Bitcoin Guide | Learn Everything about BTC
The pioneer of all cryptocurrency was Bitcoin. In 2009, a whitepaper entitled ‘Bitcoin – A Peer to Peer Electronic Payment System’ was written by Satoshi Nakamoto. This name has proven to be a pseudonym, and the true identity behind the creation of the market-leading digital currency remains unknown to this day.
Since its inception, Bitcoin has inspired the creation of thousands more cryptocurrencies and utility tokens. The majority of these ‘altcoins’ have their own specific purpose and solution, but the market value of all are still heavily influenced by Bitcoin. Normally, as the price of Bitcoin rises and falls, so does the entire market. Learn what is Bitcoin
What is Bitcoin?
Bitcoin is a digital currency and payments system designed to be resistant to manipulations from governments and financial institutions. It is essentially a payments ledger which is distributed to a vast number of computers that are connected to its network. If a change is made to the ledger, more than half of its network must contain the same amendment in order for it to be recorded or ‘burnt’ into a block permanently. It is the most secure monetary system ever to have been conceived.
It is due to the immutable nature of its design that Bitcoin inspires a lot of trust. In fact, much more than the faith people have for traditional fiat currencies, the value of which has always been heavily influenced by governments and large corporations in the past.
Bitcoin is also a deflationary currency, having its maximum supply already declared. This means that over time, the number of new bitcoins to come into existence will slow and eventually stop altogether. Many believe that this will cause Bitcoin to hold an incredible value in the future, with demand for the coins far outweighing the available supply. Being an autonomous and decentralised digital currency, BTC is not controlled by any central authority.
Is Bitcoin a type of money?
Bitcoin is real money in almost every aspect that traditional fiat qualifies. It is a means of paying for goods and services and is recognised and accepted by a growing number of merchants worldwide. It has also been successfully used as a trading instrument by many investors, both seasoned and beginners alike. It could still be considered a nascent technology, and therefore, its market price can be influenced by almost any kind of global news.
The only thing which separated Bitcoin from what we would usually consider ‘real money’ is regulation, or lack of. Even this, however, is rapidly changing as more and more governments around the world introduce rules and practices intended to govern Bitcoin transactions.
Is it legally recognised?
Although Bitcoin is known the world over, it is not yet legal to use in every single country. There are some countries such as Canada, where at the time of writing, it is not illegal to trade buy and sell Bitcoin, but banks are forbidden to open or maintain Bitcoin accounts. This is known as a ‘Banking Ban’, where it is even unlawful for these large financial institutions to have banking relations with companies who deal in virtual currencies.
Other territories such as Algeria or Egypt have banned the use of Bitcoin, due to its lack of physical support like coins or notes or have even cited religious reasons, declaring commercial transactions using Bitcoin as haram.
In truth, these cases now exist within the minority. More countries throughout the world allow Bitcoin than those who oppose its use. In fact, some countries like China have done a complete U-turn on their adoption of cryptocurrency, with The Red Dragon now focussing a great deal of effort to launch their digital yuan.
Bitcoin is fully legal throughout Europe, with reputable exchanges and brokers achieving regulatory status from leading authorities.
What do people use Bitcoin for?
Bitcoin is a payments system that can be used in the same way that you would use any other. That is, to send funds directly to an individual or company but with some marked improvements to the outdated legacy systems.
One of the main benefits of using Bitcoin is the low cost for international payments. Sending money across borders has been historically expensive, but with Bitcoin, the sender only pays a fraction of these costs in network fees. These can vary, and details to how and why they fluctuate will be given a little further into the guide. Importantly, even when network fees rise, they are still extremely low when compared to international bank transfers or use of a third party.
Another attraction of using Bitcoin to send and receive money is the degree of anonymity provided by the network. While it is true that all transactions are permanently burnt into the blockchain, the record does not contain any personal data. Your wallet address or public key consists of 26-35 alpha-numeric characters and is very difficult to trace to the individual it belongs to. It is for this reason that Bitcoin has been referred to as ‘digital cash’ in the past.
