What Is Bitcoin? Learn About BTC and How Bitcoin Works
Bitcoin has disrupted not only the finance industry over the last decade but the world at large.
Bitcoin (and cryptocurrencies, in general), seem to have found their place in traditional finance.
But what is Bitcoin? Starting from a misunderstood internet currency, the progress and development of BTC and the Bitcoin network have come a long way; banks now recognize Bitcoin, while there is even an option to purchase Bitcoin ETFs, among many other monumental factors.
In this article, you will learn the details behind what is Bitcoin. We will address the basic questions, such as: What is Bitcoin? How does Bitcoin work? What is Blockchain Technology, exactly? How about Bitcoin mining? How do you trade Bitcoin CFDs?
Ready to embark on a journey to learn more about Bitcoin, what is Bitcoin, how Bitcoins works and more? Let's get started.
Table of Contents
What is Bitcoin?
Bitcoin is a digital currency or 'cryptocurrency', due to the fact that it uses cryptography to secure transactions within its infrastructure, which represents a distributed online database, or 'blockchain'.
Bitcoin is sent using a peer-to-peer network, which operates on the blockchain, also known as a public distributed ledger.
It is notable to mention that you may trade CFDs on Bitcoin (BTC/USD, BTC/EUR, and BTC pairings with other digital currencies) in a free-of-charge demo trading account with Admiral Markets. This gives you the opportunity to get familiar with this financial instrument in a virtual environment before you test your trading strategies with your live account.
What is the Abbreviation for Bitcoin?
The abbreviation for Bitcoin is simply BTC. The same principle as with USD (US Dollar) and EUR (Euro) applies. Bitcoin can also be paired with other currencies. In that case, the CFD contract name could be, for example, Bitcoin vs US Dollar CFD (or BTC/USD).
Currently, in addition to Bitcoin, you have 42+ cryptocurrency CFD pairings that you can trade with at Admiral Markets.
How Does Bitcoin Work?
Bitcoin offers the option to make fast, low-cost peer-to-peer payments without the need for a bank or a central processor.
The system transactions take place directly between users' digital wallets and are verified in the blockchain.
The transactions are digitally signed with unique private keys, which proves that they've come from the owner of the wallet.
Due to this form of modern technology (known as the blockchain), transactions have a modernized form of security.
How Can You Trade Bitcoin CFDs?
As mentioned above, we offer various pairings for trading Bitcoin CFDs, including against the US Dollar, Euro and various digital pairings.
Just as you would trade with any financial instrument at Admiral Markets, you can do so via either MetaTrader 4 or MetaTrader 5 platform.
Simply search 'BTC/USD' as your instrument (for example), choose whether to 'buy' or 'sell', and you're able to place your first position. Visit our 'How to Trade CFDs Guide' for more detailed steps.
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What is Blockchain Technology?
To understand 'what is Bitcoin?', you first must understand the concept behind blockchain technology.
The blockchain in relevance to the Bitcoin network is essentially a decentralised public ledger of all Bitcoin transactions that have ever been executed.
A certain number of transactions form a database unit, known as a 'block', and each block stores information about the previous block.
In addition, each transaction stores information about its preceding transaction. This way, the blockchain enables full transparency of payments.
Bitcoin's blockchain infrastructure introduced a revolutionary method for financial data storage that is accessible to anyone, is fully transparent, co-developed using an open-source code, and does not belong to any person or entity. It has been the initial inspiration for the many cryptocurrencies and tokens in existence today.
Instead, blockchain maintenance is performed using the collective power of millions of computers that verify transactions, and then add them to the 'blocks'.
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What is Bitcoin Mining?
As you have now been given more insight into the popular query, 'what is Bitcoin?', let's dive a little deeper. Bitcoin and all cryptocurrencies are created on the blockchain by a process called 'mining'.
You may have heard of many rumours that teenagers with laptops are becoming rich (and quick) by mining or buying Bitcoin or other cryptocurrencies.
While the stories are certainly not all true, they are certainly not all false, either - take these five Bitcoin success stories, for instance.
To break it down, Bitcoin mining is the process of creating new BTC by the use of heavy-powered computers which solve mathematical equations automatically; like solving an incredibly complicated puzzle, if you will.
There are two main and crucial results from Bitcoin mining: New Bitcoin is created, and the network is made more secure by further blocks created and further verification.
Did you know there is a hard cap of only 21 million total Bitcoin? It has been said that the final coins will not be minted until the year 2140.
The Bitcoin blockchain was designed to have a controlled supply, and only a fixed amount of Bitcoin may be created each year.
From an overall, global standpoint, a Bitcoin miner solves a new mathematical puzzle and hence creates a new block every 10 minutes. This block contains transaction records that are drawn out of the awaiting Bitcoin memory bank. Each new block discovered the miner receives a block reward for their efforts.
