Bitcoin Explained Simply.

Bitcoin is the whirlwind that continues to whirl. I first jumped into bitcoin (head first, eyes closed) back in June. Since then, I’ve learned loads and enjoyed tasty gains.

I want to do 4 things here

i. Briefly, explain what bitcoin is
ii. Attempt to explain what gives bitcoin value
iii. Look at my experience with bitcoin so far
iv. Share my top tips for bitcoin investment

Shall we begin?

 

i. Bitcoin is a peer-to-peer, decentralized digital currency.

Let’s unpackage that a little:

Peer to peer (P2P) = user to user, direct connection via the internet

Decentralized = no central authority

Digital = not physical, stored and transferred electronically

Currency = money

The term, bitcoin, refers to both the payment system (or payment network) and the currency units which are bought, sold and mined. The bitcoin currency is only usable on the bitcoin network and the bitcoin network only uses bitcoin.

To distinguish between the payment system and the crypto-currency, Bitcoin will represent the payment system and BTC will represent the crypto-currency.

The Bitcoin network is otherwise known as the blockchain.

Understand the Blockchain in Two Minutes

 

 

ii. One thing that’s well-known about BTC is its amazing price growth.

Between September 2010 and September 2017, BTC has risen on average, by 25% a month! at the time of writing, the market cap of BTC (total value of all BTC’s) is around £90,500,000,000. I’m not entirely sure, but I think that says ninety billion, five hundred million pounds?

Crazy, that’s bigger than the value of companies like Paypal, Tesla and Netflix!

So, bitcoin is clearly huge at the moment but many people struggle with the idea of the currency having value in the first place. After all, it’s not tangible, it isn’t backed by any central authority and a lot of BTC’s aren’t put to active use. Instead, they are held as an investment or traded for a profit.

bitcoin

What gives bitcoin (BTC) value?

 

1) Access to the bitcoin network

Bitcoin allows for easy, frictionless payments across the globe, in a way that is nearly anonymous and generally cheap (or free).

You do not need a bank account and there are no pre-requirements for use, aside from maybe an internet connection. Bitcoin is also permissionless and trustless unlike more traditional forms of payment.

In addition, bitcoin solves the double-spend problem.

Without BTC, you cannot make use of bitcoin (the payment network/system). As bitcoin becomes more useful to more people, it follows that the price of BTC’s increases.

2) BTC is money (medium of exchange, unit of account & a store of value)

BTC’s have the 3 functions (in brackets above) that make money what it is. Although, it is a questionable store of value; it is extremely volatile compared to the Pound and other similar currencies. On the other hand, recently, BTC have seen amazing increases in price which could see it become an effective store of value if the trend continues.

3) Characteristics of money (portable, divisible, fungible, durable, and scarce)

Similarly, BTC’s have the key characteristics which make money desirable and work well. They can be easily moved to where you want them, especially across borders (portable). 1 BTC can be broken down into 100,000,000 units (divisible). All BTC’s are identical and counterfeits are not feasible (fungible). BTC exist permanently in the public ledger (durable) unless you put them into cold storage. The supply of BTC is capped at 21 million (scarce).

4) Profits through mining

Away from considering BTC behaving as money, there is money to be made from mining BTC. Mining BTC is an increasingly costly process. As more BTC are mined and more miners join the mining pool, the more difficult it becomes to profit from the mining process. Therefore, the cost, time and effort required to create new BTC via mining, contribute to the value of BTC.

5) Access to censored goods and services

As BTC is unregulated, it is far easier to buy products and services the Government may not like with BTC than with pounds and dollars. In addition, once you have your private keys for BTC, the government (or anyone else) is unable to access them.

6) Novelty

Let’s not hide from this 1, BTC have huge novelty value. I.T. enthusiasts, Libertarians, cryptographers, Fin-tech lovers, and many others, grab BTC for their own reasons but the fact is that BTC’s are a collectable part of world-changing technology. It’s only right that people want to be part of it.

7) The Market

Hey buddy, if the market says BTC have value than who are we to argue? if there is a limited supply and a growing demand then it’s natural that the price will go up. The people want BTC!

 

iii. Above is what I’ve learned on the way. below is the journey so far.

It’s table time!

Date

Transaction

Value (£)

Fee (£)

btc bought

Price of btc

09 June 2017

Bought btc

£120

£4.79

0.05451444

£2,201.25

09 June 2017

Received btc (referral promo)

£7.84

£0

0.003556

n/a

12 June 2017

Bought btc

£40.00

£1.99

0.01925088

£2,077.83

15 June 2017

Received btc (payment from a friend)

£15.70

£0

0.00820728

n/a

15 June 2017

Bought btc

£40

£1.99

0.02105839

£1,899.48

11 September 2017

Bought btc

£24.51

£1.49

0.00762013

£3,216.48

15 September 2017

Bought btc

£24.51

£1.49

0.01026987

£2,386.59

21 November 2017

Received btc

£7.56

£0.00

0.00122

n/a

Totals

£280.12

£11.75

0.12570

 

I started buying BTC as a speculative investment, within 5 months the price has more than doubled. What a delight.

3 transactions may stand out to you

I received 0.003556btc on 9th June by using a referral code to join Coinbase. Free money is always the most pleasing.

On the 15th June, a friend sent me a BTC payment for money owed. Within the first few days of owning BTC, the payment system had already become useful!

On 21st November I received more free BTC as a friend used my referral code to buy BTC on Coinbase.

So far, the return on investment has been unimaginable but I’m under no illusions; the price may tumble at any time.

 

iv. Yes, I’ve only got started with Bitcoin in June and yes, I’m the furthest thing from an expert. nonetheless, here are my top tips!

  • Focus on other less risky investments with a longer track record of success
  • Don’t invest what you can’t afford to lose
  • Diversify into other cryptocurrencies to spread the risk
  • Be patient
  • BTFD (see dips in the price as buying opportunities)
  • Have fun & learn as much as you can

I hope this has been useful. Do hit me up with any questions or corrections. If your interested in getting started with Bitcoin then feel free to click my referral link below:

https://www.coinbase.com/join/5936d7a595ff720948df80aa

Disclaimer

 

 

2 Replies to “Bitcoin Explained Simply.”

  1. I see the value of the blockchain and even a few cryptocurrencies. But I like them to be backed by something. This leads me to certain types of investments in this area.

    My crypto play is Steem as it is backed by a social network that pays crypto out to upvoted posts. Second is investing in a company called BTL Group which is a first mover in blockchain for business tech. My latest article on seeking alpha is about that company, and I often tell everyone about the benefits of being on steemit.com

Speak your mind :)