Bitcoin, Blog, Tutorial

What is Bitcoin and what is it for?

You’ve probably heard about Bitcoin in the last few years, the money of the internet or something like that, exponentially growing up in price and having big corrections also.

Let’s just see what we’re talking about when we say “What is Bitcoin?”. Short answer: Bitcoin is a digital currency. Like Euros, Dollars or Yens, but only digital: it doesn’t exist physically.

This virtual coin was created in 2009 by Satoshi Nakamoto. No one knows who he is, his identity is almost mythical and it deserves a separate article. The important thing is that Nakamoto invented Bitcoin to provide the society uncontrolled money and improve online payments.

What exactly is a Bitcoin?

Bitcoin is a decentralized open source protocol for transferring wealth all around the world almost instantanously. Difficult to understand? Well, let’s say that “decentralized” means no intermediaries are needed: it all goes P2P (from user to user).

Nobody stores our bitcoins, we don’t depend on anybody to guard or transfer them (If you have ever used Torrent or emule technology to download files, then you know what P2P is). “Open source” means that the code is available for everybody to check, test, modify, improve and distribute it. So neither the code is controlled by any central authority but for the whole community, that can propose improvements to the code and the whole community accepts or denies the proposals. This is also important because many other digital coins have been created, every one with their own characteristics.

The Bitcoin system has been specially created to limit the number of bitcoins on the market to 21 million. They are created little by little, every ten minutes: there will be only 21 million Bitcoins in the world and no more will be created. That’s all. What happens when the coin reaches that limit? No problem: it can be divided to its eighth decimal place, so you can pay as little as 0.00000001 bitcoins (also known as 1 satoshi, honouring it’s creator).

If Bitcoin reaches a price so high that 1 satoshi is more than 1 cent, for example, the code can be changed in order to add more decimals. The system will not be affected as everybody will own the same amount of bitcoins, it was just be possible to pay smaller ammounts of it.

So, that would mean that in future we would not pay with bitcoins, but with smaller units called milibitcoins, microbitcoins or satoshis.

For example, the price of 1 Bitcoin is $6,356.75 as the time of writing but it’s price is very volatile nowadays. It has a circulating supply of almost 17 million coins today.

How to invest in Bitcoin?

There are several ways to invest in crypto currencies, from simple to quite complex.

The first thing you have to do is buy some bitcoins through specialized exchanges like localbitcoins.com or bitcoin.de, where you can buy bitcoins with fiat currencies, like euros or dollars. Once the cryptomoney is acquired, many forms of investment can be used, among them:

  • Buy and hold: It’s very simple: just buy and wait for the crypto currency to rise in value. Considering this is a very new technology, only a very little fraction of the world population knows about it and even a smaller uses it, maintaining the investment expecting high market values is one of the most used strategies to generate big profits. Holding has been in operation since the irregularity of Bitcoin’s patterns began to be noticed.
  • Trading: currencies are exchanged in a shorter period of time (hours, daily or every few days). Traders study the status of other crypto currencies (also called “alts”), check which ones may increase their price in bitcoins and buy them. Once the alt crypto currency is more expensive they sell it and earn bitcoins. Consider this as trading in Forex: you may buy Pounds if you think it will be more expensive against your own currency (euro, for example) and later, when the price of the Pound is higher, you sell it to buy again euros. There are several options to trade bitcoins and alts:
  1. On you own, trading on important exchanges like Binance, Bitmex, Kucoin
  2. Being part of a trading group
  3. Buying a trading bot (a program that automatically trades for you)
  4. Investing through a crypto fund
  • Investment in ICOs: They are initial offers of a project of crypto currencies that represent a great opportunity for investors. Why? Because if the project is really profitable it will have a more advanced growth than others. It’s a crowdfunding of a startup, if the company is profitable the tokens you buy at the beginning will be more expensive in the future. Imagine you bought Apple or Amazon stocks when the companies where in the early beginning…

This is the basic information to start investing in Bitcoin. If you are new to it you may follow the guides to register and start buying some bitcoins, so you can learn about it. But before continue investing and trading your bitcoins for alts or investing in ICO we deeply recommend you not to trust anybody that promises you huge profits, this market is very volatile as it’s in its very beginning, specially now that big investors have entered the market. You can earn a lot of money, but it’s not so simple. It’s very good to read and follow the experts but remember: trust nobody that promises great money and always do you own research.