What is Bitcoin (BTC)? The Basic Essentials Explained

HardStacks / Cryptocurrencies  / What is Bitcoin (BTC)? The Basic Essentials Explained
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With the instability of the economy, investors are constantly on the lookout for profitable options to grow their money without exposing themselves to massive risks of losses.

Some people also prefer potential investment vehicles that do not rely on traditional currencies to put their mind at ease in case of arising political issues or worse yet a government collapse.

This is why there is an increasing curiosity among avid investors with regard to what is Bitcoin and how it works, since it does not rely on any authority for its control.

Here, we explore on the basics of Bitcoin, the benefits of investing in it, and some of the risks involved that may be worth looking into before you jump on the bandwagon and begin collecting this cryptocurrency.

Bitcoin Key Facts

Bitcoin is a type of digital currency, which means there are no coins needed to physically mint nor are there bills required to be printed. No financial institution or government controls this currency as it is entirely decentralized.

Those who own Bitcoin remain anonymous and undisclosed and only encryption keys are utilized when it comes to connecting buyers and sellers of this cryptocurrency.

To acquire Bitcoin, individuals mine it by performing sophisticated record-keeping techniques.

For instance, when you receive a Bitcoin from someone, there is a network that records this transaction, along with the previous and future one, and the details are set in a block.

Miners or computers that make use of special software will then inscribe the transactions in a digital ledger. Collectively, the blocks are referred to as a blockchain, which is a continuous record that can be accessed openly by anyone.

With the help of advanced hardware and software, Bitcoin miners will then create a hash or a sequence of code from the blocks collected.

But here is where the challenge comes in – thousands of these miners will perform elaborate computations simultaneously and compete against each other with the hope of creating the perfect version.

The successful miner can expect to be awarded a Bitcoin from his or her efforts.

The Value of Bitcoin

Each time there is a hash created, this goes to the end of the existing blockchain. It is also accessible to the public who will update and further propagate this hash.

Meanwhile, the miner can receive 12.5 Bitcoins that come with a value – and it depends on the amount people are willing to pay for this cryptocurrency. In December 2017, for instance, this number of Bitcoins amount to over $225,000.

There is a catch that you need to keep in mind, though. There is a limit to the number of Bitcoins that people can mine.

Satoshi Nakamoto, the man behind the inception of this digital currency, established a protocol that once 21 million Bitcoins are mined, this puts an end to the mining process.

It can be compared somewhat to precious metals as the supply is also limited, although there is zero intrinsic value to a Bitcoin.

As there is no central authority, institution, or a government that controls the supply of a Bitcoin, the value it has remains obscure. The price of a Bitcoin is quite volatile, and it can also be influenced by manipulation due to the absence of its clearly defined value.

But it is worth noting that this digital currency has made its creator a multi-billionaire, along with the early miners and investors of Bitcoin. Hence, this leads to the increasing curiosity that savvy investors have about this cryptocurrency.

Purchasing Bitcoin

Digital currency exchanges are widely available for people who are interested in getting started with buying Bitcoin. These include Coinbase, Kraken, and Coinmama, which offer opportunities for individuals to buy and store their Bitcoins or to sell them eventually.

When it comes to making a deposit into your virtual wallet, you will need to use a few options including your Paypal or bank account. After funding the account, you can begin exchanging any currency for your Bitcoin. It is as simple as that.

Several merchants now accept Bitcoin as payment by clients for products and services rendered. If you own a Bitcoin, you may simply hold on to it or sell it. The good thing about it is there are no transaction fees to worry about with Bitcoin.

Should You Invest in Bitcoin?

As compared to a traditional currency, Bitcoin is much riskier because of its highly volatile financial value. There is also no way to you to trace back your Bitcoin transactions, which is both a benefit and a limitation.

For instance, there is something comforting about the fact that no marketer can track your purchase. On the other hand, money laundering cases may remain on the rise as there is no way for you to know who buys the Bitcoin from or sells it to you.

Getting a refund or recovering losses can also be very difficult since after every transaction has reached the blockchain, it is considered as a done deal.

With all these in mind, it is best to continue doing your homework and balance the benefits and risks involved with Bitcoin ownership.

Assess the issues that you may be exposed to, as well as the potential returns on your investment before you get started with investing in Bitcoin to hedge your funds from serious losses.

David Warren

David Warren is the senior writer and lead researcher at HardStacks. He has been a financial engineer for over 30 years and has been investing in alternative assets since the Great Recession of 2008. He has a true passion for learning about economic cycles and educating others on how to protect and grow their wealth by investing in precious metals, real estate and cryptocurrencies.
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