Initially, upon the launch of Bitcoin, the block reward was 50 BTC.
With every 210,000 blocks mined, the reward is cut in half. The last halving occurred in May 2020, where the reward per block was 6.25 BTC – the next Bitcoin halving is expected in April 2024.
It is notable to mention, that as of January 2024, there are 19.61 million Bitcoin in existence – meaning only 79 thousand will be mined up until 2140.
So, what does the mining reality mean for Bitcoin and its value?
Well, Bitcoin is forecasted to reach $400,000 per BTC (according to Blockware Solutions firm, Forbes) in the year 2024, after the halving takes place. The price, as of January 2024, has been volatile - ranging between $35,000-45,000, respectively.
The general opinion is that both Bitcoin and crypto, in general, are set to climb new heights in 2024 - While the upcoming 2024 halving will typically have a positive impact on the price, as the supply 'squeeze' tends to see the BTC price rise.
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While learning more about Bitcoin and the world of cryptocurrency, it is only natural to be curious about how you can take part in the trading activity.
Gain access to Bitcoin CFDs, along with 42+ other cryptocurrency pairings, by clicking the banner below:
Who Invented Bitcoin?
When the topic of 'who invented Bitcoin' comes up, there has certainly been some controversy over the years. It is thought that Bitcoin was created by Satoshi Nakamoto, who announced the invention on 31 October 2008, in a cryptography mailing list in a research paper called Bitcoin: A Peer-to-Peer Electronic Cash System.
What is more interesting is that his name is probably an alias used by the unknown person, or persons, who designed Bitcoin originally.
In 2016, Australian entrepreneur, Craig Wright, declared himself as 'Mr. Bitcoin' - this is where much controversy lies. Partial parts of the crypto community support his claim, while an equal part denies it, as it may be tied to some manipulation – or just a ridiculous PR stunt for Wright, especially considering he refuses to prove it.
At this point no one really knows the truth – only 'Satoshi', himself, whoever that may be
When Was Bitcoin Created?
The domain Bitcoin.org was registered in August 2008, and the official whitepaper by Satoshi, mentioned above, was sent out to a private mailing list in October 2008, just two months after the registration.
Technically, the open-source code of Bitcoin was then launched in January 2009 – perhaps considered the 'official' time of creation.
Fast forward just slightly, to May 2010, when the very first and most famous Bitcoin transaction took place, which even has an annual day in memory of it – Bitcoin Pizza Day.
An early Bitcoiner by the name of Laszlo Hanyecz (residing in Jacksonville, Florida at the time) wanted to experiment with some Bitcoin. And he wanted pizza – Papa John's pizza, to be exact.
Quite humorously written, the open letter started like this: "I'll pay 10,000 bitcoins for a couple of pizzas.. like maybe 2 large ones so I have some left over for the next day. I like having left over pizza to nibble on later..."
This unusual request was posted on the bitcointalk.org forum, where Laszlo received many replies – but few could fulfil his offer. Until four days later, on May 22, 2010, he finally received his pizza.
This event surely goes down in crypto history. Fast forward to 2024 and there are many more use cases for Bitcoin and cryptocurrency, as we will cover in the next section.
Where Can You Spend Bitcoin?
Now, in 2024, there are numerous products and services you can purchase using Bitcoin – besides pizza, of course.
El Salvador has become the first country to accept Bitcoin as legal tender as of June 9, 2021. That is by far the biggest global movement that has occurred for Bitcoin and cryptocurrency.
As of January 2024, there are only two countries which accept Bitcoin as legal tender: El Salvador and the Central African Republic. Time will tell if other countries join them in 2024.
In regards to companies accepting Bitcoin, see some of the major brands which now accept BTC as payment:
- Microsoft has been accepting BTC as payment since 2014 in its Xbox Store
- Online retailer Overstock accepts payment in Bitcoin for all products sold
- Home Depot, the largest US hardware retailer, accepts Bitcoin payments via Flexa's checkout system in their physical stores
- Namecheap, one of the biggest domain registrars, gives credit for purchases when Bitcoin is sent for payments
- Starbucks, a major US coffee brand, accept BTC payments via the Bakkt app
- Gift card services like CoinCards and Bitrefill accept BTC and other cryptocurrencies
- KFC Canada is rumoured to soon be accepting Bitcoin as payment
- Popular food delivery app, Just Eat (France only), will take order payments in BTC
- Travel websites like Expedia.com and CheapAir.com accept BTC for flight purchases
There are certainly other institutions we could add to the list, but this gives you a good idea.
Most Bitcoin payment processors will also provide a QR code at the checkout, which represents a Bitcoin address and a payment amount.
