CryptopediaWhat is bitcoin and how does it work?

What is bitcoin and how does it work?

Bitcoin is the leading cryptocurrency on the market and it’s a feature of money. The world is slowly warming up to cryptocurrency and the leading is bitcoin. Since its founding in 2009 bitcoin has dictated the cryptocurrency market. As a result, it has become synonymous with cryptocurrency so most people always think about bitcoin when they hear the term cryptocurrency. Bitcoin gathered massive global attraction in 2017 when its price skyrocketed to twenty thousand dollars a considerable markup from one dollar registered during its inception season in 2009. After 2017 there was a dramatic drop in bitcoin prices until 2020 and at the start of 2021 bitcoin price was more than 31,000 and it hit its all-time high at $69,000 which is a considerable jump if you ask me. But is bitcoin worth investing in, what is bitcoins and how does it work, are there any risks, and who owns bitcoin? You probably have these questions and many others well. I will explain this all. 

What is a Bitcoin? 

What is bitcoins and how does it work: Bitcoin is a decentralized digital currency what this means is that there are no physical coins or bills and the government doesn’t and can’t interfere with the operations of bitcoin. Its owners remain anonymous since its inception and nothing links bitcoin to them. Bitcoin generally uses crypto technology to keep its owners anonymous and connect the traders and just like precious metal bitcoin is mined as I’ll explain in a couple of minutes. So who owns and runs bitcoin? Let’s start from the beginning bitcoin was officially rolled out as a digital currency in 2009. Interestingly no one knows the identity of the bitcoin owner. It’s argued that Satoshi Nakamoto owns and runs bitcoin. But no one can say if satoshi is a name of a person or a group. So the owner remains anonymous but enjoys a market value of more than 40 billion dollars according to celebrity networks. 

How does it work?

What is bitcoins and how does it work: Bitcoin works using blockchain technology that lets users make peer-to-peer transactions. The users get to view the transactions in real-time as they are secured through encryption but cannot decrypt them. Only the owner can decrypt bitcoin transactions using a private key. But since bitcoins are digital currencies and not paper currencies they are mined using high-powered computers which brings us to a critical term called mining. So what is bitcoin mining exactly? Bitcoin mining refers to adding new bitcoin clocks to existing blockchains by solving challenging cryptographic puzzles using computers. 

Bitcoin mining is generally a painstaking process. Miners usually check and verify every transaction before adding it to a particular blockchain and they are compensated for their effort. For your information, A blockchain is a technology characterized by a series of data blocks that record bitcoin transactions. It acts as a ledger that allows users to download and verify bitcoin-related data without tampering with anything. Now the question arises should you use bitcoin? There is no doubt about the cryptocurrency stamping its foot in the global digital currency sector. At the time of writing, this article bitcoin was worth more than 600 billion dollars as reported by cryptocurrency analytics provider coinmarketcap.com. 

Over four of the past five years, alone bitcoin has been the best-performing digital currency globally. But is bitcoin worth it, why should you use it over v8 money? What is bitcoins and how does it work? For starters bitcoin is decentralized. There is no central government or bank that controls bitcoin that’s unlike fiat money which the government regulates through the central bank which means that all the bitcoin users have equal authority. The other notable difference is that bitcoin allows users to trade anonymously. You can trade with bitcoin without having to provide your details there are also advantages of portability and accessibility. 

What is bitcoins and how does it work? Bitcoin allows users to install digital wallets on their smartphones and hold their investments there and even though bitcoin transactions are subject to some fees it’s not as much as what you would incur in most bank transactions. I also cannot forget to mention that bitcoin is global since there is no government interference bitcoin allows you to transact from anywhere in the world. Last but not least bitcoin is hard to falsify since it’s not paper currency fraudsters find it difficult to fake bitcoins. There is also the aspect of bitcoin being powered by blockchain technology which ensures that no technology bypasses it.

How is crypto price determined?
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Are there any risks with bitcoin?

