What is Bitcoin
Over 13 years ago, the global landscape underwent significant transformations. In 2009, Apple unveiled its first iPhone which was the 3S, and it was just the advent of social media. Amidst these changes, a revolutionary contribution to the global fintech landscape emerged with the introduction of Bitcoin (Whitepaper) on Oct. 31, 2008.
This beginner’s guide navigates through the essence of Bitcoin, its history, and its profound impact on global finance.
Introduction to Bitcoin (BTC)
Bitcoin is a peer to peer electronic cash, a new form of digital money that can be transferred between people or computers without any trusted middleman (such as a bank) and whose issuance is not under the control of any single party. A bitcoin wallet is the most common user interface to the bitcoin system.
Bitcoin (BTC) has held its position as the premier and most impactful cryptocurrency since it came live in 2009. A novel currency devised and introduced by a person or group of persons with the pseudonym Satoshi Nakamoto, whose identity remains unknown till date. Nakamoto’s creation was a response to the deficiencies in traditional banking systems exposed by the 2008 financial crisis, with Bitcoin envisioned as a solution.
Though created for everyday use and transactions, Bitcoin’s influence lies in its ability to defy conventional banking structures. As of now, Bitcoin has relatively gained more popularity as its adoption has continued spread across the world especially among those who need it the most (Global South). Bitcoin has also been continuously scrutinized and criticized especially because of its volatility.
Why is Bitcoin Valuable
Bitcoin is highly valued due to various factors. Successful currencies, whether digital or traditional, must meet criteria such as scarcity, divisibility, utility, transferability, and resistance to counterfeiting. Bitcoin satisfies and surpasses all these criteria, contributing to its perceived value.
The Measure Bitcoin
Bitcoin is divisible by eight decimal places, allowing for fractional purchases. The smallest unit known as Satoshi, named after its creator, is equivalent to 0.00000001 BTC. 1 Bitcoin is equal to 100 Million Satoshi.
How Bitcoin Works
Bitcoin consists of four key innovations brought together, they are;
1. A decentralized peer to peer network (the bitcoin protocol)
2. A public transaction ledger (the blockchain)
3. A set of rules for independent transaction validation and currency issuance (consensus rules)
4. A mechanism for reaching a global decentralized consensus on the valid blockchain (proof of work algorithm)
As a digital currency, Bitcoin relies on blockchain technology, a robust and innovative system. The blockchain is a shared public ledger, recording all confirmed Bitcoin transactions, just similar to a digital passbook in a traditional bank.
The transparency of the Bitcoin network extends to all participants on the network, enabling them to view the source and destination addresses of BTC transactions. While transaction details are private, Bitcoin’s pseudonymous nature implies that transactions on the Bitcoin blockchain are visible to everyone..
Decentralization sets Bitcoin apart from traditional financial institutions, as it operates independently through peer-to-peer (P2P) transactions, free from central authority.
Bitcoin Transactions and wallet Security
A Bitcoin transaction involves the transfer of value between bitcoin wallets, confirmed by signing of the transaction through private keys. Similar to a bank’s PIN, a private key grants access to a Bitcoin wallet, which makes it very secure.
Similar to the bank account PIN, a private key is confidential and sensitive information that should be guarded with utmost care and not disclosed to anyone. It serves as the gateway to your Bitcoin wallet, granting access for the utilization of your funds. The storage of private keys is dependent on the type of wallet used, it can be stored in a personal computer, remote servers or non-digital format by writing and storing it in a safe and accessible place.
How to own Bitcoin
You can own some satoshi by purchasing it on a Bitcoin marketplace such as noones using one of the numerous payment methods. Bitcoin mining is also another viable way to own Bitcoin.
Bitcoin and Cryptocurrency Marketplaces
One may not be able to dive into the Bitcoin miners’ pool for reasons such as cost of miners, setting up a rig or personal interests, there are many online marketplaces where anyone can buy Bitcoin utilizing any of the available payment methods. When you are on the lookout for a good exchange to buy Bitcoin, you must bear in mind the following:
Reputable and Trustworthy Platform: Do your own research to make sure the company is legit. You can do a quick online search about them or speak to a verified representative. It might seem like a bit of effort, but it’s worth it to ensure security of your funds.
Solid Security Features: Go for platforms that give your account extra protection, like two-factor authentication (2FA). It’s like adding an extra layer to the security of your money.
Limitations by Geographical Location: Some places still haven’t fully adopted Bitcoin hence has some limitations. So, pick a platform that lets you use your digital money to the max without limits..
Assets liquidity: Look for an exchange where you can easily convert your BTC into your desired local currency anywhere anytime.
