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Table of Contents:
What is Bitcoin?
Bitcoin, apart from being the first cryptocurrency, is the best known of the more than 15K cryptocurrencies (altcoins) that currently exist. And, although it presents less volatility than altcoins, it is not exempt from big changes in its price.
While high volatility can produce big profits, it hardly makes Bitcoin the best option for novice investors or people looking for a stable store of value. So it is essential to know Bitcoin before investing in it.
Bitcoin is a decentralized digital currency that you can buy, sell, and trade directly, without a middleman like a bank. Bitcoin creator Satoshi Nakamoto originally described the need for “an electronic payment system based on cryptographic evidence rather than trust.” All described in the Bitcoin Whitepaper.
Each and every Bitcoin transaction ever made exists on a public ledger accessible to all, making transactions difficult to reverse and difficult to falsify. That is by design: due to its decentralized nature, bitcoins are not backed by the government or any issuing institution, and there is nothing to guarantee their value other than the proof baked into the heart of the system. The reason it is worth money is simply because we as people decide that it has value, just like gold.
Since its public launch in 2009, the value of Bitcoin has increased dramatically. Although once trading below $100 per coin, the price of Bitcoin has since peaked at $69,000 (its ATH occurred in early November 2021).
Because its supply is limited to 21 million coins, many expect its price to continue to rise as time goes on, especially as institutional investors start treating it as a kind of digital gold to hedge against market volatility. and inflation.
This means that there will never be more than 21 million Bitcoin, so as its adoption in society increases, its price must inevitably continue to rise. It is nothing more than the law of supply-demand.
How does Bitcoin work?
Bitcoin is based on a distributed digital ledger called a blockchain. As its name suggests, blockchain is a linked data set, made up of units called blocks that contain information about each and every transaction.
The information that is included in the transactions are the date and time, the total value, the buyer and seller, and a unique identification code for each exchange. The entries are chained in chronological order, creating a digital chain of blocks.
Once a block is added to the blockchain, it can be accessed by anyone who wishes to view it, acting as a public ledger of cryptocurrency transactions.
The blockchain is decentralized, which means that it is not controlled by any organization. Think of it as a Google Doc where anyone can work on it, but no one owns it, and anyone with a link can contribute. And, as different people update it, your copy is also updated.
While the idea that anyone can edit the blockchain might sound risky, it is actually what makes Bitcoin trustworthy and secure. For a transaction block to be added to the Bitcoin blockchain, it must be verified by the majority of Bitcoin holders, and the unique codes used to recognize user wallets and transactions must conform to the correct encryption pattern. .
These codes are long, random numbers, making them incredibly difficult to fraudulently produce. This level of statistical randomness of blockchain verification codes, which are needed for every transaction, greatly reduces the risk of someone making fraudulent Bitcoin transactions.
What is Bitcoin mining and how does it work?
Bitcoin mining is the process of adding new transactions to the Bitcoin blockchain. It is hard work. People who choose to mine Bitcoin use a process called proof of work (PoW), deploying computers in a race to solve math puzzles that verify transactions.
To entice miners to keep competing to solve the puzzles and support the system in general, the Bitcoin code rewards miners with new Bitcoins. This is how new coins are created and new transactions are added to the blockchain.
In the early days, it was possible for the average person to mine Bitcoin, but that is no longer the case. Bitcoin’s code is made to make solving its puzzles more and more challenging over time, requiring more and more computing resources. Today, Bitcoin mining requires powerful computers and access to massive amounts of cheap electricity to be successful.
In addition, it is usually less than before. Back in 2009, when this technology first came out, every time you received a block, you got a much larger amount of Bitcoin than you do today. There are more and more transactions, so the amount you get paid for each block is less and less.
By 2140, it is estimated that all Bitcoins will have entered circulation, meaning that mining will not release new coins and instead miners may have to rely on transaction fees.
How to use your bitcoins
In Spain, other countries in Europe, the United States, Latin America, Asia,… people use Bitcoin as an alternative investment, which helps to diversify a portfolio of stocks and bonds. It can also be used to make purchases, but the number of providers that accept the cryptocurrency is still limited.