What is bitcoins and how does it work and is it risky? Yes, I’ve talked about the things in different articles that favor bitcoin over 48 money. I’ve also mentioned the market success that bitcoin has enjoyed in recent memory. But does that mean that it’s all rosy I will be lying if I say so all investments have risks and bitcoin is no exception. One concern that stands out is bitcoin’s volatility and unpredictability. The price may get to a record high or drop remarkably. There is a risk that you have to take so what you have to ask yourself is it worth the risk also the fact that bitcoin is technology-reliant means it’s not 100 safe. No one can be held accountable today if the technology shuts down. After all, no one knows the owner Satoshi Nakamoto. Moreover, bitcoin being a technology-reliant project means that it is an attraction to cyber attacks. There have been a few reports of bitcoin-related cyber attacks where investors lose their bitcoins again that’s a risk that you will have to take. One report by Forbes showed that over  270, 000 accounts were compromised by a bitcoin hack from a France-based bitcoin hardware.

How can you invest in bitcoin?

What is bitcoins and how does it work and how to invest in it? If you are looking to invest in bitcoin here are five steps to follow.

Select a cryptocurrency network

Step one select a cryptocurrency network and then select a platform where you can sell your bitcoins like an exchange. The platform should also hold your bitcoins as you wait to sell sadly not all cryptocurrency exchanges allow you to stay anonymous most of them run on and know your customer structure KYC why you have to provide personal details. If you are looking for a decentralized cryptocurrency exchange that allows you to stay anonymous consider DYDX, Uniswap, Pancakeswap, Sushiswap coin base, Kraken, or Binance us for US traders.

Step 2 links to a payment option. After picking a payment option the next thing is to connect it to your preferred payment option. It could be a bank account, PayPal, credit card, or debit card. Note however that you’ll incur a small transaction fee.

Make an order

Step 3 make an order. Now that your payment option is in the order it’s time to buy bitcoins. So you can spend according to your own choice and buy bitcoin as much as you want. 

Hold your Bitcoins

Step four hold your bitcoins. After buying bitcoins you must keep them safe somewhere. Ideally, investors hold bitcoins in virtual storage known as a bitcoin wallet. A bitcoin wallet could be a web-based software mobile application or desktop application. Coinbase for example serves both as a mobile and web-based bitcoin wallet. But still, we have hardware wallets that allow you to store bitcoins offline and perfect examples are nano and treesor.

Sell your bitcoins

Step five sell your bitcoins. Lastly, when the time is right you can go ahead and sell your bitcoins. Remember you can sell bitcoins at the same place where you bought them you’ll also incur a small fee in this step.

How can you use bitcoin?

How can you use bitcoin? The primary method of using bitcoin is by buying, holding, and selling at a profit. You can buy & sell bitcoin using well-known and registered exchanges also you have an option to use decentralized exchanges there you don’t have to fill out KYC. Currently, the largest exchange in japan is mount cox which presently holds roughly 70% of bitcoin-related transactions. Besides trading bitcoin, you can also set up a bitcoin payment wallet to allow customers to pay you using bitcoin instead of cash. Setting up a bitcoin payment wallet is as easy as setting up a PayPal payment account. 

What is bitcoins and how does it work: The beauty about it is that you can track the transactions as bitcoin is digitized on the flip side you can also sell services online and receive payments and bitcoins. Some people also lend out bitcoins that accumulate interest over time just like real cash. So there are multiple ways to transact with bitcoin and as years go by we are likely going to have more possibilities. As I mentioned before that bitcoin is a great opportunity these days if you are willing to take risks but before anything DYOR. Yes. it’s not 100% safe and the market is volatile.

So try to invest what you can afford to lose and while at it pay attention to the economic climate that’ll help you know when it is the right time to sell and get a good return on investment. Remember that bitcoin is not tax-free in the u.s. So be prepared to be accountable for capital gain tax. Lastly, think long-term the more you hold on to your bitcoin the more you make money. 

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