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How Does Bitcoin Work?
At this point, many are still confused and conflicted about what Bitcoin actually is. Is it a currency or a payment network? Is it something else entirely? Fortunately, defining what Bitcoin is isn’t that difficult. Essentially, Bitcoin is software and it’s purely digital, so don’t be fooled by the countless stock images you see online of shiny gold coins that supposedly represent Bitcoin.
Bitcoin is the most successful cryptocurrency, inspiring countless imitation projects. However, despite the plethora of crypto projects available now, Bitcoin still remains the largest by market capitalization.
Bitcoin is built on something known as a blockchain, otherwise known as a distributed digital record. As you may have inferred, it is essentially a link body of data, and it’s composed of blocks that contain information regarding each transaction ever made, as well as the date and time, buyer and seller, and other relevant information. Each entry is listed chronologically, which ultimately creates a digital chain of these blocks.
Whenever a block gets added to the overall blockchain, just about anyone is able to view it, which means it functions more like a public ledger for crypto transactions. Blockchain is decentralized, which means that not just one organization controls it. You could even say that it’s like a shared spreadsheet that anyone can edit or change.
Some people might think that the fact that anyone can edit the blockchain is a risky business. However, this feature is actually what makes Bitcoin quite secure. You see, to add a transaction block to the Bitcoin blockchain, the majority of holders need to verify first.
At the time of writing, Bitcoin’s price is sitting at $65,898.37, but looking back, BTC’s value hasn’t always been that high. For the past 13 years, investors of this crypto have had a rough and bumpy road. For instance, BTC’s value skyrocketed from $1 in April 2021 to $32 in June of the same year. That’s a whopping gain of 3,200% in only 3 months.
Although, that massive spike was later followed by a drastic fall, and Bitcoin’s value was at $2 by November 2011. Fortunately, its value seemed to improve quite a bit by the following year, as it rose from $4.80 in May up to $13.20 by August.
Since then, BTC’s value has been through several spikes and declines. However, it wasn’t until 2020 when Bitcoin’s price began to burst once again, thanks to the economical shutdown caused by the global pandemic. The beginning of 2020 saw BTC at $7,200, but investors began to fear what would happen to the global economy due to the shutdown. As such, this caused Bitcoin’s value to rise tremendously.
By November, investors were trading Bitcoin for $18,353 and by March 2021, Bitcoin’s price reached an all-time high of more than $60,000. Prediction for BTC’s future varies, depending on who you ask. Some believe BTC would reach $300,000-$500,000 per coin by 2030, while others predict that it will see a massive downtrend within a decade.
How to Buy Bitcoin
Investing in BTC may seem daunting, but it’s actually not that difficult to understand once you understand the basics. Before you decide to buy Bitcoin, there are some things you need first, including a secure internet connection, a crypto exchange account, a payment method, and documents that verify your personal identification if you’re using a Know Your Customer (KYC) platform.
It’s also highly recommended that you also have a personal wallet other than your exchange account. Now that you’re all set, here are the basic steps to buying Bitcoin:
Choose a Crypto Trading Service
Naturally, the first step is to decide which crypto trading service or venue you want to use. There are countless popular trading venues out there for buying crypto, such as payment services, brokerages, and cryptocurrency exchanges, among others. Out of all these options, the most convenient one would probably be cryptocurrency exchanges, since they have a variety of features as well as more crypto options compared to other venues.
If you sign up for a cryptocurrency exchange, you can easily buy, sell, and hold your crypto as you see fit. As a general rule of thumb, it’s always best to use an exchange platform that lets you withdraw crypto to your personal online wallet for safety purposes. Although if you’re looking to trade crypto, this is a feature that may not be of that much importance.
Connect Your Exchange
Once you’ve decided which exchange you want to use, you’ll want to collect all your personal documents. Depending on which exchange you’re using, you may need documents such as pictures of your driver’s license or your Social Security number. Other exchanges may even ask for your employer and source of income.
