Bitcoin is the world’s first cryptocurrency that paved the way for the multi-trillion dollar crypto market we can trade and invest in today. Read on to learn everything you need to know to get started with Bitcoin, from using it to make payments to adding it to your investment portfolio. We hope that this guide will help you on your journey to buying, owning, and trading Bitcoin.
What is Bitcoin and how does it work?
Bitcoin is a peer-to-peer digital payment system that was launched by a pseudonymous developer called Satoshi Nakamoto in 2009. In simpler terms, bitcoin is internet money. Anyone with an internet connection can access the Bitcoin network by downloading a cryptocurrency wallet and purchasing bitcoin on a crypto exchange. Then, they can securely store, send, and receive money over the internet without the need for a financial intermediary, such as a bank or online payment provider.
In the Bitcoin whitepaper, which was published in October 2008, Satoshi described Bitcoin as “an electronic payment system based on cryptographic proof instead of trust.” That means bitcoin transactions don’t require a financial intermediary. Instead, bitcoin transactions are recorded on a distributed public ledger, called blockchain, where everyone can see and verify the authenticity of transactions.
The Bitcoin blockchain is also decentralised, meaning it’s not controlled by a single entity. Before transactions are added to the Bitcoin blockchain, they are verified by parties participating in the Bitcoin network, called miners.
Why has Bitcoin become so popular in recent years?
Bitcoin’s popularity has grown tremendously over the last decade. The digital currency has grown from what was considered an internet fad in the early days to a mature alternative investment asset bought by large companies, institutional investors, and private individuals.
The narrative of bitcoin as a store of value has risen substantially in the past two years after seeing institutions - both public and private - accumulate bitcoin instead of holding cash in their treasuries.
Public companies like Square, MicroStrategy, and Tesla, among many others, have bought a lot of bitcoin in the last few years as a hedge against inflation and to potentially generate a higher ROI than traditional treasury assets. Also, companies like PayPal have provided access to bitcoin to over 360 million active users.
When was Bitcoin created?
The Bitcoin whitepaper was published online in 2008 by someone or a group of people called Satoshi Nakamoto. However, the first set of transactions were performed in January 2009. On January 12, 2009, Satoshi Nakamoto sent 10 BTC to Hal Finney, an early contributor to the Bitcoin code.
Who invented Bitcoin?
Satoshi Nakamoto is the name of the person or group of people who published the Bitcoin whitepaper in 2008 and built the Bitcoin software that was released in 2009. A lot of people have claimed to be Satoshi in the last few years, but as of this writing, the true identity (or identities) of Satoshi Nakamoto remains unknown.
How does Bitcoin mining work?
Bitcoin mining is the way by which transactions are confirmed and new units of bitcoin are created. Mining is performed using powerful hardware that solves an extremely complex computational math problem. The first computer to find the solution to the problem is awarded new bitcoin.
People who mine bitcoins are called miners. If a miner is able to successfully find the next block that will be added to the Bitcoin blockchain, they will receive 6.25 bitcoin as the block reward. However, the reward amount is reduced in half roughly every four years or every 210,000 blocks, known as ‘bitcoin halving’. The next time block rewards will be reduced by half is expected to be in 2024.
Bitcoin price history
Since it’s inception in 2009 the price of Bitcoin has seen many highs and lows. Below we have highlighted the key Bitcoin price milestones over the years.
- 2011: Bitcoin's price shot up from $1 in April to a peak of $32 in June 2011, a gain of 3,200% within three months. Though it crashed back to $2 in November that same year.
- 2013: The digital currency experienced two major price bubbles. It gained over 1,500% in the first half of the year before plummeting. But by the end of the year, bitcoin had recorded more than 8000% gain for the year.
- 2017: This is one of the most remarkable years in bitcoin price history. The price and popularity of bitcoin gained massive steam, climbing from $975.70 on March 25 to $20,089 on December 17 and we saw market analysts try to figure out how to value this new asset class.
- 2020: The pandemic hit but it was a boon for the price of bitcoin. Boosted by central bank money printing and concerns about inflation, bitcoin became sort of a safe haven for investors. We also saw large corporations buying bitcoin to diversify their cash reserves. Bitcoin’s price gained over 300% this year.
- 2021: We reached new all-time highs with its price climbing above $65,000USD. Institutional interest remained strong in bitcoin and we saw the first-ever US-based Bitcoin ETF hit the exchange.
What is the market capitalisation of Bitcoin?
Bitcoin had a market capitalisation of $1,074,326,454,565 (~$1 trillion) as of November 24, 2021, which means that the total market value of bitcoin is higher than Facebook, JP Morgan, and Johnson & Johnson. As of writing this the Bitcoin market cap sits at $827,221,101,210 (January 13th 2022).
What’s more, if bitcoin can revert back to positive price momentum and exceed the $70,000USD mark, the digital currency will have a higher market capitalisation than silver.
Where can I view bitcoin transactions?
One of the primary benefits of bitcoin is its transparency. Anyone can view transactional data in real-time on the Bitcoin blockchain using Blockchain Explorer. All transactions that have ever been made on the blockchain are publicly visible, no matter who you are.