Cheaper transaction Fees: Every exchange has its own charges for buying, selling, or moving your BTC from one wallet to another. Take some time and compare them so you can pick the one with the cheapest fees.
Bitcoin Mining
Bitcoin mining is a process that helps verifying bitcoin transactions, and creating new bitcoin. Bitcoin mining involves solving complex algorithms using high-powered computers, specialized software, and substantial electricity. Miners receive compensation for each completed block, though the growing competition demands top-tier equipment, strategic locations, and persistence.The last bitcoin will be mined in 2040.
Bitcoin Mining Pools
When individuals mine Bitcoin, they can team up in what’s called a “Bitcoin miners’ pool.” In a miners’ pool, a group of miners work together to boost their chances of mining and completing a block faster. This helps miners to be more efficient and increases their chances of getting mining rewards.
The mining process serves two main purposes: (1) Mining nodes validate all transactions by reference to bitcoin consensus rules. Mining simply provides security by rejecting invalid transactions. (2) Mining creates new bitcoin in each block. The amount of bitcoin created per block is limited and diminishes with time following issuance schedule called ‘Halving”.
Bitcoin Halving
Miners are rewarded for every block they complete on the Bitcoin blockchain. Approximately every four years, after 210,000 blocks are mined, there is an event known as Bitcoin halving, where mining rewards are halved. This explains the sefl-deflationary nature of Bitcoin.
Bitcoin Forks
In straightforward terms, Bitcoin forks happen when there’s a change and upgrade to the protocol of the Bitcoin blockchain. This change occurs when a sufficient number of miners adopt a new rule for the network. There are two main types of forks: hard forks and soft forks.
Hard forks occur when the previous blockchain protocol and the new one split from each other. In a hard fork event, the older version of the blockchain is left behind, and transactions made with the upgraded blockchain become unreadable to the previous version. Miners get to decide which version to use since there are now two different cryptocurrencies in the mix.
Soft forks, on the other hand, share similarities with hard forks in that a new blockchain protocol is being utilized. However, unlike hard forks, soft forks allow the new and older protocols to coexist. The nodes, which form the backbone of a blockchain’s infrastructure, eventually update to align with the new blockchain protocol. Transactions made using older blockchain nodes can still process transactions and introduce new blocks using the new protocol to the blockchain.
Some examples of hard forks include:
Bitcoin Cash (BCH): Among the most successful hard forks, created in August 2017, allowing for larger eight-megabyte blocks and not following SegWit (Segregated Witness).
Bitcoin Gold (BTG): Originating in October 2017, this hard fork aimed to restore previous mining functionality. Mining BTG involves using graphics processing units (GPUs) instead of specific hardware like application-specific integrated circuits (ASICs), making it possible for miners to operate from home without extensive equipment.
LiteCoin (LTC): This fork utilizes a different algorithm than the original Bitcoin algorithm, SHA-256. LTC transactions are known to confirm faster and have lower fees compared to traditional Bitcoin transactions.
Decision-Making in Forks
Three key groups wield significant influence in shaping decisions regarding forks:
a. Miners: This group is responsible for incorporating new blocks into the blockchain and overseeing the operation of the code system. Miners play a crucial role in maintaining the security of the blockchain, ensuring its robustness, and keeping the overall system functioning smoothly.
b. Developers: This cohort plays a pivotal role by crafting and updating the code. If you’re a developer, you have the opportunity to propose changes that fellow developers can assess. Developers are instrumental in addressing system bugs and implementing software or feature enhancements.
c. Full Node Users: These users engage in sending, receiving, and validating blocks on the blockchain. They are a vital component of the blockchain, full node users contribute significantly to the system’s ongoing functionality, facilitating its seamless operation.
How to Store Bitcoin
Bitcoin is purely a digital money, devoid of any physical representation and reliant entirely on blockchain technology. There are no tangible BTC bills to fold or coins to stash in your physical wallet; instead, it utilizes a unique storage solution known as a Bitcoin wallet.
A Bitcoin wallet, or digital wallet, stands as a distinctive and secure storage method. It harnesses the blockchain, the underlying technology of the cryptocurrency network. What adds to its influence is its numerous utilities. Utilizing a mobile Bitcoin wallet enables you to receive BTC from other wallets, initiate fund transfers or payments, and monitor your balance in real-time.
Diverse cryptocurrency wallets exist, with two main categories:
Software or Hot Wallet: These are accessible through an internet connection, encompassing web and mobile wallets.
Hardware or cold Wallet: These are physical devices that operate independently of internet access. Examples include hardware wallets, desktop wallets, and paper wallets.
