What is Bitcoin? Everything You Need to Know About Bitcoin
January 29, 2020
What is Bitcoin?
Think of Bitcoin like any other currency such as USD or THB. You can use it to buy an ice-cold drink on a hot day at the beach. The difference is, it’s digital, you cannot physically touch it like banknotes or coins. Bitcoin transactions are processed on a decentralized computer network called Blockchain.
Bitcoin (BTC) is not the only digital currency out there in the world. Being the first digital assets, BTC has inspired many more tokens to be created; we call those Altcoins or Alternative coins.
Bitcoin and Blockchain
Bitcoin is the first blockchain-based currency, also known as a digital assets. It follows a decentralized methodology and is based on Blockchain technology, which processes transactions and records them in a computer network. This allows Bitcoin to be trackable, secure, and fast while having no government or authority controlling it.
The computer networks in Blockchain are all over the world. No one knows precisely how many computers are in the system. Although some people think it could be around 3 million computers or so-called nodes.
The bitcoin blockchain network is vast, and every node has the same copy of the ledger of transaction details. To change or hack Bitcoin is almost impossible since you would need to compromise more than 50% of the computers in the system, which is millions at a time.
If you have a ledger of your spending and someone changes or steals it, you might never remember the correct spending information, right? But if 100 people in your neighborhood have a copy of your ledger, and someone steals your ledger, you still have 99 more ledgers to reconcile the transactions. Having millions of computers with the same copy of Bitcoin transactions is one of the reasons why the Bitcoin blockchain is one of the most secure systems for financial transactions.
What is Bitcoin mining?
Since bitcoin blockchain uses a computer network to process transactions, it needs a lot of processing power from many computers. Bitcoin mining is when people use their computer power to help process Bitcoin transactions, and get Bitcoin as a reward. Mining is how Bitcoin is created (or mined). It’s similar to minding gold or diamonds, but also different since you use a computer as a tool.
Anyone can participate in the network and start being a miner. Note that Bitcoin mining consumes so much power that it might not be worth your electricity bill if you use a regular computer.
Many people build their Bitcoin mining infrastructure to optimize their tools for bitcoin mining only. Some people even create a company around this and have multiple servers the size of giant factories.
How many Bitcoin are there?
There’s no single authority to control Bitcoin supply like other currencies, but that doesn’t mean anyone can just create as many Bitcoins as they want. The only way to have more Bitcoins in the system is to mine it, not printing it like a banknote.
Bitcoin’s maximum supply is 21 million. When a new block is created in the Blockchain (which means the new transaction is processed successfully), miners who use their computers to process transactions get BTC as a reward. A new block is created around every 10 minutes. In early 2020, the bitcoin reward per block is 12.5 BTC, but every four years there’s an event called a Halving. Halving means the BTC reward for miners will be cut in half. After the halving on 13 May 2020, the reward decreases to 6.25 BTC per block. Halving is designed to prevent hyperinflation in Bitcoin so that no one can create as many Bitcoin as they want.
In 2104, all 21 million Bitcoin will be mined. No more Bitcoin will be created. So even if one Bitcoin is worth a billion dollars at the time, we cannot put more Bitcoin in the system to control the deflation or reduce the value. The good news is Bitcoin can be divided into 8 digits, which means you can use 0.00000001 BTC at a time.
Who created Bitcoin?
Satoshi Nakamoto is credited as being the creator of Bitcoin in 2008, and remains unidentified to this day. No one knows if this is actually a Japanese person (based on his name) or a group of people. The mysterious Bitcoin sparked a lot of interest in digital assets, prompting the creation of thousands of other currencies collectively known as Altcoins.
What can I do with Bitcoin?
Even though Bitcoin is not as widely accepted for payment as traditional methods such as cash or credit card, many organizations and individuals have started to accept Bitcoin as a form of payment. Bitcoin also has many other benefits, such as:
Depending on the exchange you use, for as little as 0.4% of the transaction you can transfer your funds and they will arrive there within the hour, instead of paying a US$30+ fee and waiting days for your funds to hit the other account to get your money.
