What is Bitcoin and Why Buy Bitcoin

Bitcoin is on the move, and the cryptocurrency market is about to go ballistic. With an influx of newcomers who would want to buy Bitcoin and strive to become crypto millionaires, it is as good time as ever to educate the beginners about the first cryptocurrency. In this article, you will learn about all the essentials of BTC and how it works, tips on buying Bitcoin safely and how to put it to use.

What is Bitcoin?

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Photo by Dmitry Demidko on Unsplash

If we start with the very basics, Bitcoin (BTC) is both a decentralized digital currency and a cryptographically secured distributed ledger called blockchain which it runs on. Unlike standard financial systems where a trusted intermediary or a central authority is needed to maintain the integrity of the records, on blockchain it is done with the help of mathematics and computing, so it is trustless (meaning it does not rely on trust to work as expected) and immutable.

Bitcoin is also pseudonymous: the information about transactions and public addresses can be seen by everyone, so there is a very high degree of transparency about funds accumulation and movement. These addresses are visible but not linked to any person in real life by default. Instead of accounts, Bitcoin uses the entire history of transfers to track funds, from the moment of being “minted”.

What is Bitcoin mining?

Bitcoin uses a Proof-of-Work consensus algorithm, and miners are a crucial part of this process. By running calculations, they decipher the hash function of the next block which will include all the new transactions. Once included in a block, the transaction is on a chain, and a few blocks later it is soundly recorded in it. This is why miners are rewarded with newly issued BTC and all the transaction fees from the transaction included in a block they discovered.

Mining, therefore, is also a mechanism for BTC emission. But Bitcoin is designed as a scarce asset, meaning that there is a hard-coded limit of 21 million coins to ever be mined. To gradually decrease the issuance rate, every four years the miner reward is slashed in half in a process called “halving”. In May, the rewards were reduced to 6.25 BTC per block. This event is known to have triggered rallies and bull runs the previous two times, so it is speculated that this time the same is already starting to unfold.

So, in short, there are two ways to get the currency, but with high competition among miners these days and the industrial scale of the business, it is easier to buy Bitcoin with fiat than mine it.

What is the history of Bitcoin?

How did Bitcoin start?

The cryptography works that Bitcoin was based on date back to the 90s and it has roots in the cypherpunk community. Many of the developers like Hal Finney, Nick Szabo and Wei Dai who  were attempting to create digital currencies before Bitcoin, became its earliest adopters.

Amidst the global financial crisis, Bitcoin’s history begins in 2008, the year when first, in August, the domain bitcoin.org was registered and later, in October, a developer under the pseudonym Satoshi Nakamoto published the whitepaper “Bitcoin: A Peer-to-Peer Electronic Cash System”. The genesis, or the very first, block was mined on January 3, 2009. At its coinbase it included a message: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”.

The history of Bitcoin

About a year later, Nakamoto gave up any involvement in the project and Gavin Andressen essentially took over as the man behind the project. In the first few years, the community consisted mostly of developers and enthusiasts, and there was barely any market activity. The Bitcoin Foundation, the closest thing to a public group behind the project, came to be in 2012. Slowly but surely, Bitcoin received attention from more and more investors, and by 2013 substantially gained in price and market capitalization enough to receive attention from the mainstream and regulators. From there on, albeit not without incidents like the Mt.Gox and Bitstamp hacks or regulatory struggles, Bitcoin was becoming more widespread as a means of online payment and storage of value.

In 2017, amidst the peak of popularity of Bitcoin, a long dissension in the community regarding the scalability issue resulted in a hard fork (chain split): the new branch would become Bitcoin Cash. The point of contempt was a limited size of the block in the original Bitcoin, which led to network congestion and high network fees. The part of the community that formed the Bitcoin Cash community decided to solve this issue by increasing the limit of data that can be included in a block.

2018 went into the history of the crypto market as a year when the largest sell-off to date happened. Sceptics have called the market a speculative bubble before that, and when as a result of an incredible rally of Bitcoin most of the currencies in the market soared by thousands of percents, it was only a matter of time when the investors that came to speculate would start to reap their profits en masse. Bitcoin lost about 60% of its value in a matter of days and the whole market lost 80% of capital. But since then, the market emerged from the so-called “crypto winter”, and now seems to be gaining momentum to overshadow that surge.

How does Bitcoin differ from fiat currencies?

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Photo by Bermix Studio on Unsplash

A main point of contention often heard from the cryptocurrency sceptics is that it is not backed by anything and the value of crypto cannot be simply decided by the market demand — but it can and it is. Cryptocurrencies like Bitcoin are backed by the work put into the securing and propagating the network (hence, proof of work).

Decentralized cryptocurrencies like Bitcoin are borderless and accessible by anyone. There is no need to be authorized by any entity to transfer or transact with Bitcoin and it can be done easily across jurisdictions. This is why a lot of enthusiasts can see the potential of digital currencies in providing banking to the people who for any reason are unbanked, for example.

