What is Bitcoin and how to trade it?

March 23, 2020   Bitcoin

Bitcoin has become an extremely popular financial asset in the past several years, but not many people are familiar enough with the basics of this cryptocurrency, not to mention other altcoins. The main goal of this article is to change this “status quo” for anyone who is interested in investing in bitcoins and possibly trading other digital currencies. We’ll try to answer such questions as what Bitcoin is, how to mine virtual currencies, what are the Bitcoin’s investment opportunities, and is it possible to use technical analysis when trading Bitcoin?

What is Bitcoin?


Let's begin with the most important question, what is Bitcoin? Bitcoin is a virtual currency, better known as cryptocurrency, because it uses cryptography to protect transactions in its infrastructure. This infrastructure is an online database or the so-called blockchain technology.

Bitcoin offers alternative transaction and payment methods with lower commissions and faster execution. But perhaps the main advantage of bitcoin payments is the extremely high level of security.

How does bitcoin work?


Bitcoin offers the ability to make fast, secure, and cheap payments from consumer to consumer without the necessity for third parties like a bank or other centralized system.

Bitcoin's fundamental value is largely related to its production process and the cost of spent electricity and equipment, the rest of its value is determined by its limited quantity and growing demand.

Transactions in the Bitcoin ecosystem occur directly between users’ digital wallets and are verified with the usage of Blockchain technology, transactions are digitally signed using a unique “private key”, which confirms that orders are received from the owner of the digital portfolio.

Blockchain technology


Each blockchain technology is a decentralized public register of all the transactions that have ever been completed. A series of transactions forms a database block called a “block”. Each block contains information about the prior block, and each transaction contains information about the preceding transaction.

The Bitcoin blockchain introduced a revolutionary financial data storage infrastructure that is accessible to everyone, completely transparent and developed with the usage of open source code that does not belong to any organization or person thus being decentralized. Instead, Blockchain support is provided using the collective capabilities of thousands of personal computers worldwide which verify transactions and add them to the blockchain.

Jointly verified transactions cannot be changed, faked or deleted, therefore payments using bitcoins are final, reliable and not disputed.

What is the Bitcoin’s abbreviation?


The acronym for the largest cryptocurrency is simply BTC. When forming this abbreviation, the same principle applies as in other currencies USD (US dollar) and EUR (euro), and they can form currency pairs with traditional currencies or cryptocurrencies.

For example, the Bitcoin/US dollar ratio is denoted as BTC/USD, and the difference contracts for this pair are denoted as BTC/USD CFD.

How to mine Bitcoin?


When a new blockchain is created, it is awarded with 12.5 bitcoins, which happens approximately each 10 minutes. This is an award for the so-called Bitcoin mining process. Award for using electrical and computer energy to maintain grid blocks. Mining involves many people’s personal computers and other mining equipment and specialized companies around the world.

The system automatically generates new bitcoins, independently adjusting the speed of the process, so there is no danger to circumvent the rules and accelerate the process of generating new bitcoins with larger investments in mining equipment and and harder usage of electricity.

Block construction fees will be delayed in 2020, and then every four years, until the amount of generated bitcoins reaches 21 million, which is the final number that can be mined. This signifies that Bitcoin has at least one fundamental reason to support its value growth - the limited number of tokens.

The chart below displays that more than 18 million bitcoins have been mined for the time being, which is approximately 85% of the total amount predestined. It is easy to see very rapid growth in the chart between 2009 and 2013, when Bitcoin was not so popular. After the largest cryptocurrency gained huge popularity around the world, the pace began to slow down. The reason is simple, more and more cryptocurrency users started mining it.

On average, it turns out about 144 blocks daily and 12.5 bitcoins per block, which is 1800 bitcoins per day. As many miners add new hash power, during the past several years, new blocks have often opened at intervals of 9.5 minutes rather than 10. This let to create new bitcoins at a faster speed, so in most days more than 1800 new bitcoins are actually created.

Who invented bitcoin?


It is widely considered that Bitcoin was created by Satoshi Nakamoto, who presented his invention on October 31, 2008 in a document called “Bitcoin: A Peer-to-Peer Electronic Cash System”. More interestingly, this name is most likely a nickname for an unknown person or even a group of people who were the original Bitcoin creators.

In 2016, an Australian entrepreneur Craig Wright proclaimed himself “Mr. Bitcoin”, which was widely accepted by many members of the bitcoin community, but some continue to doubt Wright’s legitimacy.

When was Bitcoin created?


The first cryptocurrency’s financial history dates back to 2010, although it was originally created in 2009. May 22, 2010, someone buys pizza using Bitcoin. If you have never heard this incredible story, do not worry, you are hardly the only one.

Pizza was not the most important part of the deal. More interestingly, it cost 10000 bitcoins, which was the first public transaction of a virtual currency related to a real world item. This day is known as Bitcoin Pizza Day.

Since then, everything has changed significantly. The usage of bitcoins and the value of this digital currency have increased significantly. Today, 10000 bitcoins will cost more than $80000, which will definitely bring a lot more pizza than in 2010.

