Bitcoin (BTC) Basics: A Beginner's Guide
June 21st 2020
Stories of the risks and rewards of Bitcoin
often hit the press, yet it's estimated that around 76 percent of the population still don't understand Bitcoin or what it is. Sure, most know Bitcoin is a digital currency, but ask them how it works or if they would invest, and the majority shy away from the conversation and remain clueless. To shed light on the basics, let's cover a few of the most frequently asked questions about Bitcoin.
What is Bitcoin?
Created in 2009, Bitcoin is the largest cryptocurrency by market cap and the first decentralised virtual currency to be a success. Bitcoin is a peer-to-peer currency, meaning no central authority issues or governs transactions. Although bitcoin is not a recognised legal tender, trading in bitcoin is becoming increasingly popular as it requires no bank clearance or prerequisites, offers lower transaction fees, and allows trade person-to-person instantly.
(Note: The word "Bitcoin" capitalised refers to the transaction and its protocol, "bitcoin" in lowercase, to the currency which is often shortened to "BTC".)
How does Bitcoin Work?
Unlike fiat (government-issued) currency
, bitcoin is virtual and refers to a heavily encrypted computer file — the shiny gold BTC coins you see online are somewhat of a novelty.
"Real" bitcoin is stored in a "digital wallet" (a bit like an email or online bank account) that's accessed via an app on a smartphone or computer. Transactions are made over the internet via this wallet and recorded on a shared public ledger and tracking system known as "blockchain".
Who Controls Bitcoin?
Bitcoin is controlled by its users, it's run by an open-source software with no central authority, bank or company controlling it. Each user needs a version of the software similar to the way we need software to drive our email systems. There are a number of software variations around and it's up to the user to configure the software to suit them, but essentially all the software variations produce the same result, to send and receive electronic mail, or in this case, to store your Bitcoin account and allow trades and transactions.
How Safe is Bitcoin?
For those who don't understand Bitcoin, you could be excused for thinking it's an unsafe currency used by low-life's, money launderers and thieves. But in reality, as our lives become smarter, and we start to rely more heavily on computerised banking systems and processes, a decentralised currency driven online is lightly to be the currency of the future.
Each day thousands of crypto transactions are made, and the developers behind them and the blockchain technology are constantly improving the software, processes and protocols involved. Over its 10 year history, Bitcoin has proven to be reliable, its systems capable of withstanding the most complex of online attacks. Yes, in the same way as online fiat currency, there are always factors that can negatively impact your account and its worth; cyber threats, hacking, use of insecure third parties, price volatility, but overall these risks are minimal.
How Do You Get Hold of Bitcoin?
There are three main ways to obtain bitcoin:
1. Bitcoin can be purchased using traditional money.
2. A computer system can generate bitcoin, reffered to as "mining".
3. People can use bitcoin to purchase goods or services from you.
Why Do People Trade in Bitcoin?
There are many advantages in dealing with Bitcoin.
The majority of people who use bitcoin do so to save time and money. It's open-source and not controlled or governed by a central bank allowing for quicker, cheaper and easier transactions. Bitcoin transactions are instantaneous and no clearance is necessary. This reduces the time spent waiting for funds and prerequisites to be passed thereby reducing the high transaction fees encountered when sending funds via traditional banks or agencies. Those who trade in bitcoin can do so freely, person to person, instantly.
Where can Bitcoin be used?
For the vast majority, bitcoin is a financial investment and most who own full or part bitcoin buy and sell it online to generate the most financial reward. But, Bitcoin is suited to online trading and a growing number of online businesses now accept bitcoin payments for their goods and services. Some property developers, jewellers, law firms and private healthcare clinics also accept bitcoin payment, although this is mainly because they wish to amass a good amount of the crypto themselves to investment back on the crypto market.
Is Bitcoin legal?
The legality of trading in Bitcoin and other cryptocurrencies is a subject of hot debate. Its decentralised nature means it cannot be censored easily and anyone with access to an internet network can trade, mine or use bitcoin easily.
The majority of western countries do allow bitcoin to be used to purchase goods, for the payment of taxes or to trade like a commodity. However, some governments have applied limitations, a few have even banned it threatening consequences, even prison in some cases. If you are looking to trade in bitcoin or any other cryptocurrency, it's worth checking your countries stand on it first.
What is the future of Bitcoin?
Although bans and restrictions on the use of Bitcoin may exist in some countries, these laws haven't eradicated the use of Bitcoin. In fact, global interest and trade in cryptocurrencies has increased dramatically.
Many believe that cryptocurrency is the currency of the future and, just as we have all become more technologically savvy and the use of online banking and mobile transactions have become the "norm", the use of digital currencies is sure to follow.
Thoughts on the investment potential of cryptocurrencies was discussed by Financial Advisors in a 2019 report by Bitwise and ETF Trends (see PDF). This suggested that around 9% of Registered Independent Investment Advisors (RIA's) are already ploughing some of their client funds into crypto assets. This may seem a low number at present, but the potential for high returns uncorrelated with other assets, plus client demand suggests we will see many more financial advisers suggesting crypto additions to their clients in the coming year. Bitcoin and crypto is a hot topic with a high potential returns. so we are lightly to see significant growth in the market during 2020.
Is 2020 a good time to invest in Bitcoin?
Recent years have seen Bitcoin become dubbed a "digital gold", and 2019 saw this term become far more of a reality when U.S. Congressman Brad Sherman (D-CA) claimed Bitcoin could threaten the US Dollars dominance in the global economy.
2020 will be a big year for Bitcoin, and it is lightly that its value will fluctuate wildly around May, and soar towards the end of the year. This is due to the "Bitcoin Halving" set to take place on May 20th 2020. This will be the third halving event and, judging by the last two in 2012 and 2016, Bitcoin value in the months following the event is lightly to skyrocket.
A halving event essentially reduces the number of Bitcoins mined (generated) by those who process transactions every 10 minutes, by half. This event happens once every 210,000 blocks are complete (around every 4 years) until the network produces a maximum of 21 million bitcoin.
The crypto press are a-buzz about the "Bitcoin halving" as it's an important day for traders. In a January 2020 article in Forbes
, Nexo Co-Founder, Antoni Trenchev, is quoted as saying, "I think, very easily, we could see Bitcoin going up to $50,000 by the end of this year". Is bitcoin a good investment in 2020? There are obviously no guarantees, but think supply and demand, by reducing the number of bitcoins in circulation, their worth should rise considerably. Coinpass is a secure premium crypto platform that can convert GBP to any supported cryptocurrency.
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