Bitcoin (BTC) has been gaining in popularity since last year, consolidating its leadership position among other altcoins. In both February 2021 and April 2021, Bitcoin’s worth was over $60,000. The digital token was brought to record highs in these months by Tesla and Coinbase, respectively. Tesla’s announcement that it had acquired 1.5 billion US dollars’ worth of Bitcoin and the IPO of the American biggest crypto exchange sparked mass interest in Bitcoin and led to drastic price spikes. Although recently Bitcoin slid from its peak, it still remains the most expensive cryptocurrency among its peers, on average trading at $46,000 for most of early 2021. Analysts predict that by December 2021, Bitcoin might soar to $100,000. At the time of writing, Bitcoin is trading at $34,266.93.
What Is Bitcoin?
Bitcoin is an electronic currency or, as it is usually referred to, cryptocurrency. A digital public money, it is created by mathematical computations and is supervised by so-called miners or computer users. Bitcoin was designed to sidestep an intermediary party such as governmental authority or a bank. When you make a payment with Bitcoin, there are only two parties involved in the payment process: the payer and the receiver of a payment.
Although a payment with Bitcoin involves highly complex mathematical computations, the whole payment process can be explained briefly as follows. When you make a transaction with Bitcoin, it gets recorded on a distributed ledger, a database that is shared and synchronized across multiple sites, institutions, or geographies, accessible by many people and allowing transactions to be seen by the public. Computer powerhouses immediately begin to solve complex mathematical equations to enable the transaction. The computer that solves the equation before others receives more Bitcoins. One of the functions of powerhouses is to keep records about all Bitcoin transactions. This service is referred to as mining. The role of miners is to keep blockchain consistent and unchangeable by collecting newly broadcast transactions into a fresh group of transactions called a block. Blocks in the blockchain are brought together by a hashing algorithm, an algorithm that turns a variable amount of data into a small, fixed-length value called a hash value, hash code, or digest.
Peer-to-Peer Technology
Bitcoin enables instant payments by using peer-to-peer technology, which is the exchange of information, data, or assets between parties without the involvement of a central authority. In peer-to-peer technology, the independent individuals and companies who own the governing computing power and participate in the Bitcoin network, called miners, process the transactions on the blockchain. They are rewarded for their work by the release of new Bitcoin and transaction fees also paid in Bitcoin.
Think of miners as decentralized authority that makes the Bitcoin network credible. As a rule, a new Bitcoin is released to miners at a fixed rate, which tends to decline. There are only 21 million Bitcoins that can be mined in total. Presently, there are about 18,614,806 existing Bitcoins. This means that there can be mined about 2,385,193 more Bitcoins.
Herein lies the main difference between fiat money and digital money. In centralized banking systems, to which we are used, currency is issued at a rate corresponding to the growth in goods so that price stability is preserved. The decentralized system of Bitcoin, by contrast, decides on the release rate in advance, according to an algorithm.
How Does Bitcoin Work?
Bitcoins do not require banks to be stored or to be transferred: they are self-contained. When you purchase these digital coins, they behave as fiat money. Exactly like the US dollar, the euro, the British pound, Bitcoins have certain value and can be traded. Like the value of any fiat currency, the value of Bitcoin changes, depending on demand and other circumstances. Since 2009, when it was first minted and released as open-source software, the price of BTC has been fluctuating from several cents to $1,200 in 2013, $3,732.04 in 2018, $7,188.46 in 2020, and above $60,000 in April, 2021.
But note that unlike fiat money, the value of Bitcoin is never measured against other cryptocurrencies. We trade currencies in pairs: as of writing, EUR changed hands with the USD at 1.2227; simultaneously, it is trading against the GBP at 0.8605. Bitcoin, by contrast, trades neither against Ethereum nor against Ripple, nor against any other altcoin, for that matter.
You can use your Bitcoins to buy items and services online. More and more institutions have lately been accepting payments in Bitcoins. Such companies as Microsoft, Home Depot, Starbucks, and Whole Foods encourage customers to pay with Bitcoin. AT&T and Virgin Mobile also accept payments in Bitcoins, as does Expedia.com. You can donate to Wikipedia in Bitcoin. Goldman Sachs and Bank of Canada let their customers open Bitcoin accounts, and Visa and PayPal have recently started processing payments in this cryptocurrency. There are also numerous ATMs scattered across the world where you can withdraw Bitcoins.
