Bitcoin is a hot topic. Whether it’s the media talking endlessly about the price, your friends telling you to invest or your parents assuring you it’s a scam – Bitcoin is on your radar.
But learning about Bitcoin as a newcomer to the space can be overwhelming. For this article, we’ve put together this Bitcoin basics to show you the ropes.
The Very Basics of Bitcoin
Bitcoin is a digital currency created in 2009 as a way to send value across the Internet on a peer-to-peer basis. Essentially, Bitcoin was created to allow money to be sent online without involving anyone other than the person sending it and the person receiving it – real digital cash.
What’s great about Bitcoin is that it’s trustless and secure. Bitcoin is maintained by a large network of computers around the world – the miners.
The Bitcoin Network
Bitcoin miners all maintain copies of the entire history of Bitcoin on a public distributed ledger. The miners’ records all agree on everything that has happened in the past – every transaction.
The time Sally sent George 1 Bitcoin to pay for a sandwich? That’s recorded.
That’s why Bitcoin is so great. As the transaction history is all there, spread out across the world. Everyone’s money is safe.
New Bitcoin can only be earned from mining. Bitcoin miners compete to solve a complex mathematical puzzle. The miner that solves the puzzle first is rewarded in Bitcoin. Other miners are able to receive transaction fees, also paid in Bitcoin. Miners are crucial to the Bitcoin ecosystem as they are the ones that help maintain the network.
Every four years or so the rewards that miners receive are halved and by 2140 all Bitcoins will have been mined. By then, miners will only be rewarded from transaction fees.
The Price of Bitcoin
So now you’ve got a handle on the Bitcoin basics, we can talk about why the price of Bitcoin is so volatile.
In the first years of Bitcoin, each Bitcoin was worth a fraction of a cent. Today, one Bitcoin is worth thousands of dollars. How did that happen?
The price movement of Bitcoin is completely by supply and demand. When more people want to buy Bitcoin than sell it, the price goes up.
Over the years, Bitcoin has become increasingly popular because people have realized the potential for financial disruption. Bitcoin is gradually becoming accepted as a payment method across the world. Others view Bitcoin as an excellent store of value, so they want to hold it as a means of saving, much like gold.
Bitcoin believers are keen to buy Bitcoin, so the demand goes up. This has also opened the doors to speculators who buy Bitcoin to try and make a profit.
These factors and more pushed Bitcoin to $20,000 in 2017 before falling back to $3,000. Swings like this have happened a few times in the past. These market cycles occur in all financial markets but are usually more pronounced in cryptocurrency.
Bitcoin is here to stay. Are you on board?
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