Bitcoin was created in 2009 by an anonymous individual or group of software developers called Satoshi Nakamoto and led to the creation of other cryptocurrencies and exchanges. There have been several previous attempts to create a valid and accepted virtual currency prior to the development of Bitcoin, such as David Chaum’s eCash in 1990 and the subsequent B-money, Hashcash and Bit Gold.
Bitcoin (BTC) was born from the desire to have a decentralized, secure, encrypted and transferable virtual currency. Policy tools, economic growth measures and inflation rates do not apply to BTC, because it is not issued by a central bank, nor is it supported by a government.
Nowadays, people invest in Bitcoin because it is a trading system that matches how humans have exchanged value for most of history. Before digital payments, gold and cryptocurrencies, there was a barter system in which people exchanged services, furs, shells and animal skins.
Thinking about how the monetary system has evolved would give anyone goosebumps. And there are also intriguing facts about Bitcoin. Read on to delve into one of the hottest topics in finance these days.
How does Bitcoin work?
A great start to understanding Bitcoin is to clear up the mystery surrounding it. It is useful to know that a block is made up of complex hashes and that there are four native and basic components in Bitcoin.
- Software. Bitcoin is open source software and wallet program.
- Hardware. Bitcoin needs hardware made up of thousands of miners running their computers to crack the cryptography and receive rewarded virtual coins.
- Encryption. Like any other cryptocurrency, Bitcoin is encrypted through the computational and mathematical practice of encoding and decrypting data to maintain security and fidelity.
- Miners. Bitcoin is a game run by its users that launches a crypto challenge every 10 minutes and requires miners to hashes and validates to add a new block to the blockchain.
People invest in Bitcoin to hold or trade it and generate profits, but there are other ways to take advantage of this digital currency as well. You can check it out, take it as payment, or lend it. However, mining requires modern hardware, and if you try to do it with your smartphone or home computer, you will ruin your device and end up with a hefty electricity bill.
What to know before investing in BTC?
Investing in BTC for the first time can seem like a confusing process if you are new to the world of cryptocurrencies. If you are wondering how to buy Bitcoin easily and safely, you find that there are specific steps you need to take. Bitcoin is highly volatile, so an investment strategy is essential before buying it or any other cryptocurrency. Before creating an account on an exchange and placing your Bitcoin order, you need to follow the following steps, understand how the cryptocurrency market works and analyze the level of risk you are comfortable with.
In addition to deciding on a virtual currency to invest in, you need to choose a cryptocurrency exchange. The platform you use to buy and trade Bitcoins must check these next factors:
- Trading volume
- Insurance fund
After making sure that the platform you want to use has verified the security requirements, create an account. This step requires that you provide your full name, legal name, email address, date of birth, and similar information to the exchange. It is essential to make money exchange comparisons to make sure you choose the best platform and consider how you will store your BTC.
The hot spending wallet holds small to medium amounts of BTC for spending and money on the go and is usually stored digitally on a mobile device. Conversely, the cold wallet stores your BTC offline and is used to top up your hot wallet occasionally. The four secure wallets that store your digital coins are:
- Digital wallets. They are accessible from anywhere and are a good choice for traveling or spending money.
- Offline wallets. They are “cold storage” methods that are inaccessible to the Internet and take the form of paper, hardware or money.
- Paper wallets. They require more knowledge of virtual currencies than any other option.
- Physical coins. They have tamper-proof stickers that cover a fixed amount of Bitcoin.
Why should you buy Bitcoin?
Bitcoin is an alternative to central bank-controlled fiat money. Therefore, you can use it as your physical money while avoiding the involvement of your government or central bank. Through the decentralization of Bitcoin, you enjoy the following aspects:
- Independent control and decision making. A system without corruptible authorities can maintain better independence and protection.
- Better data reliability. There is no room for fraud, decay and corruption in the BTC world.
- Less vulnerabilities. It is impossible to crack this system because it would require billions and very clever and skilled attackers to hack into the Bitcoin network, and even if they compromise a node within this blockchain, they still won’t jeopardize the whole system.
You can buy, sell and trade your Bitcoins like any other asset. BTC transactions can be performed on online cryptocurrency exchanges, in person or on communication platforms and also allow small businesses to accept this virtual currency. For example, BTC can be used to pay for goods and services at sellers and retailers, and usually physical stores that accept it display the message “Bitcoin Accepted Here”.
Why do investors buy BTC?
According to Fidelity data as of September 2022, allocating 5% to Bitcoin in a diversified portfolio of stocks and bonds can improve the performance of your investment from 1.03 to 1.43. Therefore, it is clear why investors want to own a mix of stocks, bonds and virtual currencies. They ensure they are protected from market fluctuations and economic measures by generating passive income.
Some certified cryptocurrency entrepreneurs and experts debate whether cryptocurrency is the future of money as virtual currencies are popular and highly traded additions to the current payment system. However, as Bitcoin is the most popular and traded cryptocurrency, you should keep yourself informed of its fluctuations and keep up to date with the latest cryptocurrency news to understand how this trend is going.
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