Recently, we’ve been hearing the term 'Bitcoin' a lot, coupled with concepts such as digital currency, emerging value, distributed currency, cryptography, and so on. Most of us listen to all these reports and find ourselves asking one simple question: "What is this Bitcoin?"
Of course, even more questions arise and emerge immediately afterward: "Where did it come from?" "How did I not hear about it until now?" “What can you do with it?" All these questions are understandable and the following article will try to give you a concise, clear and simple explanation.
To this day, we have known money as a fairly physical thing - we all have a cash and coins in our wallets. This money is managed by the government within the classic banking system that we all know. Bitcoin and its trading changed the rules of the game because it is a completely digital and decentralized procedure. What does this actually mean?
In the digital aspect, it means that going to your nearest ATM or bank and withdrawing bitcoin as you would any other currency, is impossible. Bitcoin exists as digital information, which is collected in a "digital wallet", a dedicated computer program that holds each user’s coins.
In the decentralized aspect, Bitcoin does not have a "father and mother" – it is not under any government or centralized control. Almost all currency trading is done online, with its community of users making the rules- individuals from all over the world connected to each other via the Internet. Even the value of the currency in the market is determined by its supply and demand index.
In the following updating graph you’ll be able to see Bitcoin's rate against the dollar every day for the past six months by hovering over the graph with your mouse (or pressing with your finger on mobile):
In order to understand the nature of Bitcoin, we need to know the idea behind it and the way it evolved, which we’ll try to explain in a nutshell: Bitcoin was first created in 2009 by an anonymous Internet user who wanted to establish an international currency not controlled by any government. Through his e-mail, the same user distributed the software to create and use Bitcoin, along with a detailed article describing the essence of the idea, the principles of the coin and how to use the software.
In the beginning, few people were convinced of the anonymous user's vision, and so the extent of the coin's circulation, as well as its value, were particularly low. But now many years later, thanks to the efforts of the founder of the currency and the virtual group created around him, Bitcoin’s economy has increased - more and more people and Internet users from around the world have seen the potential of this kind of currency and joined its user community and developers.
Over time, the addition of users and the rise in interest created by the digital currency led to a significant increase in value, and an unprecedented expansion of the market for traders and media interest in the currency, which we are witnessing now.
The first Bitcoin coins were created in a process called Bitcoin mining, which describes a series of complicated computational operations carried out by the currency miners' computers according to rules and regulations defined by its developers. At the end of each series of calculations, a number of Bitcoin coins come into the world and go to the "wallet" found on the computer, which first finishes the calculation process as a kind of reward for its performance.
You'll be surprised to hear that any computer, including your own, can connect to the network of miners and make the calculations necessary to "mine the coin." But for your computer to be the first to finish the operation and win the money, you will have to invest capital to upgrade it and learn more about the field. For this reason, there are almost no private users using this method.
If you understand more or less how Bitcoin was developed and what stands behind it, you are surely asking yourself now how you can get your hands on it and what can actually be done with it. Let us begin with the first question, which can be answered in a number of ways.
1. Buying Bitcoin from a private person, a money changer or an ATM
These are the most common ways to get Bitcoin. In various forums and designated Facebook groups you can find individuals who own the coin and wish to sell it for cash, according to the representative rate of the digital currency in the world. There are also professional money changers who deal with Bitcoin, and they will also sell it to you for cash at the representative exchange rate, but they will also take a commission from the transaction. In addition to these, private entrepreneurs have recently placed special ATMs around the world which you can use to exchange cash for the digital currency, but here too you’ll be charged a transaction fee. Either way, if you choose to buy Bitcoin in these ways, it is important that you first open a "digital wallet" to which the money will be transferred, and make sure that the Bitcoin is updated within 10 minutes of the purchase.
2. Digital trading platforms
Another option is to buy Bitcoin through digital trading platforms that focus on the currency and offer to buy and sell it online. These trading venues have become increasingly common in the world today. Although it is a convenient and easy option to buy Bitcoin, if you decide to go this route, you should make sure that the trading platform you are joining is properly secured and that you understand the nature of trading in Bitcoin so that you don’t get into any financial trouble.
So far, we’ve gone over what bitcoin is, why it was developed and how to purchase it, but what about the bottom line? How efficient is this coin and what can be done with it once it’s in your hands? This is an extremely important question that we’ll try to answer now.
2. Means of payment
The second advantage of Bitcoin lies in the fact that it can serve not only as an investment tool that can make a great profit, such as shares, but also that it can function as a currency that you can use to pay for various services on a daily basis. More and more businesses around the world are now willing to accept Bitcoin as a payment method, and you can make purchases with it on websites for companies such as Microsoft or Dell.
Due to the unique nature of the currency and it being a new and still not entirely clear factor in the international economic arena, there are a number of risks involved in dealing with Bitcoin that you should know before deciding whether to enter the field. Here are some of them:
• Robbery and theft of Bitcoin - The only things that a Bitcoin thief needs to steal from you is a computer and familiarity with the encryption system of the coin and the code behind it. Such robbers can break into your "digital wallet" and transfer the "coins" to their account, or block your access to your wallet and ask for a ransom payment. The anonymity of Bitcoin and the ability to carry out trade operations without being monitored by the authorities increase the motivation of criminals and lawbreakers to get their hands on the currency and carry out such thefts.
• Fraud - In addition to robberies and thefts, there are also various factors that dishonestly exploit the currency trading in order to profit. Various electronic trading platforms are exposed to scams and scandals, and not long ago a story on such a trading scam was published. A Bitcoin stock market had been operating in Japan for a number of years and was considered one of the largest in the world, but it collapsed in 2014 due to the illegal actions of its owners and left more than 24,000 customers from around the world without access to their coins. Therefore, if you take a risk and decide to trade Bitcoin through such platforms, it is highly recommended to be as careful as possible to ensure that they are secure and reliable.
• Government vs. Bitcoin - As noted, Bitcoin isn’t supervised by the various economic authorities existing in the world, and therefore their treatment of it is still ambiguous and its judicial and legal status is not entirely clear. The high volatility of the currency exchange rate and the fact that it is a factor in transactions that are not entirely clear led various countries and economic authorities to warn against using and investing in it. There are currently no restrictions on the use of the currency.
