Bitcoin was created in 2009 by an anonymous individual or group of software developers called Satoshi Nakamoto and led to the creation of other cryptocurrencies and exchanges. There were several previous attempts to create a viable and accepted virtual coin before Bitcoin was developed, such as David Chaum’s eCash in 1990 and the subsequent B-money, Hashcash and Bit Gold.
Bitcoin (BTC) resulted from the desire to have a decentralised, secure, encrypted and transferable virtual currency. Policy tools, economic growth measurements, and inflation rates don’t apply to BTC, because it is not issued by a central bank, nor is it backed by a government.
Nowadays, people invest in Bitcoin because it’s a system of trade that corresponds to how humans have exchanged value for most of history. Before digital payments, gold and cryptocurrencies, there was a barter system in which people exchanged services, fur, seashells and animal skins.
Thinking about how the monetary system evolved would give anyone goosebumps. And there are intriguing facts about Bitcoin as well. Keep reading to dive into one of the hottest topics in finance these days.
How does Bitcoin work?
An excellent start to understanding Bitcoin is to clear up the mystery surrounding it. It’s helpful to know that a block is made up of complex hash, and there are four native and basic components to Bitcoin.
- Software. Bitcoin is open-source software and a wallet program.
- Hardware. Bitcoin needs hardware composed of thousands of miners that run their computers to solve cryptography and be rewarded virtual coins.
- Cryptography. Like any other cryptocurrency, Bitcoin is encrypted through the computational and mathematical practice of encoding and decoding data to maintain security and fidelity.
- Miners. Bitcoin is a game run by its users which issues a cryptography challenge every 10 minutes and requires miners to do the hashes and validations to add a new block to the blockchain.
People invest in Bitcoin to hold or trade it and generate profits, but there are other ways to benefit from this digital coin, too. You can mine it, take it as a payment or lend it. However, mining requires modern hardware, and if you try to do it with your smartphone or home computer, you’ll ruin your device and end up with a hefty electric bill.
What to know before investing in BTC?
Investing in BTC for the first time can sound like a confusing process if you’re new to the world of crypto. If you are wondering how to buy Bitcoin easily and safely, find out there are specific steps you need to take. Bitcoin is highly volatile, so an investment strategy is crucial before purchasing it or any other cryptocurrency. Before you create an account on an exchange and place your Bitcoin order, you must walk through the following steps, understand how the crypto market works and analyse the level of risk you’re comfortable with.
Besides deciding on a virtual coin to invest in, you must choose a crypto exchange. The platform you use to buy and trade Bitcoin on must check these subsequent factors:
- Trading volume
- Insurance fund
After you ensure the platform you want to use checks the safety requirements, you create an account. This step requires you to provide the exchange with your full, legal name, email address, date of birth and the like information. It’s essential to make cash exchange comparisons to ensure you choose the best platform and consider how you’ll store your BTC.
The hot spending wallet keeps hold of small to medium amounts of BTC for spending and walking-around money and is usually stored digitally on a mobile device. Contrarily, the cold spending wallet stores your BTC offline and is used to refill your hot wallet occasionally. The four secure wallets that keep hold of your digital coins are:
- Digital wallets. They’re accessible from anywhere and are a good choice for travelling or spending money.
- Offline wallets. They are “cold storage” methods inaccessible to the internet and take the form of paper, hardware or coin.
- Paper wallets. They require more knowledge of virtual currencies than any other option.
- Physical coins. They have tamper-proof stickers that cover a fixed amount of Bitcoin.
Why would you buy Bitcoin?
Bitcoin is an alternative to central bank-controlled fiat money. Therefore, you can use it like your physical cash while avoiding your government or central bank’s involvement. Through Bitcoin’s decentralisation, you enjoy the following aspects:
- Independent control and decision-making. A system without corruptible authorities can maintain better independence and protection.
- Better data reliability. There’s no room for fraud, decay and corruption in the BTC world.
- Fewer vulnerabilities. It’s impossible to crack this system because it would require billions and very smart and skilled attackers to hack the Bitcoin network, and even if they compromise a node within this blockchain, they still won’t jeopardise the whole system.
You can buy, sell and exchange your Bitcoin like any other asset. BTC transactions can be carried out on cryptocurrency exchanges online, in person or over communication platforms, and allows even small businesses to accept this virtual coin. For example, BTC can be used to pay for goods and services at sellers and retailers, and usually, the brick-and-mortar stores that accept it display the message “Bitcoin Accepted Here”.
Why do investors buy BTC?
According to Fidelity’s September 2022 figures, allocating 5% to Bitcoin in a diversified portfolio of stocks and bonds can improve the performance of your investment from 1.03 to 1.43. Therefore, it’s clear why investors want to own a mix of equities, bonds and virtual coins. They ensure they’re protected against market fluctuations and economic measures while generating passive income.
Some entrepreneurs and certified cryptocurrency experts debate if crypto is the future of money since virtual coins are popular and highly traded additions to the current payment system. However, because Bitcoin is the most popular and traded cryptocurrency, you should stay informed about its fluctuations and keep up to date with the latest news on crypto to understand how this trend is going.
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