Everything you need to know about Bitcoin
Source:
Dado Ruvic | Reuters
Bitcoin is the most well-known and widespread decentralized digital currency that can be bought, sold and exchanged like the fiat currencies we use every dayand what sets it apart is that during the exchange there is no centralized intermediary like a bank. Bitcoin (BTC) is the first cryptocurrency among more than 19,000.00 that exist today.
Since its public launch in 2009. when it was worth $0.00532 per 1 BTC, and could only be purchased through unofficial online channels – this currency rose dramatically in value. In November 2021. the value of bitcoin reaches its peak, and the price of 1 bitcoin (BTC) exceeds 65,000.00 US dollars. This increase in value is associated with a generally increased interest in this cryptocurrency, and we would like to highlight a couple of key developments that have certainly contributed:
- Launching a Bitcoin ETF in the United States;
- the announcement of the multinational Tesla Inc. about its long-term profitable investment in Bitcoin worth $ 1.5 billion;
- Coinbase’s exit to the stock market, ipo (Coinbase is otherwise the largest U.S. centralized crypto exchange, CEX).
Although Bitcoin is seeing a decline after 2021, given the limited number of coins in circulation (21 million coins fixed) – we can expect its value to only grow, all the more so as a growing number of investors begin to treat it as a kind of digital gold. Such an application of this cryptocurrency can be compared with the inclusion of gold in the traditional stock portfolio due to risk reduction (so-called “Hedging”).
Despite its volatile history, the story of Bitcoin has great significance for the crypto world, reflecting the rise of decentralized finance (DeFi), the emergence of blockchain technology and numerous innovations that are changing the way investors think about trading as well as what the future of the cryptocurrency may have.
What is Bitcoin "Halving"?
Bitcoin “Halving” refers to the gradual decrease in the speed at which new units of this cryptocurrency enter circulation, and occurs on average every four years.
The halving strategy is part of the programming on which a virtual currency is based to ensure that its overall supply in the crypto market is fixed. If you are an investor or are just planning to become – it is important to know something about “halving” because it has greatly affected fluctuations in the price of bitcoin throughout history.
What is worth pointing out and remembering is that “halving”:
- reduces the speed of release of new bitcoins;
- contributes to the reduction of the inflation rate;
- provides a limited amount of bitcoin in circulation (21 million coins fixed);
- maintains a stable value of the cryptocurrency;
contributes to the sustainability of mining, which is extremely important with the Bitcoin blockchain given the “Proof-of-Work” mechanism that directly depends on miners.
It is estimated that in 120 years all coins will be mined, or as we would say in crypto jargon “izmajnane”, and that miners will not receive new coins as a reward. Instead, they will continue to make money from transaction fees. So far, 19 million coins have already been mined, which means that there are still 2 million left to be mined. Contrary to the limited number of coins such as in the case of Bitcoin – with fiat currencies with unlimited stocks (e.g. the US dollar), we see a greater sensitivity to inflation, but also to other market risks.
How does it work?
To understand how bitcoin halving works, we must first briefly go over the basics of how cryptocurrency is created . Bitcoins are created through a decentralized system, in which participants are known as miners. “miners”) use powerful computer systems to solve cryptographic puzzles to verify and validate transactions within the Bitcoin blockchain. In return, they receive a payout in the form of newly created bitcoins.
Bitcoin mining can be compared to a kind of competition. Miners are essentially racing over who will be the first to add new blocks to the blockchain. For each block added, they receive a certain number of new bitcoins as a reward and this is where we come to the need for “halving”. The originators of Bitcoin have programmed the chain so that the reward for block mining is reduced by half at regular intervals, i.e. after 210, 000.00 added blocks. Given that it currently takes about four years to add so many blocks to the chain – we say that “halving ” happens at intervals of approximately four years. The last and third halvings occurred in May 2020, with the next one expected in 2024. In theory, once a total of 21 million bitcoins are mined, new ones will no longer be produced. According to the CEO of Qiuidax – the African cryptocurrency exchange (Buchi Oko, CEO), just as there is a limited amount of gold on Earth, so is the amount of Bitcoin limited in the digital environment. Therefore, we can look at Bitcoin as a digital natural resource aka digital gold. Below is an example of one crypto post on Twitter, which is otherwise one of the more popular social networks among crypto enthusiasts. In this Twitter post, a crypto enthusiast and investor “speculates” about the future halvings of Bitcoin, and how it will affect the value of this cryptocurrency.
Source:
Twitter, Kevin Svenson
How does Bitcoin work?
Source:
TRPlane
Bitcoin is built on a distributed digital record called blockchain . As the name suggests, a blockchain is a connected data chain that is composed of units called blocks and contains information about each transaction, such as date and time, total value, and a unique identification code that is associated with each individual exchange. The entries are strung in chronological order creating a digital blockchain chain, and once a block is added to the blockchain it becomes available to anyone who wants to see it, acting as a public ledger of all cryptocurrency transactions.