Your region or country also plays a role in what kind of documentation you might need, as some countries have different laws and rules as others regarding these matters. In fact, you could even compare this entire process to something akin to how you would normally set up a typical brokerage account.
Once your exchange of choice has verified your identity to be legitimate, you’ll need to connect a payment option. Most of the time, you should be able to connect your bank account directly, or even a debit or credit. Although, it’s not recommended for you to purchase crypto using your credit card because the crypto market is extremely volatile.
While Bitcoin is, in fact, legal in the United States, there are some banks out there that stop crypto-related deposits or even question them. As such, it’s best if you check and make sure that your bank accepts such deposits.
Make a Purchase
At this point, you can go ahead and buy BTC or any other crypto you want. These days, crypto exchanges have become more and more mainstream. In fact, they’ve grown quite a lot in terms of features and liquidity.
In recent years, cryptocurrency exchanges have grown so much that you could even say they have the same level of features as stock brokerage platforms. There are different ways you can invest via these exchange platforms nowadays, and most of them provide limited orders and markets, while others offer stop-loss orders.
Place It in a Safe Place
Lastly, it’s time for you to store your Bitcoin in a safe place such as a Bitcoin wallet. Keeping your crypto in your personal wallet and not in the exchange platform itself ensures that you have full control of the private key leading to your crypto.
If you’re a Bitcoin or crypto enthusiast, you probably already understand what these Bitcoin wallets are all about. However, newbies might find all this information quite overwhelming. As such, let’s break it down slowly at a pace that’s easy to chew and swallow.
A Bitcoin wallet is essentially a type of digital wallet that you use to either send or receive Bitcoins. You can think of it like your regular, physical wallet. However, instead of storing coins or paper money—physical currency—Bitcoin wallets store cryptographic information needed to gain access to BTC addresses. But these wallets aren’t just limited to Bitcoin, as some can also be used for other cryptocurrencies as well.
There are different types of Bitcoin wallets, which we’ll explain below:
Desktop wallets, as implied by its name, are installed on either a laptop or a desktop computer. Many enthusiasts prefer this type of wallet because it gives you complete control over your digital wallet. Other desktop wallets even offer extra functionality and features, such as exchange integration and node software.
However, it’s not exactly the most secure wallet out there since computers can be easily compromised. Some of the more popular desktop wallets are Electrum, Bitcoin Core, Armory, and Hive OS X.
Mobile wallets are essentially the same as desktop wallets, however, you install them on your smartphone or any other mobile device instead of your computer or laptop. These wallets are convenient because you can easily access them wherever you are, as well as make quick and easy payments in physical stores using QR codes of near field communication (NFC).
Some samples of popular mobile wallets are Hive Android, Bitcoin Wallet, and Mycelium Bitcoin Wallet, and they’re typically supported by both Android and iOS devices. Before choosing a mobile wallet, however, it’s best if you do thorough research first because there have been many instances wherein malware disguises itself as a Bitcoin wallet.
Web wallets are great because you can easily access them whenever you want using your preferred device. It’s as simple as checking your email! However, just like desktop wallets, security is also a cause for concern for web wallets. Not only is it prone to malware and phishing, but there have also been instances of counterparty risks.
Popular web wallets include Gemini, Coinbase, and Blockchain.
If you’re looking for the most secure type of Bitcoin wallet, you’ll want to go for hardware wallets. This type of digital wallet stores private keys on a physical device, which means that you won’t be able to access them online. Hardware wallets look like USD flash drives, and whenever you want to make a transaction on your computer, all you need to do is plug in the device.
Bitcoin Cash is a fork of the original Bitcoin and was created in August of 2017. Bitcoin Cash differs from Bitcoin in that it increased the size of its blocks. This caused it to process even more transactions, not to mention a significant improvement in its scalability.
Another fork took place in 2018, resulting in the existence of Bitcoin Cash ABC and Bitcoin Cash SV (Satoshi Vision). Bitcoin Cash…
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