low, it was possible to “mine” Bitcoin even on a weak computer, but now this requires special computers called “miners.”
How does Bitcoin work and what is “mining”?
Bitcoin is open source software running on blockchain technology. Each transaction is a “block”, or more simply, a record of data about this transaction.
As mentioned above, in order to create new coins, a procedure called “mining” must be performed. Bitcoin mining operates on a Proof of Work (PoW) system. Therefore, the transfer of funds between wallets is carried out using “miners”. Peer-to-peer network participants confirm transactions using high-speed computers and are rewarded in BTC for this.
The complexity of the network is constantly growing and, along with it, the amount of energy consumed by “miners” is also growing, and the reward for a block, on the contrary, is halved every 4 years. Currently the reward is 12.5 BTC. Therefore, more and more power is needed to mine Bitcoins. But Bitcoin is not infinite, and the limit set by the developers is 21 million coins.According to Dutch bank ING, Bitcoin transactions currently consume so much energy that the electricity used for one transaction could be used by an entire house for a full month.
Most of the mining takes place in China, where electricity costs are comparatively cheaper than in countries such as the UK or US.
Where to buy Bitcoin?
The easiest way to purchase Bitcoin and many other cryptocurrencies is through cryptocurrency exchanges .
Our cryptocurrency exchange reviews also have detailed information on how to do this.
Where can you store Bitcoin?
You can store Bitcoin both in exchange wallets and in your own. There are many Bitcoin wallets, but the coins are not stored in the wallet, they are on the blockchain, and the wallet is simply an interface for managing your funds.
The private key is used in crypto wallets to allow interaction with the blockchain and cryptocurrency. When you transfer coins, they still remain on the blockchain, but you can manage them through the user-friendly wallet interface.
You get full access to the funds by having the “SEED” phrase and private key. And using the public key, a Bitcoin address is generated, which you use to receive Bitcoin from other users.
How do Bitcoin transactions work?
In simple terms, there are three parameters:
- Input - a record of which address the BTC came from.
- Amount—the amount of BTC.
- Output - Bitcoin address to which BTC was received.
How is Bitcoin sent?
To transfer between wallets you need two things:
- Bitcoin address.
- The secret key.
If you imagine sending Bitcoin in physical form, then these are coins that lie in a glass safe and everyone can see their quantity, but only the one who has this key can get it.
How long does it take to send Bitcoins?
Transactions are confirmed by “miners” who, in addition to everything else, are busy mining new coins. Bitcoin has such an algorithm that it takes approximately 10 minutes to mine each block. But the translation may take a little longer.
Are there any fees for sending Bitcoins?
The commission is not always present. It is calculated taking into account various factors. Some wallets allow you to manually set the reward amount. Any part of the transaction that the recipient does not take, or that is returned as change, is considered reward. It goes to the miner who is lucky enough to solve the transaction block as an additional reward.
Is it possible to send part of Bitcoin?
Bitcoin can be divided down to hundred-millionth parts, called Satoshi. Therefore, you can send any part of Bitcoin, for example - 0.00000566 BTC.
Pros and cons of Bitcoin cryptocurrency
What are the advantages of Bitcoin?
Bitcoin was launched a year after the 2008 financial crisis and has attracted many people who believe the current financial system is unsustainable. This factor has won the loyalty of those who distrust politicians and government. It is not surprising that a huge community of ideologues is actively investing and working in the world of cryptocurrencies.
- Freedom. The idea that you can use Bitcoin to move millions or billions of dollars across borders, pay for anything at any time, and not have to wait through long bank delays.
- Safety. Payments in Bitcoin do not have to be tied to personal information. Because personal information is excluded from transactions, users are not exposed to threats such as identity theft. Bitcoin can also be backed up and encrypted to keep your money safe.
- Low commissions. Banks and companies like PayPal charge fees for sending and receiving money. The commission can be from 2% and higher. When sending Bitcoin your commission will be around 0.1% or even less.
- Decentralization. Bitcoin's public ledger is objective and no one can change it. This is based on pure mathematics and not on human error and corruption by unsavory characters.
What are the disadvantages of Bitcoin?
Despite all its advantages, Bitcoin is still not perfect.
Perhaps one of the main reasons why everyone hasn't jumped on this train is that its price is often uncertain.
- Legal gray area. Major governments have largely remained on the sidelines, and this has created both a sense of potential and fear for Bitcoin supporters and critics, respectively. Bitcoin is not backed by a regulatory body, and the government would technically be ceding power by supporting a decentralized currency. The following fact is not officially recognized, but the price of Bitcoin is usually very sensitive to any news regarding the US government's opinion on cryptocurrencies. For example, when the SEC refused to approve Bitcoin-based exchange products. However, while government actions will influence the price and acceptance of Bitcoin, governments cannot criminalize it. In fact, the United States, China and some other countries have invested considerable amounts of money in it.
- Weak liquidity. This is mostly a controversial issue, but it is still important. It is unlikely that the price of Bitcoin will drop sharply and you will not be able to take action. However, as more investors invest, low liquidity becomes a minor risk since Bitcoin buyers will always be waiting.
- Volatility. This is why many speculators are attracted to Bitcoin, and why many potential users are hesitant to invest in it. Users who view Bitcoin as a speculative investment option are essentially gambling, and the future price of Bitcoin is largely unknown. There are estimates that it will be worth pennies in a few years, while some predict that 1 BTC will be worth a million dollars in 3-5 years.
- Lack of mass adoption by business. Price volatility is the main reason why many companies have yet to accept Bitcoin as a form of payment.
- Small percentage of users. Another disadvantage is that although many people have heard of Bitcoin, few people understand what it is and what it is for.
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Conclusion
More and more people and companies around the world are starting to accept cryptocurrencies and Bitcoin, and now you can purchase goods or services with them. But there are still very few people actively using cryptocurrencies and even fewer people know anything about it. But sooner or later, mass crypto adoption will happen and if you own any cryptocurrency, do not rush to sell it. Perhaps one day it will make you fabulously rich.
See also:
How to trade cryptocurrencies on binary options
Do whales control Bitcoin prices?
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