Throughout more developed nations, particularly in the West, Bitcoin is very popular as a trading instrument or asset of value. The coin has skyrocketed in price, which was worth just fractions of a cent when it began, to reach an incredible $20k at the end of 2017. The market volatility inherent with Bitcoin makes it a favoured choice for CFD trading and Futures, while being a deflationary currency helps to give it great potential for long-term price appreciation as well.
Today, Bitcoin is one of the most popular trading instruments across reputable exchange and brokerage platforms.
What merchants accept Bitcoin?
It is reported at the time of writing, that almost 40% of all small to medium-sized businesses in the US accept Bitcoin as a mode of payment, and an even higher percentage throughout Europe. These figures have steadily risen since the crypto boom of 2017. There are also much larger companies that now accept BTC, including big-brand names like Microsoft, Expedia, Overstock, AT&T, Wikipedia and Burger King.
Consumer-centric brands such as KFC, Playboy, Twitch, CheapAir, and Subway all now accept the leading cryptocurrency as well. Learn more here: 40 Sites that Accept Bitcoin in 2020.
What does Bitcoin aim to achieve? How does it work?
In its purest form, Bitcoin was designed to be decentralised currency, operating without the oversight of a central bank or overarching administrator. Bitcoin’s consensus network was also designed to create a common, shared public ledger that was immune to human error and manipulation from cyber-criminals. The first step for any new Bitcoin user is to find a good Bitcoin wallet. Secondly, the wallet needs to be funded; this can be done by buying Bitcoin or by receiving Bitcoin from another Bitcoin wallet. Bitcoin payments are called transactions. A transaction is a transfer of value between Bitcoin wallets that gets registered on the public ledger in the Bitcoin blockchain. The balances of Bitcoin wallets update automatically after every transaction. Bitcoin wallets keep a secret piece of data called a private key or seed, which is used to sign transactions, providing mathematical proof they have derived from the owner of the Bitcoin wallet. The signature also prevents the transaction from being altered by a cyber-criminal once it has been issued.
The Technology Behind Bitcoin
Technology is the foundation that all cryptocurrencies are built upon. While there have been developments and variations of how different networks achieve a consensus, Bitcoin was the very first of its kind; a secure, immutable ledger, simultaneously providing heightened security and complete transparency. To explain how this is possible, we can break down the historical developments of Bitcoin, including how the technology works, and why it was created in the first place.
How it all started – The history of Bitcoin
In 2008, the Wall Street bank with a global influence, Leman Brothers collapsed. This was arguably the catalyst for an ensuing credit crunch that caused the greatest recession the world had seen in over 80 years.
An unknown individual or group operating under the pseudonym ‘Satoshi Nakamoto’ felt that the leading world governments and financial institutions had failed the people, who now had to bail out these companies through their paid taxes. It became clear that the current financial paradigm was flawed in the way that it was centralised and so, open to manipulation. Nakamoto created a now-infamous whitepaper entitled, Bitcoin: A Peer-to-Peer Electronic Cash System.
This was a proposition for a new type of payment system based on cryptographic proof, which would remove the need for third-party involvement to prevent double-spending. A ‘trustless’ mode of purchase could simplify our way of transacting from the ground up.
In 2009, Satoshi Nakamoto sent the first bitcoin to a private wallet address, creating the first-ever block to what is now a vast chain of records, inspiring a generation of innovators and developers with a technology that the world had never seen, and desperately needed.
Since its inception, BTC has become more valuable than the strongest world-currencies, inspiring trust through immutability and decentralisation.
A popular story surrounding Bitcoin that truly crystallises its incredible rise surrounds the purchase of 2 very ordinary, takeaway pizzas.
May 22nd is now popularly known as Bitcoin Pizza Day among cryptocurrency enthusiasts. On this day, in 2010, Laszlo Hanyecz reached out to the bitcointalk forum declaring that he would “pay 10,000 bitcoins for a couple of pizzas”.