For the time being, though, the on-chain economy relies heavily on the existing financial system, because the value attributed to it is still calculated depending on the price buyers are willing to pay to buy Bitcoin or sell it, usually expressed in fiat currencies.

Important features

From the moment of its inception, Bitcoin has received a plethora of updates that serve to improve its scalability and security. All of them went through a process of reviewing and voting by the community, because even the Bitcoin Core group of developers cannot make decisions on behalf of all the Bitcoin users. Here are some of the best known ones:

Multi-Signature

MultiSig, as it is often called, is a feature which is only possible in cryptocurrencies thanks to the cryptographic signatures. On a basic level, addresses that support MultiSig group several network participants and require the majority or all the signatures to approve a transaction. This is a quite useful feature when extra security is needed.

SegWit

An update marked SegWit [Segregated Witness] rolled out in August, 2017, not long after Bitcoin Cash forked off. This was the Bitcoin Core’s alternative solution to the scalability problem: instead of making blocks larger, they decided to make transactions take less space. This was achieved by separating the data about the transaction from the cryptographic signature which accompanies each transaction and putting it at the end of the data string. This enabled off-chain solutions to work on the Bitcoin blockchain.

Lightning Network

Another proposal which would increase the usability of Bitcoin as a means of transacting is called Lightning Network. Essentially, it is a peer-to-peer side-chain channel that is opened between participants and lets them exchange Bitcoin without dragging the entire transaction history with the coins or paying a large fee every time. When needed, the Lightning Network channel gets closed and the history of transfers that occurred on it gets recorded on to the main chain. It went live in March, 2018 but the iterations of it continue to be released and tested to this day.

What is the price of Bitcoin?

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Source: CoinMarketCap

Bitcoin is truly the first cryptocurrency in all senses of the word: it has the largest capitalization on the market and is the most expensive asset out there. The BTC dominance at the moment of writing this article is estimated to be 62.5% in comparison to the rest of cryptocurrencies. Currently, there are $202,177,783,270 in the Bitcoin market, and with 18,446,581 BTC in circulation, to buy Bitcoin $10,960.18 is needed, according to CoinMarketCap.

But isn’t Bitcoin controversial?

Doesn’t it pollute the environment?

Proof-of-work blockchains are infamous for their high energy consumption. At the moment of writing, Bitcoin’s hashrate easily exceeds 100 Exahash/second on a daily basis. It means that the machines working on mining Bitcoin consume about 5 Gigawatts a year. The estimated carbon footprint of the entire Bitcoin producing industry is between 10 to 20 MtCO2. 

Is it a lot, though? Let’s compare the numbers: studies show that the energy consumption of Bitcoin is still way less than the global banking sector consumes and amounts to only 6% of that at most. The carbon emission is comparable with that of the country of Jordan or Sri Lanka. Besides, as the more sustainable energy resources become more cheap, miners are transferring to those to cut the costs.

Isn’t it used by criminals?

The standard economy has not found a proper place for Bitcoin just yet. It is still an industry in development, where some kinds of machinations are present. Due to some fundamental design features like immutability of transactions, dealing with fraudulent activity like usual is not possible. In addition, the pseudonymous nature of Bitcoin led to its alleged adoption in criminal activity. Investigations show that prior to 2013 a lot of activity could be connected to the darknet economy. But since then, the regulatory frameworks started to be introduced, it became significantly harder to buy Bitcoin unauthorized, chain analysis improved significantly and the overwhelming majority of Bitcoin transactions have been happening in a more or less regulated space.

Technical updates

Despite being the most active development team, the developers of Bitcoin are not famous for having a roadmap for long-term. Of course, there are plans for upcoming years, and usually the developers are eager to share them with the whole community.

Any changes to the code are proposed in the form of design documents called Bitcoin Improvement Proposals, which then are published in the repository for the community to discuss and vote on them. Here are some of the ones being worked on:

Schnorr/Taproot signatures

This is the name of one of the cryptographic technologies for improved signature encryption. The reason it was not implemented in the original Bitcoin in 2008 is simply because the standard was different back then. The Schnorr/Taproot signatures have already been implemented to other cryptocurrencies’ protocols, for example, Bitcoin Cash, and now the original is ready for this update.

PayJoin protocol

Another proposal is worked on jointly with the developers of wallets. PayJoin will let users pay someone while including their outputs in the transaction, thus enhancing privacy and allowing to group up transactions under the same signature.

#Bitcoin on social media

#Bitcoin is the most popular cryptocurrency-related hashtag on Twitter and Instagram, and by now it should be obvious, why. Let’s see what people are saying about it!

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Source: Twitter

Crypto influencer and content creator Nathaniel Whittemore reminds his followers about the speed with which Bitcoin moves by pointing out this fact. This could be interpreted as 93% Bitcoin owners basically seeing profit from just owning BTC. Impressive indeed!

