If you are into banking, investments, or cryptocurrency, you may have heard the term “Bitcoin.” And if it ever clicked your mind to get started using Bitcoin, then having appropriate knowledge about it is a must. Bitcoin is a great alternative for making transactions. So, you have to be careful with Bitcoin the same way you do with traditional wallets, which is why we say you should get informed enough to start using it. Let us carefully dig into the details.
What is Bitcoin?
Bitcoin is a part of the cryptocurrency market. So, before defining Bitcoin, you need to know what a cryptocurrency is. Just like the different currencies work in the real world, cryptocurrencies are designed for the digital world.
Out of so many cryptocurrency types, Bitcoin is one of the largest and the most commonly discussed internationally. It is one of the currencies of the virtual market used to make purchases for goods and services or trading. Everything related to Bitcoin stays online, and there is nothing like physical coins or bills associated.
Where did it come from?
No one knows exactly who and how many people were involved in the invention of Bitcoin. The creator is given the pseudonym Satoshi Nakamoto and is unidentified to date. The Bitcoin concept was first published in 2008. The paper was ‘Bitcoin: A Peer-to-Peer Electronic Cash System’. It contained the explanation of Bitcoin, and within a year, people started mining and trading it. However, according to the sources, Nakamoto left the Bitcoin project in 2010, and it continued with new developers later.
How To Get Started
Before going through how Bitcoin works, understand some basics so that you don’t get confused later:
- Bitcoin is a decentralized currency, which means no government or central banks have control over its supply.
- There is nothing physical in the Bitcoin network, be it money or bills. Each process gets completed online, and the history is stored and tracked through Blockchain(will be discussed later).
- The transaction of Bitcoin does not involve any intermediary. It is just you deal with hard cash where all the pieces of information and agreements are between the buyer and the seller.
- Bitcoin is pseudo-anonymous, as your Bitcoin contents are connected to a wallet ID and not to your details. The owner can’t be completely anonymous due to hackers and agencies continuously attempting to track the transactions.
You don’t need to be very technical to set up your Bitcoin wallet. The first step is to install Bitcoin on your smartphone or computer and get your wallet ID. After the installation process, an address that will be used for the transaction will get generated. It works like UPI addresses, which you use to make payments and get paid. But, there is a difference that an address is not reusable here. A Bitcoin address, after generation, gets used only once and there is a different address for every transaction.
Like you use your physical wallets and purse to keep real money and spend it on buying goods and services, you can do the same with Bitcoin wallets. Here, the buyers and vendors confirm the exchange of coins through a private key. It’s similar to the OTP you use for making your banking transactions. One thing to note here is that we are using real-life examples only to make it easy to understand, and this doesn’t imply in any way that this digital asset is entirely similar to real-world transactions.
Now, where are these transactions recorded? The answer is Blockchain, a shared public ledger behind all the Bitcoin transactions. You can call it a record-keeping technology or a database for the Bitcoin network. For every transaction, information is stored in a fresh block, and then it gets chained to the previous blocks making a chronological order. It makes it possible to prevent fraud by tracing the history and allows spending what is spendable. There are no chances that a person can make fake or copies of transactions. The method called Cryptography is used to secure the information stored in Blockchains.
How can you get Bitcoins?
There are mainly three possible ways to earn Bitcoins if you ignore the hacking part:
- Buy it using real money.
Yes, you can purchase this digital money using the real one. It can involve hard cash, credit cards, debit cards, and other transfers. If we talk about the current worth in Dollars, 1 Bitcoin is equal to 33,500 USD. This value keeps changing constantly, so what will cost you for a single Bitcoin depends on the time you are buying it.
- Sell things in exchange for Bitcoins.
This method is simple to understand. If you have a business and you can sell products and services, connect with someone who owns Bitcoins. Now, sell your things and get paid with Bitcoin.
- Create or Mine it.
The last and the most difficult way is mining. A specialized or powerful computer is what a miner requires. But, that doesn’t end here. You have to solve some really difficult Math problems or say puzzles to make a certain number of Bitcoins. And as we say, these problems are some really difficult ones, so in most cases, a person can’t solve it all alone. Many times, a group of miners collectively try to solve it and distribute the earnings at the end. Digging Bitcoins this way doesn’t guarantee to make you rich and you might get a very little amount in return, though you have to spend much on required software.