His offer was accepted by a British man who recognised that he was still getting a bargain, paying $25 for 2 Papa John’s pizzas for an amount of BTC that was worth $41 at the time. A decade later, what was paid for two pizzas and morning leftovers is worth $116.2 million. I imagine that fact makes Hanyecz regurgitate a little pepperoni to this day.
Mining Bitcoin – How are new coins created?
As mentioned at the beginning of this guide, Bitcoin uses a cryptographic proof of work (PoW) system to achieve consensus over the network. This is more commonly referred to as ‘Bitcoin Mining’.
To bring new coins into circulation, a miner must use powerful computers to solve complex mathematical problems. When one of these problems is solved, a new block is added to the chain, and the miner is rewarded with a certain amount of BTC for their efforts.
There was a time, when Bitcoin was still in its infancy, where mining could be accomplished using the GPU of a decent home computer, but as competition to acquire these valuable coins has increased, so has the difficulty.
Today, entire factory sized storage units have been erected that contain powerful ASICs (Application Specific Integrated Circuits). These machines are built with a single purpose: to mine. Thus they have a greater computer power than a simple GPU (Graphic Processing Unit), which was the first devided used to mine BTC back in 2010.
Supply – How many coins are available, what if they run out?
Bitcoin was formed with a preconceived design of having a finite supply of 21 million coins. Conversely, fiat currency has an unlimited supply, because we can always print more money. Therefore, inflation takes place; the more cash is printed, the lower its intrinsic value.
Even gold, which BTC is often compared to, cannot really claim the same as its digital counterpart. Although, as a commodity, we are aware that gold must have a finite supply, it is still unknown how much of this precious metal is left in the earth.
And so, Bitcoin has been created upon a deflationary model. The reward of BTC that goes to miners halves every 210,000 blocks, or approximately every 4 years. At the time of writing the reward is 6.25 BTC. Eventually, the reward will drop to zero, and when that occurs, no new bitcoins will enter circulation.
It is the very nature of this design that will likely create an ever-increasing demand for Bitcoin, and why many investors see it as an excellent option for a long-term trading strategy.
There have indeed been bitcoins lost to virtual limbo, where owners have lost the private key necessary to access the contents of their wallet. These coins are potentially lost forever and cannot be added on to the already declared maximum supply. Although it is theoretically possible for every Bitcoin to be lost in this manner, it is almost a statistical impossibility. Instead, the lost coins only create less supply and increase the demand and value for those still in circulation.
Decentralisation – What does it mean?
Decentralisation is where control is removed from a major influence. In terms of currency, the controlling entities have mainly consisted of governments and large financial institutions.
It was the belief of Satoshi Nakamoto that no single authority should have the monopoly on the value of an individual’s money. Where interest rates and inflation suffered by the masses are determined by the few, the system will always be predestined to crash; it is the people that feel the impact and carry the burden of rebuilding financial stability.
By creating a secure system, that no one entity has the power to manipulate, a decentralised environment could stand resilient against future economic crisis. It is for this reason that Bitcoin has been heralded by many financial experts and investors as a safe-haven asset, able to offer some protection against unexpected market downturns.
Bitcoin as an Investment
As we have now covered in this guide, BTC can be used as a viable alternative payment method, offering many benefits that are unavailable using traditional systems. However, it is also a powerful trading instrument that is now accepted throughout almost every online broker and exchange platform.
Here we will give details on why Bitcoin is one of the most popular investments in today’s technological age.
Why should you invest?
The main reason why people choose to invest in Bitcoin is to grow their capital. Investment is a very personal thing, and you should be wary of accepting advise from any source on the matter. A much wiser approach is to gather as much information on Bitcoin as possible before making any investment decisions.
It is also important to have a clear vision of what you want to achieve out of your investment in Bitcoin. What are your goals for the short to mid-term future? Do you believe that a long-term strategy would see Bitcoin increase greatly in value? These are all questions that only you can answer, and to be able to do so, you must be as knowledgeable as you can be on the subject. This will help to inform your decisions and give you insights into potential opportunities, as well as guidance to avoid possible downsides.
