It's likely not the first time you've heard the word Bitcoin; it's been abuzz for many years now, especially in the investment and stock exchange world. But, perhaps you're finally looking to find out what it's all about because you've heard just how much money you can make from trading Bitcoin. So, if you're here wondering, "what is Bitcoin?" you're about to find out.
In 2021 alone, Bitcoin price rose to an all-time high of $68,000, making a ton of money for investors and traders of the cryptocurrency.
This article will help you understand what Bitcoin is, how it works, what you can use it for, how to use it, and so much more. It will equip you with the basic knowledge of the cryptocurrency and get you ready for more advanced information such as how to trade Bitcoin or mine it.
What Is Bitcoin?
Bitcoin is a decentralized digital currency that first came to being in 2009. Decentralized means that it functions without the control of any central authority, whether traditional banks or the government. It runs entirely on cryptography and peer-to-peer technology.
For this cryptocurrency (Bitcoin) to function as decentralized, there's a public ledger that keeps track of all Bitcoin transactions all over the world, with copies of the transaction stored on servers in different locations globally. Bitcoin does not take any physical form. It is a completely virtual or digital coin that is not valuable as a commodity. It is like cash but only available online, and you can use it to perform various transactions in several countries around the world. Many organizations and individuals now accept Bitcoin as payment for services or goods.
To verify all Bitcoin trading transactions, a huge amount of computing power is needed to perform the process called 'mining.' We will discuss what this is later in this article.
Bitcoin is called a cryptocurrency because it requires cryptography to help it remain secure. It has become so widely adopted because it provides a cheaper alternative to other regular digital payment transactions. This is due to the fact that it requires lesser transaction fees.
Bitcoin is also known as BTC, the generally known abbreviation for the cryptocurrency token.
Advantages of Bitcoin
Compared to Fiat currency, how advantageous is it to own and use Bitcoin? Is it even worth it? Find out below.
1. No Banking Fees
Since Bitcoin is a decentralized currency, you will not be charged any banking fees for making a transaction. You can pay with Bitcoin on any platform without incurring bank charges. With this development, you don't have to worry about any minimum balance fees, overdraft charges, return deposits, and other bank maintenance fees.
2. Reduced transaction fees for international payments with Bitcoin
When you use fiat currency to pay for things outside your country of residence, it usually incurs expensive transaction fees, whether to make foreign purchases or even do a wire transfer. This is usually due to the currency exchange costs.
However, with Bitcoin, it's different. Bitcoin transactions do not involve any government or banking authorities that serve as financial intermediaries. This removes the costs of charges usually involved in foreign payments, making Bitcoin transaction fees much lower.
If you're an avid traveler or frequently purchase items from outside your country, using Bitcoin helps you eliminate the extra money you spend on international payment charges.
3. Faster transactions
Bitcoin transfers are quite fast since there is no intermediary authority looking to authorize your transaction. All Bitcoin transactions are public and transparent on digital ledgers around the world. This decentralization makes it easy to move the digital currency around quickly, scrapping the inconvenience you would typically face with fiat currency.
4. Secure and easily accessible digitally
Bitcoin is quite secure and safe. Firstly, the currency only exists digitally, so it's impossible for anyone to physically steal huge sums of Bitcoin from you as they would with cash. Secondly, you can transact with Bitcoin without needing personal information.
Unlike other types of digital transactions, such as with credit or debit cards, where you need the personal details of the receiving account to complete a transaction, with Bitcoin, you only need the receiver's wallet address.
Bitcoins are quite difficult to steal because they are protected with advanced encryption for safety purposes. Bitcoin is also quite easy to access digitally; it is mobile. This means that you can purchase Bitcoins anywhere you are as long as you have an internet connection and a mobile device.
You don't have to visit any bank to be able to use Bitcoin to make a transaction.
Does Bitcoin have some disadvantages too? Yes, there are a few disadvantages that may discourage people from using Bitcoin.
1. It takes a while to understand
Bitcoin is an emerging concept that is not easily understood by many people. Unlike fiat currency like Dollars or Euros, which have been around for quite some time, Bitcoin needs some time and effort before many people really understand what it's about. This makes people wary of using or investing in it since they're uncertain about its risk potential.
2. Bitcoin is not widely accepted
While a good number of countries allow free trading with Bitcoin, it is still banned in some countries. This limits people who own Bitcoin to trade freely in such countries or risk some penalties.
3. Bitcoin wallets may be lost
Bitcoin is stored digitally, and digital devices are often known to crash or become corrupted. Usually, when this happens, it might mean a loss for the wallet owner if there is no way to recover the drive or corrupted data.
4. Bitcoin is not government regulated
This is both an advantage and a disadvantage for BItcoin. While decentralized Bitcoin might be a good idea, without government regulation, it doesn't come with any legal protection making it prone to fraud. It also means there's no minimum valuation. In other words, its value can depreciate rapidly if massive investors choose not to use Bitcoin anymore.
How Bitcoin was created
Still asking "what exactly is Bitcoin?" well, here's its creation story:
Bitcoin was created in January 2009 by a mysterious, unknown individual or group known as Satoshi Nakamoto. In 2008, an academic paper titled Bitcoin: A Peer-to-Peer Electronic Cash System was uploaded to the .org domain site. The author was Nakamoto.