We could simply explain the blockchain by comparing it to an open Google Docs file, on which anyone can work collaboratively and simultaneously. While the idea that anyone can access blockchain sounds risky – that’s exactly what makes it reliable and secure. In order for a transaction block to be added to the Bitcoin blockchain, it must be verified by miners using nodes. In the process of verification, unique codes are used to identify user wallets …. “Crypto Wallet”) and transactions, which must comply with the right encryption pattern.
"Proof-of-work" consensus mechanism on which Bitcoin rests
Compared to the more innovative and energy efficient “Proof-of-Stake” mechanism, the practicality and acceptance of which we are still evaluating in practice, “Proof-of-Work” brings with it higher equipment costs, as well as higher energy consumption needed to validate block information and transactions. Be that as it may, both consensus mechanisms help blockchains synchronize data, validate information, and process transactions. So far, both methods have proven successful in maintaining blockchain, although each has its pros and cons.
In short, the difference is that with PoS, block creators are called validators who check transactions, confirm activity, vote on outcomes, and keep records. At PoW, on which Bitcoin rests, the creators of the blocks are called miners. They work to find a hash, a cryptographic number, to confirm transactions, and in turn are rewarded. Although the “PoW” mechanism characteristic of Bitcoin, it is possible to switch to “Proof-of-Stake”. However, it takes years for a successful implementation, as well as the Bitcoin community’s consent to change.
More about consensus mechanisms. consensus mechanism”) you can read on our previous blog dedicated to the topic “Mergers” that took place on the Ethereum network. In the article, we take you in detail through the differences, but also the similarities of the PoW and PoS mechanisms. For the article “Ethereum Merge”, click here.
What is mining and do you need to mine to make a profit?
Source:
Finance Magnates
Mining is a complex computer process by which new transactions are added to the Bitcoin blockchain. In order for the process to be successful, a powerful computer and access to huge amounts of electricity are needed. It is good to know that today Bitcoin mining is rewarded slightly less than in the beginning. This makes it even more difficult to cover rising computer and electrical costs. While interesting, mining is not necessary in order to embark on your Bitcoin venture. For starters, you can start buying and selling.
In what ways is Bitcoin used?
As an alternative investment method;
as an aid in diversifying the risks of the cryptocurrency portfolio (before mentioning “hedging”);
to pay for goods and services (today there are large companies that accept Bitcoin, and some of them are Microsoft, PayPal);
to send money, for example from Croatia to Japan or China (faster and cheaper compared to a bank);
for a service that allows you to connect a debit card to your crypto
account (this means you can use Bitcoin in the same way you would use your credit card);
In short, Bitcoin provides the ability to store value without relying on a currency backed by the central system, banks and government.
How to buy Bitcoin?
Most people buy Bitcoin on cryptocurrency exchanges. Exchanges allow you to buy, sell, but also own cryptocurrency. Setting up accounts on centralized crypto exchanges (eng. “CEX”), is similar to opening a brokerage account – it requires confirmation of identity, and citing sources of financing such as a bank account or debit card. Some of the major CEX exchanges include Coinbase, Kraken and Gemini.
In addition to centralized cryptocurrencies, there are also decentralized cryptoexchanges …. “DEX”), where it does not require the specified verification, but the connection of the wallet to the platform in order to make the desired transactions. The main advantages of DEX exchanges are lower transaction fees, direct access to their own digital assets, and reduced regulatory burdens. While CEX exchanges also offer their strengths – such as greater liquidity and enhanced regulatory guarantees – exchanges like this usually require assets to be placed in custody before trading. This requirement greatly contradicts the ideals of the crypto world of holding its own assets under direct control, therefore CEX exchanges are more often used by institutional and less by individual investors.
No matter where you decide to buy your Bitcoin, you will need a Bitcoin wallet in which you will store it after making a purchase. Some examples of online wallets are Trust Wallet, Exodus, Electrum, Mycelium, MetaMask and numerous others.
Note: Since miners need to confirm Bitcoin transactions, you can expect it to take a shorter amount of time to see a Bitcoin purchase made in your account. That time has been shortened by the new “Proof-of-Stake” consensus mechanism to which the Ethereum blockchain has moved.
How to buy or sell Bitcoin through Kriptomat?
If you want to avoid stock exchanges, explore an additional way to buy / sell or rely on offline channels – with a few simple steps you can get everything done through KRIPTOMAT. Find out more with step-by-step instructions and video tutorials at:
A) How to buy Bitcoin and other cryptocurrencies through KRIPTOMAT?
B) How to sell Bitcoin and other cryptocurrencies via KRIPTOMAT?
Next week, we’ll tell you even more about the differences between Bitcoin and gold. Until then, go through this article and contact us if you are interested in more or if you need further clarification. Find us and follow us on social networks via link and write to us!
Your Kriptomat.hr Team
