Beginner’s Guide to Bitcoin – How the Cryptocurrency Works and How You Can Make or Lose Money With It – The Scottish Sun
Imagine it’s 2010 and you go to your local post office and hit £ 75 on the counter and ask for your money back in dollars.
The cashier would hand you $ 121.50 – almost $ 18 more than you would get back for the same transaction today.
Bitcoin has taken the financial world by storm, but is cryptocurrency an easy way to make money or a bubble waiting to burst?Photo credit: Reuters
If instead you had spent your £ 75 on a mysterious virtual currency called Bitcoin on the same day, you would now be sitting on a pile of money worth £ 52,616,394.10.
Since those early days, the value of online money has multiplied by hundreds and thousands.
But it also did a dive.
Well if you made the same investment you wouldn’t get that much back – £ 75 would only buy you 0.0030 of a bitcoin.
5 Risks of Crypto Investing
The Financial Conduct Authority (FCA) has warned people about the risks of investing in cryptocurrencies.
- Consumer protection: Some investments promoting high returns on crypto assets may not be subject to regulation beyond anti-money laundering requirements.
- Price volatility: The significant price volatility of crypto assets combined with the inherent difficulty of reliably valuing crypto assets puts consumers at high risk of loss.
- Product complexity: The complexity of some products and services related to crypto assets can make it difficult for consumers to understand the risks. There is no guarantee that crypto assets can be converted back into cash. Converting a crypto asset back into cash depends on the demand and supply in the market.
- Fees and Charges: Consumers should consider the impact of fees and charges on their investment, which can be greater than that of regulated investment products.
- Marketing materials: Firms can overestimate the return of products or underestimate the risks involved.
Some financial experts believe the value could continue to rise in the next few years.
Even top industry names like Elon Musk showed their support when he revealed that Tesla would allow the currency for transactions once sourcing became cleaner and greener.
However, some investors are becoming more uncertain about the future of the reserve currency as its value has recently fallen and hit worrying lows.
So how do you invest in the shadow world of Bitcoin?
We explain everything you need to know, but a warning first.
Investing in Bitcoin is risky as the value of the cryptocurrency can go down as well as up.
You should only invest if you understand the dangers and have the money to lose if something goes wrong.
The cryptocurrency made a huge jump in value until it wobbled earlier this year and collapsed in May.
This just shows how it can just as easily fall and lose its value.
What is bitcoin
Bitcoin became the world’s first fully virtual currency when it was launched in January 2009.
Users cannot carry coins or bills and their value is only shown as a number on a screen.
It was created by an online account called Satoshi Nakamoto.
At the moment one Bitcoin equates to $ 34,287.10 or £24,747.37 to us.
When and why was Bitcoin created?
The cryptocurrency was introduced after the Great Financial Crisis of 2008.
It was created in response to the global reliance on banks for all financial transactions.
Bitcoin’s founder planned to create a peer-to-peer payment system that didn’t rely on third-party verification.
This means that banks could not participate in currency exchange.
How does Bitcoin work?
Every bitcoin is a computer file that is stored in a virtual space like a computer or, more recently, a “digital wallet” app on a smartphone – a bit like ApplePay.
You can send bitcoins to others and they can send bitcoins to you and you can store them in these areas.
Transactions are recorded on a public list called the blockchain, which allows them to be tracked.
That means people can’t spend coins they don’t own, make copies, or reverse transactions without marking it in the history channel.
What is Bitcoin Mining?
New currency is created through a complex online process called mining that uses supercomputers to create new bitcoins using computer code.
The sums are getting harder and harder to prevent too many Bitcoins from being generated at the same time – that’s why the value is so high.
If you start mining now, it could be years before you get a single bitcoin – it also costs a lot of electricity, so you end up spending more on your tariff than the currency is worth.
Why is Bitcoin popular?
Many people like the idea that it is a way to exchange currencies without the need for a bank. It is also efficient to use over the internet. There is also a transparent set of rules which means outside parties have less control over your money. However, this can also bring its own dangers.
Is Bitcoin Safe?
Every Bitcoin transaction is publicly recorded, making it difficult to illegitimately copy the currency, create fake ones, or issue currencies that you do not own.
However, it is entirely possible that you could lose or accidentally delete your online wallet and not be able to get your investments back.
There have also been thefts from some websites where you can also store your bitcoins.
When using Bitcoin for payments, you should also know that its price is extremely volatile.
The value can go down significantly at any time and you can lose a lot of money.
It’s not regulated either So you don’t have the same protection as other services where you might be able to lodge a complaint with an ombudsman.
How can you buy bitcoin?
The most common way to buy the currency is to download a broker app like Coinbase and Blockchain.
These allow users to use a credit or debit card to exchange pounds for bitcoin.
Users don’t have to buy whole bitcoins and can buy a small percentage that is equal to the value of their cash investment.
Once a request is made, online miners decide whether to approve the transaction.
If approved, the money is debited from a user’s account in exchange for Bitcoin.
When selling, users can use the same app to sell their Bitcoin for their cash value.
What can you buy with Bitcoin?
In its early days, Bitcoin proved to be relatively worthless – with one infamous example where an early pioneer used two Bitcoins to pay for a pizza.
However, at the height of Bitcoin, that pizza would be worth the equivalent of around $ 126,000.
There are bitcoin restaurants where you can still use the money if that’s how you want to spend the cryptocurrency.
But you can also use it to buy something as big as a car or as small as a video game.
Elon Musk pulled the option of using the currency to buy a Tesla when the company explained how bad mining was for the environment.
You can buy one of the cars with the crypto cash even though 50% of the mining is done with clean energy once.
How can you spend Bitcoin?
You can currently only spend Bitcoin virtually and in online transactions.
It’s not the same as cash and you can’t use change from your built bank to pay for your parking space or buy lunch at your local coffee shop.
However, certain websites and companies offer the use of the currency such as Microsoft.
However, if you lose virtual access to your money, you lose all of your investment.
The Briton James Howells, as is well known, threw away a computer with 7,500 Bitcoins on his hard drive – that corresponds to a whopping 257,153.25 US dollars today.
Since at the time only the computer on which the currency was purchased could be used for redemption, the money was as good as lost to the Welsh Howells
The broken Dell laptop is believed to be buried under a heap of rubbish at a landfill in Newport, Wales.
The cryptocurrency market is constantly fluctuating, but you can check its progress with our guide.
Recently, however, the price of Dogecoin has risen after Elon Musk supported measures to massively cut its transaction fees.
However, China is cracking down on crypto mining, which is causing the price of Bitcoin to fall.
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