Elon Musk has said on social media that he thinks cryptocurrency, like Bitcoin, is a good thing. And because of his comment, the value of Bitcoin rose significantly. But do you know What Is Bitcoin And How It Works?
If the world’s richest person is supporting a digital currency, then you know it’s huge and a big business.
The value rose so much that a single Bitcoin valued at £3,600 last year increased to worth £27,000. And since the talk of cryptocurrency has gone global, the Bank of Singapore has said that this 12-year-old currency can successfully replace gold as its store of value.
With all these talks, you must be wondering- what is bitcoin and how it works? Let’s see everything in detail about Bitcoin now.
What Is Bitcoin And How It Works?
Bitcoin is often explained as a cryptocurrency or a digital currency- it is also a virtual type of money. You can say it’s an online version of cash.
Bitcoin is the first cryptocurrency and is also the best-known crypto even when there are 5000 cryptocurrencies in existence today. The financial market energetically covers every dramatic high and stomach-churning low, making bitcoin an everlasting part of the crypto world.
It is a decentralized virtual currency that you can purchase, sell or exchange first hand, without any intermediary institution like a bank. Bitcoin was first introduced by the inventor Satoshi Nakamoto, and he described it as an “electronic payment system established on cryptographic proof instead of trust.”
Each Bitcoin transaction made is present on a public ledger available to everyone, making the transactions challenging to reverse and fake. By design, the core and decentralized nature, the bitcoins are not supported by the government or any financial institution; plus, there is nothing to guarantee about their value besides the proof that has baked in the heart of the system.
Bitcoin was publicly launched in the year 2009, and since then, it has risen dramatically in value. In the beginning, it was sold under $150 per coin, and now one bitcoin sells for more than $62,000. Because its supply is currently limited to only 21 million coins, it is expected that its value will keep rising in the upcoming future.
People always ask, how to exactly categorize bitcoin?- is it a type of currency? A store value? A payment network or a capital class?. Fortunately, it is easier to explain- Bitcoin is a software and a purely digital phenomenon with its own set of protocols and processes.
Like other currencies, Bitcoin is also produced and has processes and securities to prevent any kind of fraud and to ensure appreciation in its value. The main building components of Bitcoin are blockchain, mining, keys, wallets, halving, and hashes. Bitcoin is also mentioned in short form- BTC.
The bitcoin miners operate complex computer rigs to solve the tangled puzzles to confirm the groups of transactions, called blocks. On success, these blocks get added to the blockchain record, and the miners are benefited from a small number of bitcoins.
How Bitcoin Works?
The BTC is built on a distributed virtual record called a blockchain. As the name suggests, blockchain is the linked body of data made up of units(Blocks) and comprises information about every transaction. It also involves date, time, total price, buyer, seller, and a unique identifying code for every exchange.
All the entries are linked together in chronological order, creating digital chains of blocks. Blockchain is a decentralized system, which means any institution does not control it. It’s similar to Google Docs, on which anyone can work. Nobody owns it, but anyone who links it can contribute to it. And as people keep updating it, your copy also gets updated.
However, the thought that anyone can edit the blockchains sounds very risky, but it’s what makes BTC trustworthy and safe. For any transaction block to get added to the bitcoin blockchain, it should be verified by the majority of the BTC holders. The unique password to recognize the user’s wallets and transactions must confirm the correct encryption pattern.
These passwords or codes are long, random numbers that make it hard to fraudulently.
How To Use Bitcoin?
Generally, people use Bitcoins as an alternative investment and diversify their portfolios aside from stocks and bonds.
However, one can also use BTC to make purchases, but the number of traders that accept cryptocurrency is still limited. Click here if you wish to know How To Buy Bitcoin and How To Sell Bitcoin In India?
Some famous companies that accept BTC are Microsoft, PayPal, and Whole Foods.
How To Invest In Bitcoin?
Like any stock, you can buy and hold BTC as an investment. How To Invest In Bitcoin In India? It doesn’t matter where you choose to keep your BTC because people’s ideas on investing in it vary. Some think of buying and holding it for long terms, whereas some purchase it and aim to sell it after the price fluctuates, and others bet on its price decreasing.
In general, many experts support their clients’ wish to buy cryptocurrency, but they don’t recommend it unless the client shows interest. The speculative nature of cryptos guides some planners to recommend it for their client’s investment.
In general, BTC is like a single stock, and the experts would not recommend it for their clients.