Bitcoin is a digital currency, it is also a type of cryptocurrency. To understand what it is, we have to come back to October 31, 2008. Indeed on that date, an unknown person or group by the name of Satoshi Nakamoto published a 9-page White Paper. Commonly noted BTC, it began to be used in 2009. How it started is still a mystery because who started it and how it started is still unexplained.
Bitcoin is a form of online and computerized payment that offers lower transaction fees compared to other forms of payment like direct bank wire, card and cash payment. It allows for transaction of large amounts of money that is condensed when used in form of Bitcoin.
There is no central authority operating this cryptocurrency. It is not a legal tender but all transactions in Bitcoin are verified by a computer system. Like forex, no bank backs Bitcoin, neither are governments nor individuals. No one has control over his value but it’s all in its buying and selling.
The Bitcoin algorithm predicts that they will all be mined in 2040 to reach 21 million Bitoin. In 2021, nearly 19 million BTC have already been mined.
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What is Bitcoin: The Blockchain
It uses a decentralized ledger system called a blockchain. This is how it is created, exchanged and distributed. The Bitcoin network is based on the blockchain. Blockchain is a shared public network. Any transaction has to be confirmed and included in the blockchain to ensure that the spendable balance is calculated before verifying new transactions. This system is a collection of computers also referred to as “nodes” or “miners“.
The Bitcoin blockchain system is secure, therefore no one can cheat the system as all transactions are transparent on all computers running the blockchain, meaning that every transaction can be seen by anyone, even by those who are not in the blockchain.
The Bitcoin transaction is essentially the transfer of value from one Bitcoin wallet to another. It uses what is called a Peer-To-Peer exchange. It is an exchange or sharing of information, data or assets between the parties without the involvement of a central authority. Bitcoin transactions are digitally signed with cryptography, and as mentioned earlier, all of these messages go through a verification process and can be seen across the entire blockchain. The transaction uses a private key that signs transactions and prevents transactions from being changed.
What is Bitcoin: Storage
Bitcoin is stored in tokens, and unlike private keys which are intended for signatures, it uses public keys equivalent to the traditional bank account number. This is where we can make transactions. The private key is secret and can only be used to authorize the transmission of BTC. All of this should not be confused with the Bitcoin wallet. This is a software in which BTC are stored. But storage may not be very applicable because wallets make it easy to send and receive BTC.
Since Bitcoin is decentralized, participants or minors are solely responsible for processing transactions on the blockchain. The miners in return get rewards by paying transaction fees paid in the form of BTC. This makes miners the decentralized authority that guarantees the credibility of the Bitcoin network.
What is Bitcoin: Transactions are irreversible
It should be noted that Bitcoin transactions are irreversible. Once the order has been issued and entered the system, there is no going back. Therefore, anyone using a Bitcoin wallet is advised to make payments to someone they know and trust the person or organization they are sending BTC to. The BTC can only be refunded by the recipient, which is why it is very important to know who is receiving it. Unconfirmed transactions are not secure. A confirmation score is assigned based on the fees they attract. If a transaction incurs minimal fees, confirmation may take longer.
What is Bitcoin: Security
Security is paramount for everything, especially when assets are involved, and Bitcoin can be said to have mastered this art. It offers great security, but it all depends on how a person uses it. If used correctly it may be the best, but if someone isn’t concerned with procedures for high security, they end up being vulnerable to attack.
One of the best ways to secure a Bitcoin wallet is to be careful with online services, as exchanging wallets can lead to a breach. For better security, use two-factor authentication. Anyone with a Bitcoin wallet should have a backup, this avoids losing their wallet when their mobile or computer is stolen. Encrypting your wallet is important. This will require anyone trying to withdraw funds to have a password.
Volatility is the fact that the price of Bitcoin changes quickly and unpredictably. Its price can change either increasing or decreasing and over a short period. This volatility comes in particular from the fact that Bitcoin is relatively recent. In 2011, the price of Bitcoin went from $ 1 to $ 32 in 3 months. Bitcoin also skyrocketed its price in 2020 when it hit $ 28,000 and then hit $ 57,000 in early 2021. Bitcoin is still viewed as a high risk asset and investing what you cannot afford to lose is not recommended.
Make money with Bitcoin
Can People Make Money Trading Bitcoin? Yes. Anyone can make money by trading BTC. Mining is an obvious way to make a profit. This is a process in which one completes “blocks” of verified transactions that are added to the blockchain and in doing so are rewarded with Bitcoin. Mining is an expensive and time-consuming process. The miners have devised a strategy in which they combine their forces in mining and share what they get from the mining process.
You can also make money with Bitcoin by buying and holding it in the hope that its value increases and that you sell it for a higher price. The term used for this is HODL which started off as a typo (instead of HOLD). It ended up being a full time trading strategy which means Hold On for Dear Life.
Like any currency tradable on the forex, Bitcoin can also save money when traded. Buy low, sell high or vice versa. This is not an easy process as it takes time and practice before you can fully start making a profit. Some of the strategies that can be used to trade Bitcoin are the breakout strategy, news tracking with fundamental analysis, and the use of technical analysis.
When you run a business, you can choose to have a BTC wallet and receive payment through it. With it you get Bitcoins at current value and increase your international reach, it is a very secure payment method. If someone is lucky enough, they can withdraw the funds later when their value is greater than what they received.
We hope you can now see more clearly about Bitcoin. Do not hesitate to reread this complex article.
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To learn more about the main cryptocurrencies, you can read our other articles:
This article is not investment advice. Do your own research before investing in the cryptocurrency market.