You can check the transaction history of a particular bitcoin wallet address and see information about the time a transaction took place, the volume, and the addresses involved. This helps when you want to track the bitcoin someone has sent to you. However, the personal details of the wallet address owner are private and cannot be seen online, making the Bitcoin network pseudonymous.
What is the Bitcoin halving?
Bitcoin halving is an event where the reward for miners is halved at regular intervals. When a halving event occurs, bitcoin miners receive 50% less reward for confirming bitcoin transactions, which also reduces the number of new units of bitcoin released to the public.
At the launch of Bitcoin, a miner earned 50 bitcoin as a reward for processing a block successfully. The first halving in 2012 reduced it to 25, and then later in 2016, it was reduced to 12.5 bitcoin. Now, miners earn 6.25 bitcoin till at least 2024, when there will be another bitcoin halving event. By 2140, bitcoin will have hit its maximum supply, and miners will not receive bitcoin block rewards anymore, only transaction fees.
Bitcoin trading guide
Let’s take a look at how you can trade, buy and invest in bitcoin.
How to trade bitcoin
Bitcoin trading allows you to speculate on the movement of bitcoin’s price. If you prefer an active approach to investing, swing trading or day trading bitcoin may be right for you. Bitcoin traders can buy and sell bitcoin through crypto exchanges or crypto CFDs with a brokerage like Axi, where they can speculate on both rising and falling prices.
To trade bitcoin, follow these steps:
- Conduct research on bitcoin’s price movements
- Create your own bitcoin trading strategy
- Pick a crypto exchange or trading platform to trade bitcoin
- Deposit fiat currency or cryptocurrency to fund your account
- Implement your bitcoin trading strategy
- Track and monitor your trades to optimise your trading strategy
How to buy bitcoin
To buy bitcoin, you will need the following things: a bitcoin wallet, a trusted bitcoin exchange, and money to convert into bitcoin. Once you have set up a bitcoin wallet and found an exchange that supports the currency and payment method you want to use to buy bitcoin, you can follow these steps to buy the digital currency.
- Register on a cryptocurrency exchange
- Deposit money to the exchange
- Create an order for the bitcoin equivalent to the amount you deposited
- Once the order has been filled, you will receive your bitcoin in your exchange wallet
- At this point, you are advised to send the bitcoin into a personal wallet to which only you hold the private keys for increased security
How to invest in bitcoin
Bitcoin is now an established alternative asset, and investing in it could be a way to diversify your portfolio. Investing in bitcoin involves buying the digital currency (using the steps above) and then securely storing it - ideally in a cold wallet offline - to ensure your digital funds are secure.
How to store bitcoin
Just like we keep physical cash in a wallet, bitcoin is also stored in a wallet, except it’s a digital wallet. A bitcoin wallet can be accessed online or stored on a physical device. There are different kinds of wallets for storing your bitcoin, including hot and cold wallets. Hot wallets allow you to access your bitcoin via the internet and cold wallets hold your coins offline.
To securely store bitcoin, follow these steps:
- Once you have bought some bitcoin, decide what type of wallet is right for your needs
- If you plan to hold it for a long time, you could buy a cold wallet. Examples of cold wallets include Trezor and Ledger, which are leading hardware wallet providers
- Set up your hardware wallet, ensuring that you have backed it up accordingly, and send your coins to the wallet
- Keep your coins in your hardware wallet until you plan to sell them
Advantages of Bitcoin
- Transparency: Bitcoin’s monetary policy, transactions, and technology are totally transparent, which is in contrast to traditional currencies. It’s easy to validate the authenticity of any transactions.
- Low transaction fees for cross-border payments: One of the main use cases of bitcoin is for cross-border transfers because it costs much less than wire transfers and other remittance methods. It makes the world truly borderless since you don’t need an intermediary to process international payments.
- Security: Bitcoin is almost impossible to hack because of the economic incentives built into it to encourage good behaviour on the network.
- Accessibility: There are no restrictions on who can use bitcoin. Anyone, anywhere, at any time, can send and receive bitcoin.
- Potential high returns: Bitcoin has performed better than other assets in the last decade and the price has the potential to keep rising because there is a finite number of bitcoin and increased demand.
Disadvantages of Bitcoin
- Volatility: Bitcoin’s price tends to have a lot of rapid ups and downs in a short period of time. Making payments in bitcoin can become difficult since the receiver won’t know how much value they are going to receive. Additionally, bitcoin investors can find their investment dropping by 50% during market corrections.
- Bitcoin isn't widely accepted yet: There are still only a few places where you can use bitcoin to buy everyday items. Only one country has recognised bitcoin as an official currency for now.
- The threat of hacking: You’re responsible for the safety of your bitcoin. Without good knowledge on how to store bitcoin securely, you could be at risk of losing your bitcoin to hackers.
What price is bitcoin expected to reach?
Predicting the future price of any asset is always difficult, and it’s no different with bitcoin. In 2021, banking giant Standard Chartered said they expect bitcoin's price to increase three-fold and set a price range of between $50,000 and $175,000 over the long term.
Another forecast from a director at Fidelity Investments stated there will be a sustainable rise in Bitcoin’s long-term value, putting the $100,000 threshold in the short term. The main factor that will influence a bitcoin price rise is adoption. Bitcoin has a finite supply of 21 million, and with demand rising, its price could continue to skyrocket to never-before-seen levels.
