From this article you will learn about what is bitcoin like, its issuance, and who controls it, as well as about how one can make profits from trading bitcoin
What is bitcoin for?
Bitcoin price has increased by more than 16 times during 2017. Today, the cryptocurrency that doesn’t have physical substance, costs much more than precious metals and oil.
BTCUSD: price increase of 16 times from 1.01.2017 to 14.12.2017
However, trading bitcoin involves high risk. If you are ready to take it, you should know, how cryptocurrency functions, as well as main principles of trading it. I will describe them in a simple way, without going into too much technical detail.
Bitcoin is a new generation of digital money, which is used on the Internet. There, everything can be bought for bitcoins, including any currency: euro, dollars and so on. Besides, more and more world large companies accept bitcoin as a payment means. Such giants as MicroSoft, Dell, Expedia are among them. More detailed information, where bitcoin is accepted, can be found on website Usebitcoins.info. The advantage of the cryptocurrency is that you can safely transfer and receive money with its help, using a pseudonym and avoiding banks. Cryptocurrencies are attractive for investing and trading, bitcoins can be traded on the exchange, or one can invest money in it.
How do bitcoins appear?
The main difference between bitcoin and conventional or digital money is no centralization or governmental regulation, that is cryptocurrency issuance is not controlled by any central bank. Coins are issued in digital form, because many computers all over the world operate and use special software to calculate mathematical algorithms. That means, bitcoins aren’t associated with any country. It should be noted, that cryptocurrency is not legal in all the countries, and its circulation isn’t controlled by the government.
The process of cryptocurrency obtaining is mining. A couple of years ago bitcoins could be mined with a personal computer, its power was enough. Now, not everyone can launch cryptocurrency mining software, special script. The matter is that the power of bitcoin network has significantly increased, and bitcoin mining speed increased as well. Now, to mine bitcoins, only special equipment, ASIC, is used. High-technology equipment for bitcoin mining is megawatt mining clusters, built on the base of power stations.
How to buy or sell with bitcoins?
To store, receive or transfer cryptocurrency, users and companies create special bitcoin wallets. For example, my friend John wants to buy bitcoins, so to store them, he sets up a digital wallet for keeping the cyber key, necessary for bitcoin transactions. There are several kinds of wallets: full client, lightweight client, and web-client. Each of them has its own advantages and drawbacks, which I won’t describe in detail in the article. Let’s return to John and the transaction description.
John wants to order a pizza to be delivered and pay in bitcoins. He sent to his favorite pizzeria his private key, in whose symbols the information about this transaction and public address of bitcoin wallet is encrypted. The information about the transaction is transmitted to all bitcoin network nodes with the application of special algorithms. In a short time, just five to ten minutes, the transaction is confirmed and joined to other transactions, creating a new block of data in blockchain register. Bitcoin network has processed the payment, and John is already waiting for his pizza, on the sofa and in front of the TV.
However, if John bought a plane ticket, having indicated his personal data, and then bought from the same wallet something, interesting for security services, he would be easily identified.
Remember, how you pay for something by your credit card. You don’t give the seller banknotes, but the transaction on the card is entered in the bank’s register, issued your card. The difference between bitcoin and conventional currency is that the transaction is registered not in the bank or a payment system, but in all computers, connected to bitcoin network. The registers are cryptographically secured, the data can’t be changed or faked. To record a transaction in the register, a special signature is used, which is calculated as a very complex computer task and is a kind of “wax seal” to secure the registers.
My friend John ordered a pizza in the USA, payed for the purchase in bitcoins, and a computer, located, for example, in China, calculated this cryptographic signature and received bitcoins as a reward. Thus, mining process started.
How to make profits from bitcoin?
Bitcoin is a modern, high-potential instrument of investing. Profits can be made both passively, just investing in bitcoins, and actively, speculating on its rate. As it is known, bitcoin rate changes greatly and rapidly. The aim of cryptocurrency trading is similar to trading currency pairs, it means buying bitcoins at a lower price and selling it at higher one. However, a significant advantage of cryptocurrency trading is that bitcoin rate doesn’t depend on fundamental news and factors, as the cryptocurrency, as it has been already mentioned, is not associated with any country’s economy, so it doesn’t respond to changes in financial-political background. Besides, bitcoin, as other cryptocurrencies, doesn’t depend on the price of gold or oil.
Today, bitcoin is the leader of exchange trading instruments, due to its high volatility and liquidity. It becomes more and more popular among traders and investors.
Large brokerage companies, willing to keep up to date, enlisted bitcoin and other cryptocurrencies as trading instruments and offer their clients great opportunities for making profits. Now, you can top up your account with cryptocurrency. Everything is simple and convenient. You register a trading account with the chosen broker, top it up, set up the terminal, special software for online trading, and, having chosen the tab with bitcoin price, monitor its changes. You can start online cryptocurrency trading as soon as you decide, that bitcoin price is good to open a prospective position.
Besides, you can make money on investing in bitcoin. To do this, you don’t need to thoroughly study online trading principles or blockchain technology yourself. You can just register in social trading service and copy the transactions of professional traders, who are trading bitcoins, as well.
Summary:
- Bitcoin trading is a relatively new kind of making money that involves a high risk
- Be careful to protect your digital wallet and remember the passwords. You are likely to have heard Mark Frauenfelder’s epic tale, how he tried to recover the key to his cryptocurrency wallet in all kinds of ways. Remember, lost keys are impossible to restore.
- Trading bitcoin or investing in it, monitor its rate.
- Remember, professional online trading bitcoins is a serious business.
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The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance broker. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2014/65/EU.
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