A golden rule to live protect yourself while investing is never spending more than could afford to lose. Bitcoin has a volatile market price, which can reap massive rewards, but also comes with a much higher risk than other tradable assets and commodities.
Price and volatility – Why is the price so volatile?
Even after ten years, Bitcoin is still a relatively new trading asset. There are several factors that contribute to its high market volatility. Although Bitcoin is not controlled by any particular government or institution, it is extremely susceptible to market sentiment, global news and social media.
Regulation, or lack thereof, is also a contributing factor to the rapid price fluctuations of the pioneering cryptocurrency. As leading authorities introduce, retract, or change of regulatory policies, Bitcoin prices are almost always affected. In 2020, BTC reached its all-time-high value, with a record above $20,000 in average.
Where to Buy Bitcoin
As mentioned, there are a vast number of platforms that will offer you the opportunity to buy Bitcoin. What is important to note is that not all of these websites are regulated. Regulation provides a much safer trading environment and offers protections and best practices that must be adhered to. Here, we have prepared a shortlist of our personal favourite platforms for you to acquire your BTC. Each of these have outstanding reputations, where you can complete your transactions in complete confidence.
The world’s largest social investment network has been established for over a decade. With millions of active users, eToro is a very popular choice for new investors wishing to trade on a platform that they can trust. The CopyPortfolio™ feature of eToro allows traders to copy the strategies of others to improve their understanding and success rates.
Founded in 2008, Plus500 is one of the leading trading platforms in the industry, having earned a reputation for its regulatory compliance with multiple authorities and offering a vast array of trading instruments. Plus500 was the first company to offer CFD trades on Bitcoin back in 2013. The platform offers great educational resources, advanced charting features, indicators, and drawing tools.
ForexTB is a broker regulated by the Cyprus Securities and Exchange Commission (CySEC) and offers CFD trading on Bitcoin and other leading altcoins as well as Forex Pairs, Indices, Stocks, Oil and Gold. The platform was relaunched in 2020, introducing new features and is now available in multiple languages including English, Spanish, Dutch, Swedish, and Italian.
Bitcoins Vs Satoshis
A satoshi is the smallest unit of bitcoin recorded on the blockchain. One satoshi, named after the founder of Bitcoin, is the equivalent of one hundred millionths of a bitcoin, the same way a penny is one-hundredth of a pound. One Bitcoin is currently trading at about £2,800. A Satoshi is, therefore, worth $0.000028 at the current rates if you divide the value of one Bitcoin by 100 million. If I decide to spend £100 to buy Bitcoin, I will get roughly 0.035 BTC. Obviously, these figures are not very comfortable to work with if you are shopping around. Suppose we convert this to satoshis? That will be an equivalent of 3,500,000 satoshis. This is a more relatable figure than working in decimals - ideal if Bitcoins are to hit the mainstream.
Where to Store Bitcoin
Even though Bitcoin has existed for over a decade, some people are still confused as to how a virtual currency could possibly be securely stored, and how accessible the investment would be. Here, we will detail exactly where you can keep your BTC, and the differences between wallet types.
What are wallets?
Just as you may store your cash, you will need a wallet to hold your BTC. Bitcoin is a virtual currency, and so, some of the wallets available to you are software-based. Others, however, are physical devices, and all have their own unique benefits. So, let’s break it down.
What types of wallets are available?
A web wallet is what is freely provided with the broker or exchange that you are using to buy, trade or sell your Bitcoin. These are non-custodial wallets, which means that you don’t receive the private keys for them, but you do have your funds readily available. These wallets are also kept permanently online, and so are typically believed to be the least secure.
These wallets are specifically designed for access through mobile devices. They are custodial, which means that you have the responsibility of storing your private keys, but are also a more secure option than the web-wallet offered by your selected broker. Mobile wallets offer tremendous convenience, but it is worth noting that if other people have access to your phone, they also have access to the contents of your Bitcoin wallet.