When you make a transaction in Bitcoin, your Bitcoins are transmitted from your wallet to another wallet. A wallet is a small personal database stored on your computer drive, smartphone, tablet, Dropbox, or another cloud system. Treat your Bitcoin wallet as your physical wallet. Make sure to keep it safe and secure, because Bitcoins can be stolen. In 2018, more than 1.1 billion of cryptocurrency was stolen from people. According to cybersecurity company Carbon Black, such cybercrime as ransomware is easy to commit. To prevent the loss of your cryptocurrencies, always backup and encrypt your Bitcoin wallet, make copies of your backup, store your Bitcoins in more than one secure location. Never keep all your Bitcoins in one wallet.
How to Trade Bitcoin?
You can trade Bitcoins in several ways. All of them will bring you profits. You can mine your Bitcoins, enter a mining pool, or go to the Bitcoin financial market. Each of these ways has its advantages and disadvantages. Each can make you wealthy, though each also entails risks and may lead to losses.
Mining
Mining is a relatively easy, if expensive, way to trade Bitcoin. To mine Bitcoins, you need to set up a computer to decrypt cryptocurrency. But note that your computer should do nothing else apart from mining Bitcoins. If you can set up more than one computer to mine Bitcoins, it is even better. After you set up your computer, you will need to download Bitcoin-mining software. The best Bitcoin-mining software in 2021 are considered to be the following:
- Kryptex;
- BeMine;
- ECOS;
- Cudo Miner;
- Awesome Miner;
- Hashflare;
- BitMinter;
- EasyMiner.
When your software has been downloaded, it will start doing mining for you. Note that to mine Bitcoins, your computer should be super powerful. If you mine Bitcoins on your regular desktop, it will take you more than a year to decrypt one block. This will bring you no profits. If you seriously consider mining Bitcoins, you need to invest in purpose-built mining rigs. You can also build your own rig. Yet there is a caveat: to buy a Bitcoin miner or build your own rig will cost you from $2,000 to $10,000, depending on a miner’s hash rate and efficiency. Such a large amount of money invested in a Bitcoin miner might be difficult to recoup.
Joining a Mine Pool
Doing mining on your own is a cumbersome job. Miners understand that if they want to speed up the description of Bitcoin blocks, they need to break the work of a block into pieces. To do this, miners need to cooperate with each other. This is how internet-connected computer clusters have been created. Miners have built these computer clusters and started sharing work between themselves. You can join a mining pool.
The division of labor in a mining pool works as follows. When the block is decrypted, the resulting Bitcoin is divided between all miners participating in its decrypting, according to their contribution. There are numerous mining pools existing now on the internet. Among them are CPPSRB, DGM, ESMPPS, POT, PPLNS, Prop, and Score. Each of these pools has certain rules of paying and taxing its users. Note also that each of these mining groups has different levels of security. It is true that when you join a mining community, you do not share your personal information, thanks to the anonymity of the Bitcoin business. And yet, when you mine Bitcoins, you share money with strangers. This is, obviously, dangerous. As mentioned, just like fiat money, Bitcoins get stolen.
You should also be aware of disagreements that often occur in mining communities. In the years since Bitcoin’s invention, there were numerous quarrels between factions of miners and developers, which led to rifts in the cryptocurrency community. In the wake of some disagreements, groups of Bitcoin miners and users had to change the protocol of the Bitcoin network.
Trading at the Cryptocurrency Market
You can go to the cryptocurrency market and trade it as you would trade currency pairs, commodities, stocks, or indices. ReserveEx can help you trade Bitcoin and earn a handsome profit in the process. As is the case with the foreign exchange market, traders of cryptocurrencies can either buy or sell Bitcoins at the cryptocurrency market. They can do this either by putting a limit order or a market order. In other words, you can order ReserveEx to buy or sell your Bitcoins either immediately at the best current price (a market order) or at a specific price (a limit order). Once you select what order you want, you need to authorize ReserveEx to trade your Bitcoins. When you choose a limit order, you ask to trade your Bitcoins for a price lower than the current ‘ask” or above the current “bid”, depending whether you want to buy or sell your Bitcoins. When you choose a market order, you permit the exchange to trade your Bitcoins for the best price available at that moment at the market.
Trading Bitcoin at the cryptocurrency market is easier than mining it at home or joining the mining pool, and ReserveEx is always available to show you how you can trade Bitcoins at a profit.