Some of the big companies that accept Bitcoin as a payment method are: Microsoft, PayPal, and Whole Foods, to name just a few. You may also find that some small local retailers or websites accept Bitcoin, but it is still difficult to find them.
You can also use a service that allows you to connect a debit card to your cryptocurrency account (wallet), which means you can use Bitcoin the same way you would use a credit card. This usually also involves a financial provider instantly converting your Bitcoin into dollars, euros or any FIAT currency.
In other countries, particularly those with less stable currencies, some people use crypto instead of their own currency.
Bitcoin provides an opportunity for people to store value without relying on a government-backed currency. It gives people the option to protect themselves in the worst case scenario. You are already seeing people in countries like Venezuela, Argentina, Zimbabwe; In highly indebted countries, Bitcoin is getting huge traction.
That said, when you use Bitcoin as a currency, whether for investment or consumption, you need to be aware of certain tax implications in your country.
Most people buy Bitcoin through cryptocurrency exchanges. Exchanges allow you to buy, sell and hold cryptocurrencies. Setting up an account is similar to opening a brokerage account: you’ll need to verify your identity (KYC) and provide some form of funding source, such as a bank account or debit card.
Regardless of where you buy Bitcoin, you will need a Bitcoin wallet to store it. This could be what is called a hot wallet or a cold wallet.
A hot wallet (also called an online wallet) is stored by an exchange or cloud provider. Some online wallet providers are Exodus, Electrum and Mycelium. A cold wallet (or mobile wallet) is an offline device that is used to store Bitcoin and is not connected to the Internet. Some cold wallet options are Trezor and Ledger.
Some important notes about buying Bitcoin: Although a Bitcoin has a high price, you can buy Bitcoin in fractions. You’ll also want to keep an eye out for fees, which are usually small percentages of your crypto transaction amount, but can really add up on small purchases.
Finally, keep in mind that Bitcoin purchases are not instant like many other stock purchases seem to be. Because miners must verify Bitcoin transactions, it may take at least 10-20 minutes to see your Bitcoin purchase in your account.
How to invest in Bitcoin
Just like a stock, you can buy and hold Bitcoin as an investment. No matter where you choose to hold your Bitcoin, people’s philosophies on how to invest it vary: some buy and hold for the long haul, some buy and intend to sell after a price rally, and others bet on its price going down (shorting).
Consumers can also invest in a Bitcoin mutual fund by purchasing shares of Grayscale Bitcoin Trust (GBTC), although it is currently only open to accredited investors who earn at least $200K or have a net worth of at least $1 million.
One important note though: While cryptocurrency-based funds may add diversification to cryptocurrency holdings and slightly lower risk, they still carry substantially more risk and charge much higher fees than broad-based index funds with a history of consistent returns. Investors looking to steadily increase their wealth can opt for index-based mutual and exchange-traded funds (ETFs).
Should you buy Bitcoin?
In general, many financial experts are supportive of their clients’ desire to buy cryptocurrencies, but do not recommend them unless clients express an interest.
The speculative nature of cryptocurrency leads some planners to recommend it for clients’ “secondary” investments.
In a very real sense, Bitcoin is like a single stock, and advisers would not recommend putting a significant portion of your portfolio into any one company. At best, planners suggest putting no more than 1% to 10% into Bitcoin if you are passionate about it.
The Bitcoin white paper was the first document to outline the principles of a cryptographically secure peer-to-peer electronic payment system, which was fundamentally designed to be transparent and censorship-resistant, as well as to take financial control back from the public. individual.
At the time, the world was in the throes of a financial crisis catalyzed by excessive speculation in financial markets and banks risking millions of dollars in depositors’ money.
This document laid the foundation for what is generally considered to be the first functional digital currency powered by a distributed ledger technology called a blockchain.
One of the many innovative elements of Satoshi’s electronic payment system was that it solved the age-old “double spending” problem that plagued cashless spending. Through the implementation of time-stamped transactions that are unanimously verified by a distributed network of validators, it was no longer possible for one person to spend the same funds twice.
The white paper was released under an MIT Public License in 2008 for everyone to learn, share, and enjoy.
Below is the complete Bitcoin whitepaper document in English, published on www.bitcoin.org.
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