How Does Bitcoin Work The Guide To Everything You Need To Know

*This is a collaborative post on how bitcoin works

If you have found yourself in this guide, then it’s likely that you are just starting to get into the crypto world, or simply want to know more. Bitcoin is something that has been around for over ten years now, with its origins of crypto being traced back a bit further. However, the coin has gone through different stages in its life, ones that you should be aware of before investing.

That’s where this handy guide comes in. Hopefully, by the end of the article, you will have gained a deeper understanding of Bitcoin, and will even be able to inform others about not just this coin, but the state of the crypto world in general. 

The Bitcoin Rise

Bitcoin and cryptocurrencies rose to fame within the last few years, largely due to the impact of celebrities and social media. It’s hard to predict how successful Bitcoin would be and the impact on society without social media or celebrities talking about them. Whilst it’s unlikely that celebrities were paid to promote Bitcoin, it’s worth bearing in mind that some will have done it.

Celebrities instead started talking more about Bitcoin out of their own free will, to promote their interests and build up their investment portfolio. That’s because the more people that invest in Bitcoin, the more mainstream it would become, and the more trading that would occur in general.

This is what led to more trading platforms becoming readily available. The impact of what celebrities and important figures in society even tweet can dictate the price of coins and the state of the market. We saw this with Elon Musk when he started tweeting a joke about the cryptocurrency coin Dogecoin. This led to people mass buying the coin, driving the price up. But when he announced he and his company Tesla were stepping back from the crypto scene for a short while, this led to everyone mass selling their coins, which drove the price back then and crashed the market.

If you’re unsure what Bitcoin is, think of it as virtual money, to begin with. It works via a computer program that allows people to exchange the value of the coins with each other, through something known as the blockchain, which will be explored further in this guide. In most cases, trading with Bitcoin is an anonymous task, that doesn’t require and middle people such as a broker or intermediary.

History Of Bitcoin

As touched upon earlier on in this article, Bitcoin has been around for over ten years now, created in 2009 by someone using the pseudonym Satoshi Nakamoto. It sounds mysterious, but that’s because it largely is, as no one knows the true person behind the creation, apart from a pseudonym name.

The origins of the crypto scene can be traced back slightly further, however. A group in the 90s known as cypherpunk worked on security models thanks to software known as cryptography. This group used advanced mathematics to protect transactions on a commercial scale, as well as protect finance and communications in general.

After a short time, they started developing the cryptographic protocols even further, which led to the eventual creation of Bitcoin. This was something that helped to promote individual empowerment and distrust of the financial institutions and the state in general. This was historical, as it was the first type of digital money that promoted a system of peer-to-peer electronic cash system.

How Bitcoin Works Technically

It’s all well and good knowing the history of Bitcoin, but you will need to understand more about the technical side of it too. As mentioned, a bit earlier, the working of Bitcoin operates through a piece of technology known as the blockchain. You should consider this to be much like a digital ledger, but instead of having physical cash, it’s digital, which means you don’t own it in person. You will instead own it through something known as a private key. 

These private keys will be the way you access your Bitcoin, which is why you need to have this key secured. You can secure these keys in different ways, which will be explored a bit later on in this article. But to sum up, you will own the Bitcoin by possessing unique private keys.

As you would expect, Bitcoin does not have any physical elements, meaning there will be no printing of bills or mining of materials. It is a completely autonomous experience, with no control or input from any financial institution, such as a bank. This means that there is no actual recording of the transaction details, or the details about the user, offering total privacy.

The transactions that makeup Bitcoin are formed through a mining process. Of course, this is digital mining rather than a physical one. This is an extraction method that uses mathematics and computational algorithms to work together to find a block. These blocks are released to a user once the mathematics puzzle is solved. The reward for mining this block is the actual Bitcoin.

Where You Can Buy Bitcoin

Away from the creation and mining process of Bitcoin, you can of course purchase and sell the coins in certain amounts. You don’t need to have a whole coin to trade with it, as you can sell small percentages of one coin. In some cases, most people may not even own an entire Bitcoin outright, and will only deal with smaller amounts. 

To trade, you will have to look at digital marketplaces online known as cryptocurrency exchanges. These platforms help users to trade Bitcoin in several ways, from using their currency, to even trading with gift cards. There are a few different platforms available online, so it’s worth looking around to see what benefits you the best.

Some exchange marketplaces will allow you to trade completely anonymously, and this will indeed be the case for most of your trades. These sites will have Bitcoin at a set price that everyone will trade with. Some go a bit more personal and let you trade with users based on their name, location and ratings. Ratings can help you distinguish who is more trustworthy to trade from, and these sites may also charge their prices, to sell quickly or get set.

How To Store Bitcoin

Storing Bitcoin is important, and it will happen mainly through protecting your unique key. These keys can be stored in a variety of different types of digital wallets. They use software programs to protect the keys, which are essentially unique Bitcoin addresses. They can come in two different forms, known as hardware ones and software ones.  

Hardware wallets are wallets that are physical and operate in person. The benefit of this type of wallet is that they don’t need to be considered connected to the internet or the digital world in general, and can operate offline. This means that it’s incredibly difficult to hack into, but if you lose the physical device then that means you’ve lost your Bitcoin, so you need to keep it safe.

In comparison, software wallets are wallets that exist online, but for the same reason means it could be argued to be less secure than a hardware one. That’s because if you lose the account or details, then your address is compromised. This is why many experts suggest storing large amounts of Bitcoin on a hardware device.

You can browse the best Bitcoin wallets around through Wealthsimple, which offers both types of wallets and can help inform you more on how they work. You may not fully understand how the mechanics work, so you will be able to get expert advice to relieve you of your anxieties.

What To Consider About Investing In Crypto

Before you invest in Bitcoin, you should consider the other cryptocurrencies available on the market, such as Ethereum or Litecoin. These coins could be more attainable and less volatile, depending on the state of the market.

It’s a good idea to diversify your investment portfolio and purchase a few different tokens and coins, as well as other investments. Investments such as property or NFTs, which is an emerging investment platform that doesn’t seem to be going away. In some cases, you may find that looking into other investment opportunities could be more for you than crypto, but it’s different for everyone.

The Future Of Bitcoin And Crypto

Whilst the future of Bitcoin and cryptocurrencies, in general, is largely unclear, it’s important to note that the signs are positive. Many major banks and institutions such as PayPal have started to adapt and purchase reserves of Bitcoin to prepare for the future. Many believe that Bitcoin will eventually become the world’s digital currency, which will put those who have started now into the best position possible.

Again, no one can say for sure. It’s highly unlikely that Bitcoin will ever go away, but it doesn’t also mean it will be successful. The more time that passes, the more successful the platform will be, which means you should be looking into it as soon as possible.