By 2009, the software Nakamoto described in the paper was fully developed and launched on the Bitcoin network. Until 2010, Nakamoto continued work on the development of Bitcoin and then stopped. Bitcoin was created as an open-source technology, which allows anyone to view its code for free and continue to improve it.
Till today, the identity of Satoshi Nakamoto remains unknown or unrevealed, and they (the individual or group) are yet to make any public statement.
How Bitcoin works
With all the good qualities that Bitcoin offers, how is it that some countries have banned their citizens from trading cryptocurrency? What is Bitcoin, and how does it work? Is it even legal?
Bitcoin's blockchain is the most important element that makes it work. A blockchain is, figuratively speaking, a collection of blocks, and each block represents a collection of transactions. These blocks store a record of every transaction that was conducted on its network.
Anyone whose computer is running on the blockchain also has access to see these transactions openly and transparently. Thus, nobody can defraud the system.
To access Bitcoin, you also need to have a digital wallet and a cryptographic key. There are two types of keys in Bitcoin: private and public keys.
Public keys are used to addresses on blockchains, just like with usernames. A private key is what you use to access your own Bitcoin, like a password, and it should be kept as safe as possible.
Your Bitcoin wallet is a digital wallet that you can use to send and receive Bitcoins. It is also used to store your private key.
Find the Best Crypto Exchange for You
How to Get Bitcoin
There are two main ways to get Bitcoin: mining and buying. Let's see how this works below:
Like we mentioned earlier, the process of mining Bitcoin is extremely energy-consuming. You can mine Bitcoin to create new units of the digital currency. To maintain the public record of Bitcoin transactions, more information about Bitcoin transactions needs to be added to the blockchain network.
To do this, Bitcoin miners need to accurately compute the different random numbers that solve a complex equation that the blockchain system has generated. If a Bitcoin miner is able to carry out this process accurately, he's awarded a certain amount of Bitcoin.
There's a catch, however, miners have to be the first to solve the equation accurately, or they don't get any reward. Again, this process requires fast processing to quickly get to the equation's answer. Only expensive and complex mining rigs can help miners quickly make accurate guesses. Still, you can also mine bitcoin for free with your current computer using mining pools; just be aware that your results will not be as good.
The higher computation power you have, the easier it becomes to mine Bitcoin. An accurately solved equation means a new transaction gets added to the public ledger.
You can also get Bitcoin by buying from crypto exchanges. There are three main steps to buy Bitcoin:
1. Select a crypto trading platform
There are many popular trading platforms where you can easily purchase Bitcoins. Crypto exchange platforms are some of the most convenient ways to purchase Bitcoins. Once you choose your preferred service, sign up by following the prompts. Here, you can buy, sell, and keep your Bitcoins. If you don't know which platform to use, go to our comparison page to find the best crypto exchange for you.
2. Link your platform to a payment service
To buy Bitcoin, you would need to link your crypto exchange service to a payment option that you can use to buy Bitcoin. Bear in mind that you may need some personal documents depending on the country you live in to set up the platform to verify your identity. Next, you will connect to a payment option.
3. Make your order
Crypto exchanges have different types of orders you can choose from to buy or invest in crypto. You can also set up recurring transactions or investments on some crypto exchange platforms. Choose what you prefer and follow the prompts to make a purchase.
How to store Bitcoin
Bitcoin wallets make good storage for your Bitcoin. Keeping your Bitcoin in your Bitcoin wallet keeps it more secure and gives only you control over your Bitcoin assets with your private key. Most crypto exchange platforms provide wallets for users, but if you're storing a large sum of Bitcoin, keeping your coins there may not be a good idea.
You can choose to go for a hot wallet or a cold wallet instead. Hot wallets are linked to the internet, while cold wallets are offline wallets that keep your private keys somewhere unconnected to the internet.
How to use Bitcoin
What is Bitcoin used for?
You can use Bitcoin for various online transactions, as long as the recipient accepts Bitcoin transactions on their platform or their country. Simply look out for the Bitcoin or cryptocurrency option when you want to make a payment, and then choose your preferred crypto (Bitcoin or BTC.)
If you have a Bitcoin debit card, you can use it to pay for goods and services in stores that allow such a method of payment.
You can even use it to withdraw cash from an ATM; your Bitcoin is converted automatically to the fiat currency used in the locale. If you would rather not spend your Bitcoin directly, you can use it to buy gift cards that you can use somewhere else.
Start Investing in Bitcoin Today
Bitcoin is fast becoming a generally accepted form of transaction around the world. It's also well established in the investment world, with more people joining the Bitcoin wagon every day. You can test the waters by investing in Bitcoin today. It will help you understand how cryptocurrency works, both on the market and as an investment. To find the best crypto exchange platform to start trading with, you can try our crypto comparison page to find the best one for you.
What is a Bitcoin?
Bitcoin is a completely digital decentralized cryptocurrency created by Satoshi Nakamoto in 2009. It is one of the many digital currencies existing today, but it was the first-ever created. Bitcoins are excellent for safely carrying out online transactions without regulations from the government or traditional bank authorities.
What is BTC?
BTC is an abbreviation for Bitcoin. It can be used alternatively instead of 'Bitcoin', as it has become generally accepted in the crypto world. It is also the symbol used to identify the virtual tokens or coins you use to trade online or purchase things.