Bitcoin is the most popular and oldest cryptocurrency. This guide takes a closer look into the coin. Continue reading to understand its origin and how it works.
Bitcoin is a decentralized digital currency designed to eliminate intermediaries in financial transactions. Normally, fiat currencies like EUR and USD are managed by central institutions such as banks. But as for Bitcoin, no central authority is involved since it lives on a decentralized network.
So, where did Bitcoin originate from? The cryptocurrency was created in 2009 by a pseudonymous developer named Satoshi Nakamoto.
Before Bitcoin’s inception, making cross-border payments was a hassle due to the strict regulations on such payments. Moreover, the charges imposed by the banks made it difficult for people to make international transfers, which also took several days to complete.
Nakamoto understood these issues, so they designed Bitcoin to address them. The crypto asset facilitates fast, cheap, and borderless peer-to-peer transactions.
How Bitcoin Works
Limited supply is among the major features of BTC. While central banks can print more physical money without limit, Nakamoto capped Bitcoin’s supply at 21 million to ensure scarcity, making the cryptocurrency more valuable than fiat currencies.
All Bitcoin transactions are maintained on the blockchain, thus offering security and transparency. Note that the transaction information added to the Bitcoin network cannot be changed. This makes the system difficult to manipulate.
There are several factors that make Bitcoin secure. They include:
Bitcoin uses the Proof-of-Work consensus mechanism to validate transactions. This model requires miners who validate the transactions to use massive computational power, making it impossible for a malicious actor to take control of the network.
To avoid double-spending, Bitcoin adopts revolutionary cryptographic algorithms to ensure transactions are secured. These algorithms include the ECDSA (Elliptic Curve Digital Signature Algorithm) and SHA-256.
The decentralized nature of Bitcoin prevents an entity or a person from controlling it. Therefore, manipulating the network is difficult.
What is Bitcoin Used for?
Here are the several use cases of Bitcoin:
Store of Value
As inflation continues to rise, people are now viewing Bitcoin as a hedge against this financial crisis. Also, since its supply is capped, some crypto investors are convinced that Bitcoin’s value will rise in the future. So, they see it as their wealth storage.
A number of merchants now accept Bitcoin as a payment method, allowing holders to buy their favorite items online using their BTC coins.
As mentioned earlier, Bitcoins facilitate cheap, fast, borderless payments without involving middlemen like banks.
It is possible to donate some of your Bitcoins to charity works or even crises like the one witnessed in Ukraine last year when Russians invaded the country.
How to Mine Bitcoin
Mining is basically the process of approving Bitcoin transactions. Miners are rewarded with newly minted BTC coins.
Since Bitcoin mining involves the use of expensive equipment which consumes significant energy, it is almost impossible to do it on your own. Therefore, you can consider joining a mining pool, where several miners come together to combine their computing power to enhance their chances of receiving BTC rewards.
Another option is participating in cloud mining. This involves renting computational power from providers of cloud mining services. You don’t need to be actively involved in Bitcoin mining. All you have to do is make an investment. However, there are only a few reliable cloud mining providers, so research before investing your money.
How Do You Buy and Sell Bitcoin?
Being the most popular digital currency, Bitcoin is listed for trading on all well-known crypto exchanges like Binance, Coinbase, Kraken, Gate.io, OKX, and many more. To trade BTC, pick any of the mentioned exchanges, then create and verify your account. After that, deposit funds into the account and go to the spot market to buy Bitcoin. To purchase the coin, place a buy order, and to sell it, place a sell order.
With the security features that Bitcoin offers, the crypto asset will likely continue attracting users of fiat currencies. All said, BTC is a highly volatile asset, so invest responsibly.
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