Bitcoin was founded in 2009. It was the first cryptocurrency in the world and the most popular and most famous.
A cryptocurrency is a digital or virtual currency that is secured and traded using cryptography - a system of algorithms or complex mathematical symbols.
Bitcoin was created by an anonymous person (or group of people) known as Satoshi Nakamoto. They aimed to create a completely decentralized, peer-to-peer electronic cash system.
Bitcoin is not owned by a central authority or government institution. They can be sent directly from one user to another without the need for an intermediary, such as a bank.
Users can remain anonymous through the use of encrypted keys so that bitcoin transactions cannot be traced to them. Bitcoin can also be transferred and withdrawn anywhere around the world.
Bitcoin is known for volatility, and has also been well documented in the media in recent years. This high volatility means that there is potential for good profit margins. But never forget that this comes with risks.
With the added incentive of lower entry levels, bitcoin trading has become an attractive option for many. However, anyone trading in any market should be aware that there are always risks involved.
In this article, we explore the basics of bitcoin trading, look at how cryptocurrency works, reasons to consider bitcoin trading and what you'll need to know before getting started.
1.How does Bitcoin work?
Unlike fiat money, bitcoin is not printed. Instead, they are "extracted" on computers.
Bitcoin mining requires high-powered computers and a lot of painstaking work, so miners are currently rewarded with 12.5 bitcoins for every new bitcoin they create.
About 1,800 new bitcoins are mined every day and the most that can ever exist is 21 million – and that's what Satoshi Nakamoto decided when they created Bitcoin.
In addition to creating new bitcoins, mining serves to verify bitcoin transactions made in the past.
Miners verify that all transactions are accurate before adding them to the blockchain – blockchain is the technology behind Bitcoin and is a series of blocks of data that provide a consistent record of historical Bitcoin transactions.
More importantly, this verification verifies that Bitcoin is not being replicated. The blockchain acts as a ledger that anyone can download and verify, but no one can tamper with data that has already been added to the chain.
To earn their own bitcoin, miners must verify the value of 1 MB of transactions and solve a complex mathematical problem, also known as "proof of work."
To solve this problem, they must guess a 64-digit hexadecimal number, known as a hash, equal to or less than the target hash (a hexadecimal is a system used in mathematics and computing that represents numbers using 16 different symbols, instead of the usual 10).
The chance of coming up with the right hash is around 1 in 13 trillion, and miners are racing against millions more to be the first to complete proof of work, so bitcoin mining is highly specialized and competitive.
2.Reasons to consider trading in Bitcoin
While Bitcoin mining is not a viable option for most people, bitcoin trading is fairly simple once you understand the basic principles.
As mentioned earlier, bitcoin volatility is one of the main attractions for traders. This means that we can see rapid price fluctuations up and down, and if bitcoin traders correctly predict the market. They can make big profits. Of course, they can also make significant losses.
Another benefit of Bitcoin is that you can trade around the clock. Most stock markets are limited to working hours in the countries in which they operate.
However, bitcoin can be bought and sold on exchanges around the world, so it is possible to trade day and night. Since Bitcoin is a global currency, it is not affected by the financial stability or financial situation of any one country. In fact, it can rise while other markets fall.
Finally, the relative lack of regulation makes it easy to get started in the market, as you don't need to go through a lengthy verification process.
3. How to Start Trading Bitcoin
Step 1. Check your internet connection
The first thing you'll need to trade bitcoin is a good, secure internet connection.
Step 2. Choose a Bitcoin Exchange
Open an account on a Bitcoin exchange. This is a digital marketplace where you can buy or sell Bitcoin.
There are two types of exchange
- Fiat to Crypto - here you can buy or sell Bitcoin and other cryptocurrencies using fiat currency (for example, traditional currencies backed by the government that issued them). This type of exchange is generally suitable for beginners.
- Crypto to Crypto – These are for exchanging one cryptocurrency for another and are generally set up for more experienced traders.
Some of the most popular bitcoin exchanges include Coinbase, Kraken, Binance, and Bitstamp, but since there are so many exchanges available, it's important to do your research before settling on one.
Things you should check include:
- Safety standards – Many bitcoin exchanges have fallen victim to security breaches, so you should check if the exchange you are considering is among those that have been hacked. Look for its privacy policies, encryption of user data, and whether it uses two-factor authentication.
- Transaction Fees – Some exchanges will charge fees for transactions such as deposits and withdrawals while others offer them for free.
- Ease of use – Make sure you can easily navigate and understand the platform.
- Reviews – Look at forums like BitcoinTalk and Reddit to see if others have a positive experience using the exchange.
Step 3. Open Account
To open a Bitcoin account, you will need to register and go through a verification process to authenticate your identity.
Once you open your account, you can transfer funds to start buying Bitcoin
Step 4. Open a Bitcoin wallet
Once you start buying Bitcoin, you will also need a Bitcoin wallet to store it in. This consists of a public address, where your bitcoins will be sent, and a private key that is used to open your funds and send bitcoins to others.
Unlike a bank account, when you store money in a bitcoin wallet, you are completely responsible for its security.
There are different types of bitcoin wallets and the type you choose depends on how you want to use your bitcoin and the level of security you want:
- Mobile – This acts as an app on your phone and can be used to pay for goods directly. It helps if you use Bitcoin daily but are vulnerable to hackers.
- Web – This type of wallet is stored on an online server and is controlled by a third party, such as a cryptocurrency exchange. Again, it is easy to access from any device with an internet connection. However, they are also at risk from hackers and there is a risk that the organization managing the wallet may turn out to be untrustworthy.
- Desktop – These wallets are downloaded and installed on your computer, so that your private key is stored in your hard drive. They are more secure, as there is no third party involved, but they are still connected to the Internet vulnerable to hackers, malware, and viruses.
- Hardware – Using a secure device to store your private keys is widely considered the most secure way to store bitcoin. The most common form of hardware wallet is a USB stick.
- Paper wallets – This includes printing your public address and private code in the form of a QR code which you will then scan to make transactions. Although you are not vulnerable to hackers or malware, you will need to take good care of the piece of paper that contains your details.
Step 5. Buy your Bitcoin
The price you pay for bitcoin depends on the exchange you use, and there is no single global price
4. Risks to Consider When Trading Bitcoin
Bitcoin has become very successful over the past few years and many are rushing to take advantage of the opportunities it offers.
However, cryptocurrency is still a very new market and is still very risky. So while there is potential to make money trading bitcoin, you should have a clear idea of the pitfalls you may encounter before you get started.
.1.Volatile Market
As mentioned earlier, the price of bitcoin is constantly going up and down, so it is very difficult to predict what will happen in a certain period.
While this can lead to healthy profits, it can also mean significant losses if you misinterpret what is likely to happen next.
2. Fraud
Since there is little regulation of the bitcoin market, security is a major problem. While many bitcoin exchanges are reputable, others are not, and there have been cases where investors have been scam by fake exchanges.
3. Cyber Attacks
As discussed in the previous section, bitcoin exchanges are very attractive to hackers, and if your bitcoins are stolen by a hacker, there is no way to recover them.
4. Reliance on technology
Bitcoin is a digital currency entirely based on technology. Not only does this make them more vulnerable to cyberattacks and fraud, but it also means that they are not backed by any physical collateral, such as gold or property. If the technology fails or is shut down, Bitcoin is worth nothing