QR codes are very convenient, making it easy to pay via the Bitcoin wallet application on your smartphone. Simply scan the QR code and it will pre-fill the recipient's Bitcoin address, and the requested payment amount. Once you send the transaction, the payment is complete.
Are Bitcoin Transactions Traceable?
All Bitcoin transactions are public, traceable, and permanently stored in the Bitcoin network.
Bitcoin addresses are the only information used to define where Bitcoins are allocated, and where they are subsequently sent. These addresses are created privately by each user's wallet.
Since users usually have to reveal their identity in order to receive services or goods, Bitcoin addresses cannot remain fully anonymous. Also, the Bitcoin network is a peer-to-peer network, and it is possible to log users' IP addresses.
Which Countries Back Bitcoin as a Currency?
As mentioned above, the only country which accepts Bitcoin as legal tender in 2023 is El Salvador and the Central African Republic. However, that said, there are many other countries that are Bitcoin-friendly.
The legal status varies from country to country, but the list of countries that accept Bitcoin is constantly expanding.
Bitcoin operates independently of any central bank, contrary to other well-known currencies (e.g., the US Dollar and the Euro). The Bitcoin network does not have any other central point or single administrator either, which makes it a decentralised digital currency.
The US, for example, has been quite positive towards Bitcoin, having its place in the US derivatives market.
Bitcoin is also viable for taxation as a property under the IRS. Canada also maintains a positive status with Bitcoin, viewed as a commodity by the CRA. Australia maintains rules similar to Canada, ruling it an asset subject to capital gains tax.
The European Union released new rules around Bitcoin and crypto, overall, in March 2022. They have begun to formulate a regulatory framework for digital assets, establishing consumer protection, and environmental standards, and even adding mining to the EU taxonomy, projected for 2025.
Opinions will differ, but logically speaking, this is positive news for the crypto industry, as the assets become more widely accepted and understood.
As of January 2024, these are the following countries which have a ban on Bitcoin: Morocco, Egypt, Sierra Leone, Bolivia, Afghanistan, Algeria, Iraq, Kuwait, Myanmar, Nepal, Tunisia, Cameroon, Gabon, Guyana, Lesotho, Libya, Zimbabwe, Qatar, Saudi Arabia and China.
Bitcoin is considered legal (although not backed as an official currency) in many countries as of January 2024, including the United States, Canada, Australia, France, Spain, Denmark, Germany, Switzerland, Japan, New Zealand, Ireland, Netherlands and the United Kingdom.
Is Bitcoin Safe to Trade?
Bitcoin is a volatile asset, with daily price changes in excess of 10% being quite frequent, which makes it considerably risky for investing and trading.
Of course, there is no high reward without high risk, and you don't have to invest or use any funds that you cannot afford to lose.
It is also notable to mention when you trade Bitcoin CFDs, there is always a swap fee to keep in mind if you plan to hold the BTC in your account for the long term.
Generally speaking, when trading Bitcoin CFDs (or any CFDs), a short-term strategy may be the strategy to use, given the nature of CFD trading and the volatility behind BTC.
You can trade Bitcoin CFDs with Admiral Markets against USD, EUR as well as with 10 total digital currency cross pairs.
At Admiral Markets, we offer our users free access to the MetaTrader 5 platform, where you can analyse price patterns, use indicators to identify trends and activate your trades. Click on the banner below to gain access:
What is Bitcoin: Conclusion
Bitcoin has come a long way over the last decade. While Bitcoin and cryptocurrencies continue to make headlines in the traditional finance world, it eventually becomes difficult to ignore.
Is trading Bitcoin CFDs or investing in Bitcoin the right decision for you? Only you can answer such a question, based on your risk profile, risk tolerance and investing style.
Please always consider your risk profile before trading or investing.
If you'd like to start trading Bitcoin CFDs, as well as invest and trade with other financial instruments, why not register for a live trading account with Admiral Markets? Click the banner below to get started:
What is Bitcoin and how does it work?
Bitcoin is the original digital currency, or cryptocurrency, which is considered to be free of any central control, whether that be from banks or governments; it is considered to be 'decentralised'. It works by use of a peer-to-peer blockchain network in conjunction with a public ledger.
Are Bitcoins real money?
Yes, Bitcoin, and cryptocurrency in general, are considered real money. In 2024, there are quite a few products and services you can purchase using Bitcoin, with the use cases increasing as the industry matures.
Is it worth buying Bitcoin?
This is a subjective question and depends on the buyer; it depends on your knowledge of Bitcoin, your risk tolerance and tolerance for volatility, your time horizon, and goals, among other factors. If you are interested in short-term trading, you also have the option to trade Bitcoin CFDs.
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