Possibly the most popular of wallet types is the Desktop Wallet. These are free to download and install onto your home computer. Desktop wallets will be protected by the security of your PC, which can be enhanced in several ways. If you are using a desktop wallet, it is advisable to keep a separate computer for handling your investments. This system should be kept up to date with the latest anti-virus software and other available options.
Without contest, these are the most secure wallet types that are available, and ideally suited for those who have a long-term strategy planned for their Bitcoin investment. Leading brands such as Ledger and Trezor offer devices with incredible security built into the firmware and are compatible with not only Bitcoin, but thousands of other coins and tokens as well. Hardware wallets are intended to be kept safely offline when not in use.
There are certain wallets that are available across different platforms, such as a single type that is available on both Desktop and Mobile systems. These wallets can communicate with each other, offering both heightened security and convenience.
Storing your wallet on an exchange, the upside and downside
Many investors who choose to trade on a daily basis find leaving funds on an exchange the most convenient option, but is also the least secure. If the platform you are using was to go into insolvency or disappear altogether, so would your Bitcoin. Using one of our recommended exchanges to conduct your transactions would certainly afford better protection than others.
If you leave your funds on the exchange or brokerage platform where you purchased your BTC, you do not have to go through the rigmarole of setting up your private wallet, and you will also save on the fees associated with transferring your BTC. Bitcoin transfers can also take up to 10 minutes to complete depending on network congestion, so those who are interested in making split-second decisions based on market movements would do well to consider keeping the funds where they are.
There are other dangers aside from those mentioned above, however. Storing Bitcoin in a non-custodial wallet effectively gives the Bitcoin exchange control over the contents of your wallet. For this reason, you should check the regulatory status of the platform where you are conducting your transaction. Built-in wallets are also known as ‘hot’ wallets, as they are always online. Anything online is potentially susceptible to an attack from hackers, and you should be aware of this fact while deciding where best to store your BTC investment.
Similar cryptocurrencies to Bitcoin
- Litecoin Founded in 2011, Litecoin was one of the first altcoins to follow the success of BTC. It has long been referred to as ‘digital silver’, with Bitcoin known as ‘digital gold’. It was the brainchild of MIT graduate Charlie Lee and also uses a proof-of-work algorithm for processing transactions and mining blocks. However, Litecoin was designed to have a quicker generation rate for new blocks, resulting in swifter, more efficient transaction confirmations.
- Zcash One of the newest open-source cryptocurrencies, Zcash was launched in 2016. The most common analogy Zcash likes to use to compare and contrast it with Bitcoin is that “if Bitcoin is HTTP for money, Zcash should be known as HTTPS”. Zcash founders have focused heavily on providing additional security and privacy for transactions made on the Zcash blockchain, protecting a transaction’s sender, recipient and its amount.
- Dash Dash is another alternative to Bitcoin, promising even greater anonymity. The Dash ecosystem operates on a decentralised mastercode network, ensuring all transactions are virtually untraceable.
Frequently Asked Questions
Paper wallets were quite popular when cryptocurrency was in its infancy, but it is not a secure option compared with other available wallet types.
Yes. As not only the first, but also the leading cryptocurrency, every hardware wallet is compatible with Bitcoin. We would recommend Trezor and Ledger.
There is no way of knowing this for sure. Many believe so, due to the nature of Bitcoin’s design. Others feel that the advent of quantum computer systems could threaten to render the security offered by Bitcoin, obsolete. At the time of writing, Bitcoin still arguably provides the most secure, transparent monetary system ever conceived.
No. Although you may feel a little daunted by the prospect, the process of transferring your Bitcoin from the exchange to your wallet is a very simple process. A detailed guide on how to this can be found on our Exchange reviews.
There are people in the past who have misplaced their private keys, and in doing, have also lost access to their BTC. These days, however, there are systems in place that helps you to recover your keys. If this is truly a concern you have, a hardware wallet would be a good option. These hardware devices store all of your private keys for you, so you don’t have to worry