Bitcoin is the oldest cryptocurrency in the world and is limited to 21 million pieces by its alleged inventor.
The desire for an anonymous and decentralized payment system was once the starting point for the development of the first cryptocurrency: in 2009 the first bitcoins came onto the market.
Based on the underlying blockchain technology, around 2,800 alternative currencies, so-called altcoins, have developed over time. But what exactly is behind the digital currency and what do you have to consider when investing in Bitcoins?
What is Bitcoin?
The name Bitcoin (BTC) describes the oldest digital currency in the world, which, unlike traditional currencies such as euros or dollars, is not regulated by a bank or state.
Following the idea of an open-source platform, not only are all bitcoins managed by all participants in a bitcoin network. Some of the users even dig for new coins together. Anyone can join the network and thus start trading or paying with Bitcoins or another cryptocurrency.
Who Invented Bitcoins?
There are a lot of myths about the origin or invention of Bitcoins. The idea of a decentralized payment method based on cryptography was mentioned in specialist circles as early as the late 1990s. A developer named Satoshi Nakamoto then brought this idea to market maturity by introducing Bitcoin as the first currency and blockchain as the technology required for this in 2009. It has not yet been clarified whether this is actually a single developer or a group.
Basic knowledge of blockchain technology
The blockchain technology on which BTC is based, but also other cryptocurrencies guarantees that payment processes within the network are carried out reliably and correctly.
The easiest way is to imagine a cash book that consists of several units (blocks) and of which every network participant has the most recent copy on their computer.
If bitcoins are bought or sold, a unique code is generated that contains information about the buyer and seller as well as the amount of bitcoins traded.
Not only is the calculation of such a code highly complex and therefore very secure – there is also a comparison and confirmation by the network that this code is permissible. The result is a decentralized payment system that could hardly be more forgery-proof and anonymous at the same time.
How to Get Started Trading Bitcoins
To start trading with Bitcoins or to be able to use Bitcoin as a means of payment, you first have to register with a trading platform for Bitcoins and get a wallet.
A wallet acts as a virtual wallet. If you buy bitcoins, the associated blockchain is stored in the wallet. Two cryptographic keys are important within the wallet: The “private key” is a type of digital signature that allows you to access your bitcoins – if you lose the key, your bitcoins are also lost. The “public key” is the public address that is used for purchases and sales.
Important: When you buy bitcoins, you should not only store them in a wallet from a provider online but also get a secure offline wallet – this way, your investment is protected in the event of a hacker attack but also in the event of a system crash.
Trade with bitcoins and have them paid out in dollars
When choosing a trading platform, you have several options. Some of the best known are Coinbase,Luno, Trustwallet, to mention a few. Luno a platform that is regulated by various financial institutions and thus offers investors a certain level of security.
As soon as you have created a user account, you can start buying and selling the digital currency. Payment is usually made via a stored credit card or PayPal.
If you sell your Bitcoins (hopefully profitably), the amount will be paid back to you at the current exchange rate in the currency of your choice.
It is important to know that many platforms have daily payment limits: For example, if you sell a large amount of BTC and want to have it paid out directly in dollars, you may have to split the payout over several days. Thanks to the regulation on Luno, you shouldn’t have any problems with the payout on this trading platform.
Current Bitcoin prices and how they are created
The number of users is so crucial because it has a decisive influence on the trading prices. Supply and demand are the central drivers for the price development of bitcoins.
For this reason, there is no such thing as “the one Bitcoin price”. It depends on how supply and demand are developing within a network.
What they all have in common, however, is mostly an upward or downward trend as a reaction to global developments. The effects of the Corona crisis can also be seen in the current Bitcoin rates.
Meanwhile, recovering from several months of bearish trends, Bitcoin crossed the limit of 19,000 dollars for a BTC on November 25. The cryptocurrency however lost more than 20 percent of its value within one day on November 26, 2020.
How strong the fluctuations can be can also be seen in the following days. Double-digit price gains and losses within one day are not uncommon. The dynamic arises because the trading volume is relatively low compared to other goods such as gold or stocks, and even small changes within the market can have a very strong impact.
Alternative forms of investment: CFD trading
If you do not want to buy Bitcoins or another cryptocurrency directly yourself, but only want to speculate on price developments, there are alternative trading platforms on which you can trade with certificates or “Contracts for Difference”.
This is an extremely dynamic form of investment, as you can use various levers to increase possible profits (but also losses). The entry into this form of trading is therefore more of a thing for experienced investors.
Why bitcoins are inflation-proof
There is one thing that investors do not have to fear with Bitcoins: inflation, i.e. a reduction in purchasing power. This is because the alleged inventor of Bitcoins limited the total amount of cryptocurrency available to around 21 million pieces.
So it is not possible to produce as many Bitcoins as you want. The limitation is based on mathematical rules: at some point, all conceivable codes have been calculated within the prospecting process. Experts assume that the last Bitcoin will be mined in 2140.
How bitcoins are created: what is mining?
To produce new bitcoins, some users make their computing power available for mining within a network.
With so-called mining, the computers solve complex computing tasks to add further code snippets to an existing blockchain. If the task is solved, the miner is rewarded with new bitcoins, often also called tokens.
The level of difficulty can vary depending on the cryptocurrency, but in any case, it is so complex that conventional PCs are no longer able to solve them. With good reason: This is how the BTC market is regulated and inflation is prevented.