What is Bitcoin? A detailed Guide to this Cryptocurrency

Bitcoin

Bitcoin is the granddaddy of all cryptocurrencies. Bitcoin was rolled out in 2009 and debuted as the world’s original cryptocurrency.

Of the dozens circulating now, Bitcoin was the first p-2-p electronic currency to reach the market. Divorced from centralized banks and powered by blockchain, Bitcoin was the pioneer in anonymous transactions. Initially, non-taxable, it didn’t take much time before tax authorities around the world changed that status. Now, Bitcoin (shortened as BTC) is subject to tax regulation like all other cryptocurrency is now.

Interestingly, Bitcoins can be traded as both digital money and an asset. This dual status is mainly due to the steep increase in valuation. In 2011, one bitcoin cost around ten cents, but since then, the price has rocketed, and a BTC is now worth several thousand dollars.

But let’s rewind to the beginning and find out precisely what a Bitcoin is in our dedicated Bitcoin user guide.

The story begins in 2009 when an enigmatic programmer going by the name of Satoshi Nakamoto (possibly Australian entrepreneur, Craig Wright), created Bitcoin as the first-ever cryptocurrency. Unlike fiat money, Bitcoin was never tangible but rather a currency that existed only in digital format. You can use Bitcoins in the same way as regular cash as a growing tranche of businesses have okayed Bitcoin as an acceptable way to pay.

Bitcoin

And unlike standard banknotes, which are controlled by a centralized banking system, Bitcoin is entirely decentralized and not tied to any particular country. Because of this deregulation, the price attached to Bitcoin fluctuates due to trust as well as the supply and the inherent demand.

Bitcoin, therefore, is an open network maintained by trusted volunteers. They record each Bitcoin exchanged in a public ledger that relies on blockchain technology. This remoteness from government and bank control resonates with many people.

But why invent Bitcoin?

The global financial crash of 2009 was the impetus for the development of Bitcoin. The developer, or developers, working under the assumed name of Satoshi Nakamoto, spurred on by the reckless behavior of the banks, published a White Paper. This White Paper outlined Bitcoin becoming a decentralized p2p digital currency. Transactions would be recorded in an unchanging ledger which offered complete protection. The effect engendered by Bitcoin then was the wrestling of monetary control from the elite.

Is Bitcoin anonymous?

Yes, to a great extent. There are none of the standard identifiers, such as account numbers, account names, or government-issued serial numbers.

Bitcoin deploys cryptography and blockchain technology to connect parties wishing to buy and sell. Every transaction is an exchange between two e-wallets that gets officially noted on the blockchain. Electronic wallets operate via a privacy key, which is used to sign for each sale digitally. This digital sign off provides irrefutable proof that the exchange has occurred.

How many Bitcoins are there, and how are Bitcoins created?

There are currently 18 million Bitcoins circulating today, but the total number has been capped at twenty one million. Bitcoins are created by ‘mining.’ Put simply, Bitcoin mining involves a bunch of supercomputers resolving math problems that become increasingly difficult.

Each time a miner solves a problem, they are rewarded with a block from the blockchain.

Are Bitcoins legal tender?

This is almost a philosophical debate answering this question. Some economists will argue that Bitcoins are a valuable asset, not a currency.

Bitcoins were designed from the get-go to act as a global, decentralized means to pay. The reality is that Bitcoin meets all the criteria for being a currency.

This notion is supported by the fact that tax authorities have jumped on Bitcoin as fair game. The approach differs by country. Generally, though, the model adopted is that of the IRS in the USA. Under the IRS taxation model, Bitcoins are taxed.

The tax payable depends on whether you are a miner, or purchased the coins. Every transaction is taxable. However if you mined the BTC, you could claim back costs for the electricity and your outlay on mining equipment. Bitcoin buyers, meanwhile, will be subject to tax for the difference between the purchase price and the Bitcoin valuation when used to pay for goods and services. For example, if you purchased a Bitcoin at $1,000 and they spent it when the Bitcoin was worth $1,500, the tax liability would, therefore, be on the $500 difference.

Bitcoin positives and negatives

Bitcoin is not perfect. Like most things, it has flaws. Let’s dig a little deeper.

Bitcoin pros

The most significant benefit of Bitcoin is its sheer flexibility. Bitcoin operates 24/7 around the globe. Bitcoin holders are in sole charge of their money, and not subject to the vagaries of governments and central banks.

Bitcoin’s anonymity is a guard against identity theft. Bitcoin transactions are marked on the ledger, and are 100% transparent. Personal data about either party involved is never disclosed.

The processing of a Bitcoin transaction is faster and less expensive than conventional payment systems. This speed and low cost make Bitcoin payments attractive to both consumers and merchants as an alternative to traditional debit and credit cards.

The negatives of Bitcoin

While Bitcoin is being adopted as a payment method by numerous merchants and governments as a payment method, there is still some way to go for general acceptance.

Bitcoin is perceived as a volatile and a risky investment despite its global profile. Some governments are still suspicious of Bitcoin, most notably China.

Should I put money into Bitcoin?

Experts in cryptocurrency and the economy are contradictory on Bitcoin’s future. They are opposed, with the crypto guys firmly believing the value will steadily rise with broader adoption of Bitcoin as a legal currency. Some economists, on the other hand, dismiss Bitcoin as an overinflated ‘bubble’ with the potential to crash the financial marketplace.