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Source: Twitter

Cameron Winklevoss is a well-known Bitcoin apologist and one of the first crypto millionaires. As expected, he is also supportive of the developments BTC is seeing lately. True, in comparison to the latest surge and the current ATH, the landscape both in and outside the crypto world has changed beyond recognition.

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Source: Twitter

Of course, not everyone is a fan of BTC and not everyone gets it. The US President Donald Trump, for one, seems to be one of these people. In his case, it is absolutely understandable, though: imagine what would have happened to the US dollar if he endorsed Bitcoin?

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Source: Twitter

User OverUnderLeveraged sums up a new video from Rekt Capital: with the month coming to a close, it is quite important at which level the Bitcoin price closes. Should it be above $10,800, they say, it can be interpreted as a bullish signal.

How can you get Bitcoin?

How to buy Bitcoin?

Getting on board with Bitcoin today is rather easy. It obviously has a large market on all the exchanges both with crypto-to-crypto and fiat pairs. Getting Bitcoin on an exchange is something that can be recommended to users who already have some experience in trading and are ready to dedicate their time to verifying their accounts or are ready to deposit their funds into the exchange’s custody.

A more approachable alternative to a conventional Bitcoin exchange would be an instant exchange platform. On ChangeHero you can buy Bitcoin with a credit or debit card and sell it in just 15 minutes at the best prices after a simple verification procedure.

What Bitcoin exchange to choose?

If you already own some cryptocurrency, to buy Bitcoin with it you would need to find an exchange where the pair has a high enough liquidity. Why scour the market yourself when ChangeHero can do it for you? We monitor several exchanges and adapt to the differences between them to provide our customers with the best possible rates. ChangeHero is the go-to place for buying Bitcoin safely because we do not have the custody of your assets at any point: as soon as they are received, the exchange is processed and the result is sent to your wallet address — as easy as that.

Which Bitcoin wallet is the best?

Before you buy Bitcoin, make sure you have a proper cryptocurrency wallet to store it! Finding a wallet for Bitcoin is not a tough task, but choosing an optimal application or device is more important. Here is a list of top recommendations from ChangeHero’s team!

  1. Exodus (desktop and mobile). Its most prominent features include portfolio tracker, Trezor integration and in-app exchange. We’ll let you in on a little secret — you can swap currencies with ChangeHero right in the Exodus wallet;
  2. Atomic Wallet (desktop and mobile). While not as pretty-looking as the previous one, this product embodies the idea of functionality over the aesthetic appeal;
  3. Trezor (hardware). If you own a Trezor, you can swap your currencies right in the app with ChangeHero;
  4. CoolWallet S (hardware for mobile). It has all the software wallet essentials like history and balance tracker, with extra features like exchange (powered by ChangeHero) built in;
  5. Coinomi (desktop and mobile). If you like your wallet packed with all conceivable features to the top, this is your pick.

How is Bitcoin used?

Bitcoin was envisioned as digital cash, pseudonymous and accessible. Obviously, it is the most popular cryptocurrency with payment processors and merchants: on Cryptwerk alone, there are 3,288 merchants registered and 96 payment gateways accept it.

Arguably, Bitcoin is even more popular as a store of value. PayPal president, David A. Marcus was on record stating that he considers it “a great place to put assets”. Bitcoin has made a lot of millionaires: Barry Silbert, CEO and founder of Digital Currency Group; Blythe Masters, CEO of Digital Asset Holdings; Dan Morehead, founder of Pantera Capital; Tyler and Cameron Winklevoss and Michael Novogratz are some of them.

How does Bitcoin impact the economy?

Innovative money like Bitcoin that is unlike anything that came before is definitely a disruptive phenomenon. Regulators in all countries are trying to wrap their heads around the place of Bitcoin in the current economy. St.Louis federal bank economist David Andolfatto even called it a threat to the central banks in 2014 — but in the context of it being an impetus for them to implement more sound policies. In a recently published analysis by Fidelity Digital Assets, Ria Bhutoria calls Bitcoin “the most significant innovation in finance since Medicis invented double-entry accounting”.

A Bottom Line

For the mainstream and the economy, Bitcoin is the face of the cryptocurrency market. In recent years, it became more popular with larger investors and ordinary people alike. Right now it seems like we are in the beginning of another wave of popularity similar to the one in 2018. Keep in mind that the best place to exchange and buy Bitcoin would be on ChangeHero! 😉 

Stay in touch with us to see how the events will unfold! You can find us on Twitter, Facebook, Reddit and in Telegram.

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A Guide to Bitcoin: What Is It and Why Buy Bitcoin?
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Bitcoin is the face of the cryptocurrency market. The current market conditions signal a bull run and it's high time you buy Bitcoin.
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Chew
Chew
2 months ago

A very good bitcoin guide for the beginners, it will be really helpful for many new people to understand about Bitcoin.