Use it instead of cash. Many stores, both online and offline, accept Bitcoin as a form of payment. Although it’s not as commonly recognized as a fiat currency. Microsoft has been accepting Bitcoin for many years, and you can check for more places that accept Bitcoin at Use The Bitcoin.
Storage of Value
In a country like Venezuela, where hyperinflation makes your millions turn to zero overnight, Bitcoin provides an alternative to store your money despite its volatility.
Since Bitcoin’s price is still volatile; it provides a lot of opportunities for trading. You can think of it as buying a financial asset (e.g. stocks) when the price drops and selling it later when the price increases. However, volatility means a higher frequency of price changes, so you have more opportunities to capture the gains of such price differences compared to stocks. Some people (informally called Hodlers) believe that the more Bitcoin gets popular, the higher the prices, so they just keep buying and holding as a form of savings.
Is Bitcoin trading profitable?
Bitcoin volatility is still high compared to other traditional investments. There’s no circuit breaker or market break to stop trading when the price crashes since there’s no authority controlling Bitcoin. So there’s a high risk but also a chance for high return as well.
You might be wondering how much profit you would have made if you had invested in Bitcoin earlier. The average Bitcoin price in January 2019 was US$3,706, and in December 2019, it was US$7,293. This means you could have made a 96.81% profit within 12 months.
On the other hand, if you looked at the same scenario in 2018, you would have lost -71.39% of your money since the Bitcoin price was US$13,044 on average in January, but it was only US$3,732 in December.
Trading Bitcoin means you need to be prepared for the worst-case scenario of losing most of your money. You could be making a big profit in a short period of time, but also make a significant loss as well. Make sure you don’t put all your eggs in one basket and check out our blog for safe trading.
*Data from Coinmarketcap using the average price in USD
How to start trading Bitcoin?
Trading Bitcoin is not a tricky business. You just need to have an account or Bitcoin wallet, just like you need a bank account to hold your fiat money. During the account opening process, there will be a KYC (Know Your Customer) or verification process according to your jurisdiction. Then just log in the website and choose if you want to buy or sell bitcoin, specify the amount, and the price.
Some websites might require you to transfer money when the transaction happens; some might need you to transfer fiat and leave it on their website to buy Bitcoin.
Furthermore, you can trade Bitcoin for other assets such as Litecoin or even gold token, depending on the paring token your service providers offer.
We recommend you only use an officially regulated platform to make sure your money is in trustworthy hands. In Thailand, you can check the regulated exchange list at https://www.sec.or.th/EN/Pages/Shortcut/DigitalAsset.aspx
If you are not sure which currency to start trading with (there are many more than just Bitcoin) check our guide here.
Challenges for Bitcoin?
Bitcoin has great potential to disrupt some of the biggest industries in the world, resulting in resistance to legalizing Bitcoin in many countries. Hence, we are still in the early stages when it comes to regulation and taxation.
Moreover, Bitcoin is still harder to use than its traditional counterparts. This means getting started with Bitcoin is not as easy as using a credit card or transferring money through Paypal. A lot of people with bad intentions can take advantage of this lack of knowledge, which could make Bitcoin look concerning to many individuals. That’s why at Zipmex, we aim to provide you with all the knowledge that you’ll need to get started. Our team is also very friendly and loves talking to anyone new to Bitcoin; our lines are always open, so please do drop us a note/call whenever you’re unsure of something.
Is Bitcoin legal?
Bitcoin’s status still varies by country. New Zealand just became the first country to legalize salary payment in Bitcoin in August 2019. Japan also recognized Bitcoin as a legal tender currency in April 2017. While China still bans Bitcoin trading, it passed a digital assets law that is effective starting in 2020.
Many countries have regulations regarding Bitcoin trading. In the United States, Bitcoin exchanges need to have a license under the Bank Secrecy Act.
In Thailand, a license is required for all the exchanges to be able to operate. You can check for the list of officially licensed exchange via the SEC website here: https://www.sec.or.th/EN/Pages/Shortcut/DigitalAsset.aspx
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