At the moment, it is challenging to be unequivocal on the subject. Certainly, there is an investment opportunity there for sure that could result in huge profits if demand for Bitcoin is sustained in future. It is probably safe to say Bitcoin is a long term investment, but increased interest is encouraging news.

What are the Bitcoin transaction charges?

The cryptocurrency marketplace is getting crowded, and recently Bitcoin has received criticism for its relatively high transaction and exchange fees. There are around three million available to mine as the number of Bitcoins has been capped at 21 million.

When mined, the effort required to extract a new Bitcoin becomes increasingly arduous and time and energy-consuming. Moreover, over time the return for Bitcoin mining reduces by 50 percent until it reaches zero. Miners, therefore, have to reflect the added effort in mining new Bitcoins into existence, hence the relatively higher charges they demand.

Bitcoin transaction fees look very modest in comparison to the costs incurred for payments using plastic or cross border bank transfers. That said, blockchain technology is continually evolving, and there is now a legion of competitors offering low prices.

Is Bitcoin anonymous and safe to use?

Anonymity was a given when Bitcoin first burst onto the cryptocurrency scene and a significant incentive for people to adopt Bitcoin as an anonymous payment system. Today, this still holds, so long as you transfer Bitcoin within the BTC network.

But much of this anonymity is lost if you go through third party brokers and exchanges to transact your Bitcoin business. These companies need to adhere to legislation aimed at preventing money laundering and therefore require to capture customer information before you can create a new account. Should you decide to cash in your Bitcoin and get fiat currency credited directly to your bank account, then the transaction will be transparent and traceable to you.

Is Bitcoin safe to use?

A multitude of leading monetary entities and top-flight pro investors have approved Bitcoin and helped gain it global recognition. Some 11 years after its launch, Bitcoin’s credentials have been long-established. Bitcoin’s high level of safety is determined by the security of the technology used by Bitcoin’s blockchain.

Due to the way blockchain works as a distributed network, Bitcoin can be said to have the most secure payment system the world has ever seen. This incredible level of security is possible because all information recorded on the blockchain gets shared across a massive global node network. Should this information be modified, the original data is still marked on the majority of the other nodes. Any information alterations like this would simply be overruled, and the integrity of the system maintained.

How we can help you today

We have extensively probed and investigated an array of BTC brokers, electronic wallets, and Bitcoin services to arrive at a list of preferred providers. You can review our recommendations here on this site, and start Bitcoin trading. You will be doing so in an environment that is fast, safe, and reputable.

We have hand-picked, after much deliberation, the top sites to purchase Bitcoins and present them for your inspection. Each platform is ranked based on best user reviews. We have also fed in our in-depth and critical analyses of each, to strengthen the overall ranking further. We, therefore, are confident in the accuracy of the information we are presenting. These platforms have all proven to be exceptionally trustworthy and great places to trade Bitcoin with fiat currency.

Following on from our detailed comparisons, they’ve distinguished themselves as the most reputable exchanges on which to trade bitcoin.

Set out on your Bitcoin trading career today by creating an account with your favored Bitcoin broker.

Bitcoin FAQs
Where can I buy Bitcoin?

The most straightforward method of buying Bitcoin is from an exchange site like Coinbase or via an escrow service such as LocalBitcoins. Exchanges are suitable for Bitcoin newbies as they will spend time to explain in layperson’s terms the process of buying cryptocurrency.

You can connect, from anywhere, on any devices so long as it has a stable internet connection. After using their services, for added security, you may keep your purchased Bitcoins in a wallet, which stores the Bitcoin private keys relating to your coins.

For larger volumes of Bitcoin, it is advisable to use an exchange that deals in OTC transactions. OTC exchanges specialize in handling big volume orders and will typically process one’s order much faster than other exchanges could do so. Using an OTC exchange means that you are buying Bitcoin offline as you place your order by phone or visit their premises.

Does anyone control Bitcoin then?

As previously stated, no one person or individual authority is in control of Bitcoin. Due to Bitcoin’s nature as a decentralized digital currency, it is effectively controlled mutually by those who own or use Bitcoin.

How anonymous are Bitcoin transactions?

All Bitcoin transactions are anonymous as the identities of those involved are not exchanged in transactions. However, each transaction has an audit trail on the blockchain’s public ledger.

Is Bitcoin subject to taxation?

The extent to which Bitcoin is taxation depends on the legislation of individual countries. This exposure varies widely, so it is best to check it out in your local jurisdiction.

Although Bitcoin cannot be regarded as fiat cash, Bitcoin is subject to taxation across the world. These tax liabilities are usually based on such things as the level of income generated for an individual, asset gains, and profits made from the sale of Bitcoin.

Can you lose Bitcoins by accident?

Store your Bitcoins safely in an e-wallet, and it is almost impossible to mislay coins. The only worry from that perspective is if you lose the ability to login to your electronic wallet. If this happens, the Bitcoins contained in the wallet are removed from circulation due to the fact that no other party has the privacy key.

Which factors affect Bitcoin valuation?

The primary driver of Bitcoin value is supply and demand. If demand for Bitcoin rises, so too does the price. Conversely, the price tumbles with a drop in demand for Bitcoins. When the total number of Bitcoins is arrived at (21 million Bitcoins), an ever more significant influence on Bitcoin value will be played by demand as well as supply.

 

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