It is 2022 and if you haven’t heard about Bitcoin, you have probably been living under a rock. But that doesn’t mean you understand how it works. To help you out I answered 10 frequently asked questions about the mother of all cryptocurrencies.
Table of content
- What is Bitcoin
- Who created Bitcoin?
- Who controls Bitcoin?
- What is mining?
- How can I buy Bitcoin?
- Can I invest in Bitcoin with a small budget?
- Can I lose my money?
- Can I use Bitcoin to pay for my groceries?
- Where does Bitcoin get its value from?
- What is the difference with regular money?
1. What is Bitcoin?
Bitcoin is a digital currency that uses blockchain technology to secure and record its transactions. It was the first cryptocurrency ever, and it is still the largest. People often call Bitcoin the digital gold because of its limited supply.
A cryptocurrency is a digital currency that serves as a medium of exchange through a computernetwork that is not reliant on any central authority to maintain it.
2. Who created Bitcoin?
On 31 October 2008 a white paper was published by Satoshi Nakamoto. (A white paper is a document used to highlight the features of a certain product or service. An announcement basically.) The title of this paper was “Bitcoin: a peer-to-peer electronic cash system”. In the document Nakamoto described how Bitcoin and the blockchain would work, and proceeded to actually create the Bitcoin network on 3 January 2009.
To this day, the identity of Satoshi Nakamoto remains unknown. It could be one person, but it could be just as well a whole group that’s behind the famous paper.
3. Who controls Bitcoin?
Nobody does. Bitcoin runs on blockchain technology and is fully decentralized. It’s a peer-to-peer network that involves all users, instead of depending on one central authority. By buying or receiving Bitcoin every user participates in the network and has to comply with the rules that were set up at the creation of the cryptocurrency. There is no government or higher authority that can change the rules.
4. What is mining?
Bitcoin mining is adding new Bitcoins to the blockchain.
Put simply: to verify and secure all transactions, the network relies on its users. Bitcoin miners use powerful computers to find the answer to a mathematical problem. That answer is a key that seals a block in the chain, meaning it cannot be altered anymore. As a reward, the miners receive new Bitcoins.
Read more about mining and how the blockchain works here.
5. How can I buy Bitcoin?
Investors can buy Bitcoin on a crypto exchange, such as Coinbase or Binance*. You will need to create a profile on the exchange of your choice – of course this all happens online – and select a payment method. You can either link a debit or credit card or you can work with bank transfers to top up your balance.
Keep in mind that transaction fees apply when buying or selling crypto. Alternatively, if you own any altcoins there’s always the option to swap them for Bitcoin, or the other way around.
What are altcoins?
An altcoin is any cryptocurrency other than Bitcoin. Examples are Ethereum, XRP, Cardano, Tether…
*Not sponsored
6. Can I invest in Bitcoin with a small budget?
Currently, the value of 1 Bitcoin is around 30 000 USD. That’s too much money for most investors to spend at once. Luckily you don’t have to buy a full Bitcoin, you can buy fractions of it.
The smallest unit in Bitcoin currency is called a Satoshi, after its creator. One Satoshi equals 0,00000001 BTC. At this point, 1 USD equals approximately 3000 STSH.
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7. Can I lose my money?
Investing always comes with a certain risk. Cryptocurrency has been much more volatile (that means that prices go up and down a lot) than the traditional stock market, so that is something to take into account. The same rule always applies: never invest with money you cannot afford to lose.
Because the answer is yes, you can lose your money when you invest, be it in crypto or traditional stocks. It is crucial to do your research before you start investing. Jumping in blindly is the best way to lose your money fast. You can never fully eliminate the risk, but you can surely manage it.
8. Can I use Bitcoin to pay for my groceries?
Although the use of Bitcoin as a mean of payment is not (yet) globally accepted, there are more and more businesses that allow payments in Bitcoin. El Salvador even adopted the cryptocurrency as a legal tender in June 2021 in an attempt to save its failing economy.
But at this point, the main use of Bitcoin is sending money over the internet in a super fast, decentralized way. People buy and hold it (HODL), trade with it to make more money, swap it for other cryptocurrencies etc…
HODL
= hold on for dear life
HODL is a popular term in the crypto world. It means that you hold on to your portfolio in both the good and the bad times.
9. Where does Bitcoin get its value from?
Supply and demand influence Bitcoin’s value. Satoshi Nakamoto programmed the network in a way that the amount of Bitcoin is limited to 21 million. Every time a miner adds new Bitcoin to the blockchain, the remaining stock gets smaller and it often fires up the value.
Bitcoin halving:
After every 210,000 blocks mined, roughly every four years, the block reward given to Bitcoin miners for processing transactions is cut in half. We call this event “the Bitcoin halving”, because the rate at which new Bitcoins are being brought into circulation goes down by 50%.
In 2140 all Bitcoins will be in circulation, and that makes the currency scarce. Because of this, people often refer to Bitcoin as the digital gold. Theoretically, the value could drop to zero. But because of the scarcity it is very unlikely that this will ever happen.
10. What is the difference with regular money?
Nowadays most of our money is digital too. Especially since the Covid pandemic fewer people carry cash with them, and online transactions are the norm. So is there still need for a digital currency?
The difference is that our fiat money is controlled by governments and central banks. They can decide at any point to print more money, or even to completely abolish a currency. This happened in Europe in 1999, when most countries gave up their own currency to switch to the Euro. Such actions have significant consequences for the economy.
Bitcoin however is completely decentralized. It does not depend on a central authority and has therefor the reputation of being more fair than the money we know.
You’re all caught up!
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