Where to shop with bitcoins?


In addition to Bitcoin, you can buy much more goods and services than pizza! There are also more places where digital currency can be used as a payment method.

According to Bitbitcoins, nowadays more than 100000 merchants worldwide accept bitcoin payments. Many of them are online merchants, but a number of traditional retailers start accepting payments using bitcoins. The list of organizations accepting payments using Bitcoin continues to grow. You can purchase for bitcoins:

  • Common consumption goods
  • Video games
  • Gift cards
  • travels
  • Food
  • cars
  • Charity and charity
  • Online and offline stores.

Most Bitcoin payment processing systems will also provide you with a QR code for the cashier, which stores the Bitcoin wallet’s address and payment amount.

QR codes are very convenient, which makes Bitcoin payments extremely simple using smartphones and a mobile application for a virtual Bitcoin wallet. You simply scan the QR code, which will make the payment to the recipient's bitcoin address with the required amount. After the transaction is verified, payment is made.

These are only some of the largest companies that accept bitcoin payments:

  • Microsoft
  • Expedia
  • Kfc
  • Subway
  • AT&T
  • Overstock
  • Gyft

If the Bitcoin’s popularity remains at a high level, then the likelihood that more and more online retailers and large companies will begin to use it is increasing.

Are Bitcoin transactions monitored?


Bitcoin is a completely transparent payment system similar to most cryptocurrencies. All Bitcoin payments are public, trackable and invariably preserved on the Bitcoin network. Bitcoin addresses is the only data about where the bitcoins are and why the transaction has been made.

These addresses are created individually for each custom virtual wallet. Taking into account that consumers usually are reqiured to identify themselves in order to receive purchased services or goods, Bitcoin cannot remain completely anonymous. The Bitcoin network is built on a peer-to-peer basis.

Is Bitcoin legal?


The Bitcoin’s legitimate status of differs from one country to another, but the number of countries that recognize Bitcoin as a legitimate means of payments has increased during the past several years.

Bitcoin, as a payment system, is independent of all central banks, unlike fial currencies such as the US dollar or the Euro. Bitcoin also does not have centralized control or a single administrator, which makes it a decentralized digital currency. Bitcoin is distributed around the world as a valid payment method with which you can buy goods and services, which further increases its demand.

Bitcoin regulation also varies from one country to another. Currently, only Japan has fully recognized Bitcoin as real money, while other countries still do not have specific legalization. It can be hoped it will increase with the growth of interest in digital currencies and the interest of regulators in this type of trade and payments.

Is Bitcoin a Risky or a Safe Asset?


A wide range of financial regulators are trying to deal with such a financial asset as digital currencies and mainly with bitcoins. It turns out that there is no full agreement on what Bitcoin and other altcoins are: currency, goods, securities or something completely new. For this reason, you can meet them as crypto assets, digital symbols, coins, or simply “crypto”.

In 2008, the creators of “Bitcoin and Company” announced that more than 21 million bitcoins would never be generated. This means that it can be compared to some extent with scarce goods, such as gold, whose value is determined solely by how much buyers are ready to pay for it. Cryptocurrencies have gained considerable popularity in places where hyperinflation reduces purchasing power (for example, in Zimbabwe) or where sanctions are applied (for example, in Venezuela).

There are also arguments in favor of the fact that virtual currencies have some characteristics of shares, such as the share of ownership in the overall efforts and the expectation that the profit will be derived from the work done by the company. Most of the attention has shifted to new projects offered through initial coin offerings, the so-called ICO.

Although they take many forms, ICOs allow companies to raise capital by selling coins instead of stocks. In some cases, the founders claim that coin buyers pay in advance for using the service that the company will create.

In many places around the world, various financial regulators have launched large-scale investigations into whether or not ICO organizations violate the rules by offering securities. Then a senior SEC official said that neither Bitcoin nor Ethereum fall into this category.

Another problem with initial coin offerings is that in many cases, investors in ICOs have been tricked by fraudulent crypto projects.

Bitcoin trading


Bitcoin, like other altcoins, is a highly volatile financial asset, and daily price fluctuations within 10% are not uncommon. Of course, as investors and traders know, large profits are the result of higher risks. However, it is inappropriate to invest in bitcoin trading the funds you cannot afford to lose.

As we see in the chart below, in 2017, the cryptocurrency market jumped by 2000%. However, in 2018, this market turned around and collapsed, resulting in a loss of capitalization of about $700 billion, with the result that Bitcoin lost more than 80% of its value.

Such market drops can be used when trading Bitcoin CFDs, tools that allow short sales. In this way, traders and investors can benefit from the downtrend at the Bitcoin price.

The most probable explanation for the Bitcoin’s and the whole cryptocurrency market’s collapse in 2018 were the following ones:

The year 2018 was very difficult for crypto marketers, and although there was some optimism in the middle of 2019, it seems that it has evaporated and the volatile price of Bitcoin is moving down again in 2020.

Author: Kate Solano for Сrypto-Rating.com
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