There are many facts associated with Bitcoin that you might not be aware of. So, let us tell you about some of those.
- Every currency has its smallest unit and for Bitcoin, it is called Satoshi. The purpose of this name is to show respect to the creator. The value of a single Satoshi is around 0.00005 U.S. dollars, so to make it 1 Bitcoin, you need around 100 million Satoshis.
- There can’t be an unlimited number of Bitcoins in the market. There can exist not more than 21 Million circulating in the market.
- Your Bitcoin address or the primary key is the unique identification of what you own. Losing it can result in losing everything you have owned till now and there is no other way to access the wallet.
- A question often asked is how much you could have earned if invested some amount in Bitcoin. The answer will certainly make your jaw drop. If you would have invested $100 in Bitcoin in the year 2009, you would have been the owner of around $9.2 Million today.
How to invest in Bitcoin?
If you want to try your luck and make something big in the crypto market, then learn how to invest in Bitcoins. There’s no doubt about its growing popularity but Bitcoin Investments are honestly challenging to master. The basic idea is the same as investing in stocks, but Bitcoin is more volatile as its value keeps fluctuating over a short period.
So the process is similar which is:
- Open an account at any platform where you can invest in crypto.
- Use your funds from the bank and deposit them in the brokerage account.
- Buy BTC(symbol for Bitcoin used in trading firms) using your funds.
- Lastly, you can sell it earning a profit or invoking a loss. Your earnings are returned as the cash balance in your account.
The methods of investing might vary with countries as per the laws and regulations. Some of the internationally popular platforms are:
Each firm differs in some processes, like the information you provide for account creation or the method of depositing funds. However, the basic purpose and ways are the same.
What are the risks involved?
Every investment comes with risks, and the same is the case of BTC. Some of them are:
- Change in price
As said earlier, Bitcoin worth can unpredictably change in a fraction of seconds. It can go unimaginably high and can even drop to zero. So, you can never estimate the profit or loss you are going to deal with.
- Risks associated with failed or wrong transactions
Bitcoin transactions are not reversible. So, if you make a transaction to a fraud organization or at a wrong address, it can not be undone. The reason is the lack of an intermediary. The only way to get it back is from the recipient who received the funds. So, try to deal with those who you can rely on for any failure.
For a digitally popular thing, the presence of attackers is obvious. So, if in any case, someone gets access to the private key for a transaction, they eventually have access to your entire wallet contents.
- Negligence issues
For such a crucial thing, hardly any person will risk it with ignorance and carelessness. However, if you lose your secret key due to any reason, then as a consequence, you may lose access to your Bitcoin wallet.
Other cryptos out there
Many currencies are available in the real world market, for instance, Dollars, Pounds, and Euro. In the same way, there are many virtual currencies other than Bitcoin in the digital market.
After Bitcoin, the most popular cryptocurrency we can name is Ethereum(ETH). The purpose and methods may be slightly different, but it comes under the major players of the crypto market. Some others ahead in the list are Litecoin(LTC), Bitcoin Cash(BCH), and Ripple(XRP).
Bitcoin, being very volatile and constantly going extremely up and down in values, has attracted many professionals and economic analysts. As a result of its rocking worth in years like 2017 and 2020, predictions have been made regarding the future of Bitcoin.
The year 2020 has witnessed the rise in the crypto market, and it can be credited to the coming of Covid-19. According to Adam Grunwerg, Covid has completely changed the pattern of crypto investment.
According to Ali Mizani, founder of FiCAS AG, a company dealing with the crypto asset, Bitcoin’s worth can reach around $200k to $300k by the end of 2021 to around March 2022.
A very few people attempt to mining Bitcoin on their own, and mostly every interested individual depends on the supply. The demand doesn’t seem to go low, so the prices are very likely to keep rising.
However, the supply problem is still there due to a very few people involved in Bitcoin creation. So, there are high chances of rising competition from other cryptocurrencies out there like Etherium. The rise in cryptocurrency has also challenged conventional currencies, and the trend shows we are getting very close to the era of digital currency.