What exactly is Bitcoin and how can you get involved in it?

You’ve probably heard of Bitcoin. Maybe you get spam emails telling you that you can make a fortune by investing in Bitcoin. Or you have heard it mentioned in the media, for example the recent news that Tesla will not currently accept Bitcoin as payment due to climate concerns.

But what actually is it? What can you use it for? And is it a good idea to get involved in it?

Let’s take a look.

What exactly is Bitcoin?

Bitcoin is a digital currency – or cryptocurrency – that was created in January 2009. The identity of its founder – who operates under the pseudonym Satoshi Nakamoto – is unknown. In 2010, some businesses began to accept Bitcoin alongside established currencies. One of the first known Bitcoin purchases was a pizza!

Bitcoin is not issued or controlled by any bank or government, and is not legal tender in many countries. There are currently around 18.5 million Bitcoins in circulation, and only 21 million will ever be released.

Bitcoin is completely digital: there is no physical currency. The easiest way to think of Bitcoin is as a computer file, which is usually stored in a digital wallet – an encrypted online bank account – on your smartphone or computer.

Bitcoin is created, distributed, stored and traded via automated lottery-style software known as blockchain. Bitcoin transactions are stored in different blocks, and the blockchain provides a transparent overview of all the transactions in all the blocks.

Running the Bitcoin system and the blockchain needs a huge amount of computing power. Computers in the Bitcoin system are referred to as “nodes” or “miners”. Concern has recently been expressed about the amount of electricity that is being spent on powering the Bitcoin system: it currently uses more electricity each year than many countries, including Malaysia and Sweden.

What can you use Bitcoin for?

At its simplest, Bitcoin is like any other online payment system. It can be used to buy products and services if the business accepts it. Some other online payment systems such as Paypal are now accepting buying and selling using Bitcoin.

It can also be used for financial transactions between individuals by transferring Bitcoins – either whole or part – between your digital wallets.

But some people just want to have Bitcoin because they view it as a good investment.

We referred earlier to one of the first known Bitcoin purchases being a pizza. Today, the equivalent value of the amount of Bitcoin used to purchase those pizzas is around $100 million. 

Since 2009, the value of Bitcoin has fluctuated but on the whole has dramatically increased. So many people who have held Bitcoin since the early days have made enormous financial gains through it. 

Even though the rate of increase has slowed since the early days of Bitcoin, and – like many investments – the value could potentially go down as well as up, it is still viewed by many financial experts as a good investment.

So if you want to get some Bitcoin, how do you actually do that?

How can you get hold of Bitcoin?

There are three main ways to get Bitcoin.

• Buy Bitcoin from an online exchange

There are many online sites where you can buy Bitcoin, for example Coinbase and Etoro.

• Sell products or services and accept payment in Bitcoin

If you have a product or service to sell, you can accept Bitcoin as payment. You would need to set up a Bitcoin wallet on your mobile device or computer and can then begin to accept Bitcoin payments.

• Mining

The mining process involves your computer searching for Bitcoin transactions then cracking a code to verify them. Once this happens, you will be rewarded with a number of newly generated Bitcoins. The reward halves every four years as the number of remaining Bitcoin to be discovered decreases. It currently stands at 6.25 Bitcoin.

However, the chances of this happening are very low: around one in 2 billion. So even if you started mining now it could take years to find Bitcoin, if ever. This is why many people choose to join mining pools, to work with others to mine and share any Bitcoin they find.

We hope that the above information has given you a better understanding of what Bitcoin is, how you can use it, and where you could start getting Bitcoin if you want to do so.

Meanwhile, if you need any short term financial assistance, remember that Loans 2 Go is here to help. We can offer unsecured personal loans of between £250 and £3,000, for any purpose, repayable over 18 or 24 months.

Get in touch with us if your finances need a boost. And remember to check back here soon for more financial and lifestyle tips from Loans 2 Go.