Basic Understanding of Bitcoin
What is Bitcoin?
Bitcoin (BTC) is a decentralized digital currency, created by Satoshi Nakamoto in January 2009. It is based on the ideas presented in a whitepaper. Its source code was released as open-source software. Different from other traditional currencies that you can put in your wallet and deposit in a bank, Bitcoin is stored in digital form and relies on cryptography for security. Because Bitcoin is a decentralized currency, which means it is not government-issued, it is not operated by a single entity and nobody controls it.
Bitcoin balances and transactions are verified by network nodes and kept in a public distributed ledger, known as a blockchain, in the cloud. Although Bitcoin is not legal tender, Bitcoin is still very popular and has become the world's largest Cryptocurrency by market cap. Bitcoin’s worldwide popularity has triggered the issuance of hundreds of other digital currencies called altcoins, which are offshoots and imitators of Bitcoin.
Bitcoin is also often abbreviated as "BTC". The most commonly used symbol for Bitcoin is . A satoshi is the smallest unit of the bitcoin currency, which equals to one hundred millionth of a single bitcoin (0.00000001 BTC).
|Bitcoin||$6 345||$3 410 520||+0.4%|
|Ethereum||$435.65||$1 418 630 000||+1.3%|
|Dash||$229.19||$153 088 000||-0.9%|
|Litecoin||$80.53||$283 573 000||+2.2%|
|Monero||$127.35||$41 956 900||+3.75%|
How Does Bitcoin Work?
In Bitcoin transactions, public and private keys are used for identification, authentication, and encryption. They are long strings of random numbers and letters linked by the mathematical encryption algorithm used to create them. A public key is used as an address used in transactions. A private key is a protected secret number that allows a user to access his/her Cryptocurrency and transmit Bitcoin.
In centralized banking systems, the currency is issued based on monetary policy at a rate aimed to strengthen the economy, while the bitcoin in the decentralized system pre-sets the release rate according to the algorithm.
There are three ways to obtain bitcoins:
1) Buying bitcoins at exchanges.
2) Receiving bitcoins as payment for goods and services.
3) Mining new coins, which is the process of adding transaction records to the blockchain.
These miners can be independent individuals or companies that dominate computing power and are seen as a decentralized authority that strengthens the credibility of the Bitcoin network. The more bitcoins mined, the more complicated the mining process, thus the production cost of mining bitcoins increases. Therefore, as its costs rise, the price of Bitcoin has to rise.
The operation speed of a cryptocurrency mining machine is called the Hash rate. It measures the computing performance of mining rigs, and it is usually measured in Hash per second. As of today, the network reached a record high of over 120 quintillion hashes per second.
Why Do People Trade Bitcoin?
Throughout 2017, the price of Bitcoin rose from less than $ 1,000 to nearly $ 19,000, an increase of more than 1400%. However, the value of Bitcoin has historically been volatile. Last year, the price of Bitcoin declined to about $ 3,500 in early 2019 and then climbed to exceed $ 13,000 in June and July, a difference of only $ 9,500 in just half a year. As of today, Bitcoin's new price ranges from $ 8,000 to $ 9,000.
Because of its high volatility and 24/5 trading market, many traders believe trading Bitcoin could bring them considerable profits. The principle of trading Bitcoin is the same as other financial instruments, buy low and sell high.
Also, many Bitcoin supporters and investors expect Bitcoin’s value to rise because they believe that digital currency is the future and it provides a faster and no-fee payment system for global transactions.
Cons - Risks of Bitcoin
Update technology has brought many competitors. Although Bitcoin's popularity has brought it into the world's largest cryptocurrency, the emergence of more advanced altcoins poses a real risk to Bitcoin.
Bitcoin is considered as a competitor to government currency and can be used for black market transactions, money laundering, illegal online activities or tax evasion. Therefore, many countries seek to regulate, restrict or prohibit the use and sale of bitcoin.
Because Bitcoin transactions are virtual, they easily become targets of hackers. If a hacker steals the private key of the bitcoin holder from a bitcoin wallet, he can transfer the stolen bitcoin to another account.
Fraudsters and scammers have some chances to sell fake Bitcoins when Bitcoin users use the private key to verify the owner and register a transaction.
Bitcoin prices are highly volatile, and the price fluctuation record is a single-day price drop of 80% in 2014.