Certain peer-to-peer marketplaces and online exchanges, such as noones, provide a complimentary hot Bitcoin wallet upon account creation.
While conventional transactions in banks and financial institutions often involve signing with a pen and paper, Bitcoin transactions employ a digital signature. This cryptographic and “mathematical proof” assures that the BTC originated from the wallet’s owner and no one else. A digital signature also serves as a means to confirm whether the BTC has been dispatched to someone else.
Despite the visibility of your signature in a particular Bitcoin transaction to everyone on the network, the safeguard lies in the privacy of your private key. Bitcoin employs intricate processes and features, making it resistant to compromise. Hence, there’s minimal concern about the security of your hard-earned funds, provided exclusive access to your private keys is maintained.
Bitcoin Trading
Similar to traditional currencies, Bitcoin can be held and traded for other currencies or goods. However, crypto enthusiasts employ various strategies, each with its own set of pros and cons. Let’s delve into some of the strategies that Bitcoin traders utilize to optimize their crypto holdings.
HODL (Hold On for Dear Life)
HODLing is a long-term strategy employed by investors during market downturns. Instead of selling their Bitcoin when the market is low, HODLers retain their assets, anticipating a long-term price increase. This approach differs from day trading, which focuses on short-term gains. HODLers prioritize enhancing Bitcoin’s adaptability and diminishing the dominance of fiat currencies compared to crypto.
Arbitrage peer to peer trading
Applying the simple general rule of buy low sell high, Arbitrage peer to peer trading is the act of buying bitcoin at a lower price from one seller and selling it at a higher price to another buyer. This is majorly done by utilizing peer-to-peer trading platforms such as Noones.
Swing Trading
Swing trading is a versatile practice applicable to crypto, forex, and the stock market. Traders engage in swing trading during market swings over days, weeks, or months, aiming to capitalize on potential price changes. This strategy involves assessing the risk-to-reward ratio, with traders seeking to buy assets when the risk is low and the potential reward is high. Swing trading can be volatile, and traders may employ technical analysis, fundamental analysis, or a combination of both.
a. Technical Analysis: Examining past market data to identify trends and patterns, predicting future market behaviors.
b. Fundamental Analysis: Studying an asset’s value by analyzing economic and financial variables related to the asset.
Day Trading
Day trading is a short-term strategy characterized by frequent trades within a single day to maximize market swings. Traders buy assets at a specific price and sell when the asset’s value increases, aiming for small profits across multiple trades. Day trading requires constant monitoring of market changes and extensive analysis due to its reliance on short-term fluctuations.
Other Crypto Trading Strategies
There are additional strategies for crypto trading, including:
a. Scalping: Executing numerous small trades to accumulate profits.
b. Dollar-Cost Averaging (DCA): Regularly investing a fixed amount in Bitcoin, regardless of market fluctuations.
c. Golden Cross/Death Cross: Analyzing moving average trends for potential buy or sell signals.
d. Trend Trading: Capitalizing on market trends for profitable trades.
e. Relative Strength Index (RSI) Trading: Using RSI to identify overbought or oversold conditions in the market.
Bitcoin Utility
Initially recognized for its role in direct, cheap, and borderless payments, Bitcoin’s applications have expanded with increasing adoption. People globally and across industries are discovering its diverse uses, including:
Payments for everyday purchases
Donations for charitable initiatives and kickstarters
Wealth preservation
Cross-border money transfers
Gift-giving to friends and family
E-commerce payment gateway
Profit generation through trading
All these activities can be effortlessly conducted with just a few clicks on your mobile Bitcoin wallet, anytime and anywhere you desire.
Bitcoin vs. Ethereum
Ethereum, created by Vitalik Buterin in 2015, is often considered the second most popular cryptocurrency after Bitcoin. While both are digital currencies using blockchain technology, unlike Bitcoin, it was not created to be an alternative to fiat currencies.
Bitcoin vs. Tether
Tether, a stablecoin pegged to the US Dollar, aims to mitigate the volatility associated with other cryptocurrencies. Unlike Bitcoin, Tether is tied to an asset, making it less volatile.
The Decision to Buy
Having delved into the fascinating world of Bitcoin, exploring its nature, and many utilities, we’re confident you’re eager to learn more and explore Bitcoin. Consider this a friendly reminder that the information shared here represents just a glimpse into the vast galaxies of the Bitcoin and cryptocurrency universe. Countless discoveries and explorations await you in the expansive realm of crypto!
Ready to get started in Bitcoin? Seize the opportunity to buy Bitcoin today and commence your crypto journey!.