Bitcoin? What is it? Why such a sky-rocketing rise? Can one make money on bitcoin?

Bitcoin is a virtual currency. A currency, just like the US Dollar or Euro. It is a currency that is not associated with any particular country, however. Though not subject to regulation, bitcoin is fairly safe and stable. Now it may sound logical that the popularity of bitcoin is growing. How does it all work? And is the bitcoin system trustworthy?

History of bitcoin

The bitcoin network has existed since 2009. It was developed by an individual or a group of individuals under the nickname of Satoshi Nakamoto. As to the origination of bitcoin, nobody has officially declared to be the author. Anyway, it does not matter because the entire system is based on a peer-to-peer network (open source software) in which the validation, fluency and easiness of the process are ensured by a decentralised network of users.

In simple terms, this means that all transactions from one account to another are anonymous but known to all users. All transactions are strictly secured and there is not a single server that could be damaged leading to the destruction of the bitcoin system as a whole.

Let’s demonstrate it on a simple example: You are at a bank watching all transactions on a table: “Mary has sent 150 USD to her daughter. George has received his monthly salary of 2 300 USD” All this information encoded in ones and zeros is available to all bitcoin users.

Why to use bitcoin?

Have you ever sent money abroad? Are you dissatisfied with the duration of both overseas and national transactions? Would you like to be almost anonymous when paying? Are you concerned about massive fees, growing inflation, regulatory measures and many more restrictions?  If at least one of your answers is “yes” you know why you should create a new virtual currency.

Bitcoin is almost anonymous, all transactions are carried out worldwide on the order of minutes, transaction costs are minimal (…cents usually). The chances of influencing or devaluing the currency are negligible (…principally, impossible).

Bitcoin – a currency?

Some of you may have identified bitcoin as a virtual currency or cryptocurrency with the ambition to remove regulatory rules and simplify the settlement process worldwide. Not being used as a currency by a specific country, the bitcoin system has been designed in order to disable any individual or institution (including the founder himself) to affect the currency. Nobody (such as a bank) will be able to touch your bitcoins. Nobody will learn how much money you have on your account.

What about the transactions?

Bitcoin is freely convertible vs. any currency, most frequently its value is expressed in USD. This means that 1 BTC =  2 800 USD at this moment. Exchanging real money for bitcoin and vice versa is easy. In larger towns and cities, bitcoin ATMs have been installed. Alternatively, you can use an online exchange.

Seeing the nominal value of bitcoin you may fear that it is too expensive for you to make a transaction. Don’t worry, people usually use relevant fractions of bitcoin.

The current value of one bit-cent (0.01 bitcoin) is USD 28. The smallest unit called a “satoshi” equals USD 0.000028. This means that you can actually buy bitcoins for peanuts.

Having converted your money, you are about to start trading. Every bitcoin user gets an address of 34 characters. The address helps identify the user or the counter- party. The address is something like your account number but anonymous, for example: 1C2McBicWzrN8mDp3VtSaTjkyvbzpVRotE.

Though matching with the account and all account’s transactions, the code has no more connection to the user such as through the name or other details. Nobody knows to whom the code belongs.

Each transaction must go through a network of users called miners. As a reward for the enabling of their hardware the miners get a small commission per transaction. If you now plan to run some software on your PC to check bitcoin transactions we may let you down: The reward for miners has been continuously falling. Using standard personal hardware your costs of consumed electricity would exceed your earnings. Due to the miners-based system, you must add a small fee for executing each transaction (a few cents) to make the transaction more attractive for the miners leading to a faster completion.

With bitcoin as a currency, you can buy whatever you want: food, electronics, anything. If you become tired of trading bitcoins, you can convert the cryptocurrency back into traditional currencies such as GBP.

How to make money on bitcoin?

In the early stages of bitcoin trading all what a successful and profit-making miner would have to do is to get personal hardware configured as a network to validate payments. To achieve the same result now, you would need professional hardware. The competition is tough. There are organisations whose professional hardware designed for bitcoin transactions is housed on several floors. Your chances are minimal.

Bitcoin is freely convertible looking as a currency. This means it is tradable. In the recent months, bitcoin has considerably strengthened its position and become more volatile.

There are basically two ways to make money with bitcoin:

Method 1: Buy bitcoin and hold on to it

One BTC bought a month ago would now cost you about 1 600 USD. If you sold it a few days later, the same bitcoin you pair 1 600 for would give you about 2 800 USD, nearly a double. As you can see, this method no.1 dictates to buy first and then to wait until the price reaches the high to sell.

Yet, nobody knows whether the price will grow in the future. At a certain point, the price may decline resulting in your loss. The rule is: Before each purchase you should conduct a thorough analysis. Buying bitcoin with coinbase is quick and easy.

Method 2: Instead of bitcoin, buy binary options

As we already know, binary options can be used for trading currency rates, shares, indexes and commodities. And bitcoin is nothing else than a currency. Practically we can trade binary options for currency rates of BTC/USD or EUR/BTC. Hence, it is not necessary to make a lengthy search for a bitcoin purse, execute transactions, go to bitcoin ATMs etc.

Unfortunately, the only broker to enable bitcoin trading is IQ Option over weekends… and on top of that, with a poor  profit of 50 – 60%. :-(Seeing no alternative to get bitcoins, you will have to buy them.

Good luck, traders !

Key points of this article

• • Bitcoin is a virtual cryptocurrency

• • Cryptocurrency has much to do with miners (chaining of digital signatures of individual transactions, peer-to-peer network and decentralisation) making it extremely safe

• • Bitcoins can be exchanged on-line or at ATMs located in major towns and cities.

• • The key advantage of bitcoin is its low transaction cost, quick process and anonymity

• Bitcoin can be used for buying food, electronics or even a car.

Author

More about the author Step

I've wanted to build a business of some kind and earn money since I was in middle school. I wasn't very successful though until my senior year in highschool, when I finally started to think about doing online business. Nowadays I profitably trade binary options full-time and thus gladly share my experiences with you. More posts by this author