IFTNews: This article summarizes essential Bitcoin information. Recently, I've been asked numerous questions about the crypto space: How do you use Bitcoin? How can I buy Bitcoin? What exactly is Bitcoin? Crypto, huh?
If you're a trader, this might not be for you. But if you're an investor or simply curious about Bitcoin's significance, read on!
When considering Bitcoin investment basics, it's important to note that cryptocurrencies are highly volatile. The market is small, and day traders often go all-in. For long-term investors, volatility shouldn’t be a concern—it should be embraced. Focus on consistently investing small amounts monthly, weekly, or even daily. Volatility can be beneficial, offering opportunities to buy at lower prices frequently. Indeed, the past few years' fluctuations have favored drip investors.
Why Has Bitcoin Suddenly Become Interesting?
It hasn’t! Bitcoin has been a top investment for years. The recent buzz stems from governments and big banks no longer being able to ignore the disruptive potential of peer-to-peer (P2P) capital markets.
Bitcoin is a disruptive technology poised to "liberate the world's unbanked" by providing financial services in emerging markets where banking is scarce or nonexistent. As a global, decentralized technology, Bitcoin transcends geography, demographics, and geopolitics. It empowers people in developing nations to sell products and services via mobile payment systems, regardless of banking access. In regions like Africa or Southeast Asia, where more people have mobile phones than bank accounts, the potential for large-scale disruption of traditional capital markets is evident.
What is Bitcoin? 10 Key Facts
- A virtual currency enabling fee-free or low-cost transactions without intermediaries like banks.
- A "digital cryptocurrency" secured by cryptography.
- Bitcoin exists solely in digital format—like email, it has no tangible form.
- Divisible currency, similar to dollars and cents.
- Decentralized: Bitcoin isn’t controlled by banks or central authorities like the Federal Reserve.
- Represented by mathematical algorithms in computer code.
- Each unit is an entry in a digital ledger, much like most traditional currency exists digitally in banks.
- Maintained by a distributed ledger updated by Bitcoin users—akin to Wikipedia’s collaborative model.
- No central authority means no account closures or personal data requirements—anyone can open an account with cryptographic keys.
- The blockchain—a public ledger of all transactions—sets Bitcoin apart from traditional currencies.
What is the Blockchain? 10 Key Facts
- Without blockchain, there’s no Bitcoin.
- A shared public ledger distributed across the Bitcoin network.
- All confirmed transactions are recorded in the blockchain.
- Essentially, an immutable, decentralized transaction database.
- Anyone can view it, but no one can alter its history.
- Named for its block-grouped transactions cryptographically linked in a chain.
- Ensures no double-spending—everyone knows when Bitcoin changes hands.
- Blockchain = integrity of capital.
- "The consequences of this breakthrough are hard to overstate." — Marc Andreessen
- Often called the backbone of the internet’s transaction layer and foundational to the Internet of Things (IoT).
How Does Bitcoin Work? 10 Key Facts
- Bitcoin is forgery-resistant.
- Often termed "anonymous," but "pseudonymous" is more accurate.
- Transacted between digital "wallets."
- Wallets store public/private keys for transactions—stored digitally or physically.
- Lost keys mean lost Bitcoin—ownership hinges on possessing the keys.
- Accepted by merchants globally or exchanged for cash via brokers.
- No central issuing authority like traditional currencies.
- Operates on a P2P computer network.
- The network validates transactions via mining—creating new Bitcoin and transferring existing ones.
- Mining involves solving complex computations to add blocks to the blockchain.
Where Does Bitcoin Come From? 10 Key Facts
- Introduced in a 2008 whitepaper by Satoshi Nakamoto: Bitcoin: A Peer-to-Peer Electronic Cash System.
- Released as open-source code in 2009.
- Generated via "mining"—solving computational tasks on the network.
- Designed so mining becomes harder over time, capping total supply at ~21 million by 2140.
- Mining ensures transaction order and network neutrality via consensus.
- Blocks contain transaction records linked cryptographically (blockchain).
- Mining also called "hashing."
- Solving a block rewards miners with new Bitcoin.
- Blocks form Bitcoin’s transaction history.
- ASICs (specialized chips) are built solely for Bitcoin mining.
Why is Bitcoin Valuable? 10 Key Facts
- Price driven by supply/demand—limited supply (21 million) vs. growing demand.
- Daily price volatility reflects low adoption relative to potential.
- As adoption grows, prices may rise significantly.
- Divisible into 100 million satoshis, enabling microtransactions.
Historic milestones:
- 2010: First BTC transaction—10,000 BTC for two pizzas.
- 2011: Parity with USD ($1/BTC).
- 2013: Surpassed $1,000/BTC.
How to Buy Bitcoin? 10 Key Facts
- Research trusted exchanges (e.g., Coinbase for U.S. investors).
- Transfer BTC to personal wallets for security—exchanges are hackable.
- Coinbase offers easy bank-linked purchases (~1% fee).
- Supports recurring buys ("drip investing").
- Cons: 7-day transfer delays for bank-linked purchases.
- Also trades Ethereum (ETH) and Litecoin (LTC).
- Provides secure asset-specific wallets.
- First crypto "unicorn" (valued over $1 billion).
How to Use Bitcoin? 10 Key Facts
- Start with a wallet app—generates your first Bitcoin address.
- Addresses are single-use; create new ones as needed.
- Send/receive BTC like email—paste address, enter amount, click send.
- Simpler than credit cards for online payments.
- Merchants prefer BTC for lower fees vs. credit processors.
- Major acceptors include Overstock, Microsoft, Wikipedia, and Shopify.
- BitPay offers Visa debit cards funded with BTC.
Final Thoughts
U.S. investors should avoid crypto trading—focus on accumulation. Hold long-term as digital gold (BTC), silver (LTC), and growth assets (ETH). Diversify: 50% BTC, 25% LTC, 25% ETH. Avoid fees by holding in personal wallets until crypto ETFs mature.
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FAQ Section
Q: Is Bitcoin anonymous?
A: No—it’s pseudonymous. Transactions are public, but identities aren’t directly linked.
Q: Can I mine Bitcoin at home?
A: Unlikely. Mining requires specialized ASIC hardware and cheap electricity.
Q: What’s the smallest Bitcoin unit?
A: A satoshi—0.00000001 BTC.
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Conclusion (from Satoshi’s whitepaper):
"We’ve proposed a system for electronic transactions without relying on trust... Nodes vote with CPU power, accepting valid blocks by extending them and rejecting invalid ones. Any needed rules and incentives can be enforced with this consensus mechanism."