The Most Common Bitcoin Questions
In the midst of Bitcoin’s volatile nature, you may be wondering what all the buzz is all about? That’s why we’ve put together this article with all the questions you might be curious about.
The Bitcoin Foundation states that “Bitcoin” is capitalized when referring to the cryptocurrency as an entity, and it is spelled “bitcoin” when referring to a quantity of the currency. BTC is also an abbreviation for bitcoin.
- Bitcoin is a digital currency, a distributed ledger system that records transactions in a distributed ledger called a blockchain.
- To verify groups of transactions called blocks, bitcoin miners use complex computing systems to solve complicated puzzles. The successful addition of these blocks to the blockchain record is rewarded with a small number of bitcoins.
- The Bitcoin market also allows other participants to purchase or sell tokens via cryptocurrency exchanges or peer-to-peer transactions.
- Bitcoin ledgers are protected against fraud by a trustless system — cryptocurrency exchanges also strive to protect themselves against potential theft, although notable thefts have occurred.
Let us dive into the questions!
1. How does the blockchain work?
Understanding the concept of “blockchain” can be challenging. The blockchain is a decentralized, tamper-proof database that serves as a public record of all transactions. It runs on hundreds of computers around the world and is not controlled by a single company or government. This is where everything happens. As a regular investor, you don’t need to worry about it much, but it’s still intriguing to understand how it works.
2. What causes the Bitcoin price to rise or fall?
Despite what you may think, it is not so complicated to determine how much Bitcoin is worth. Supply and demand determine its value. The price of Bitcoin will increase when people buy more Bitcoin on certain exchanges because people want more Bitcoin and are willing to pay more for it.
When the demand for Bitcoin decreases, the price of Bitcoin falls. A range of factors could be causing this, such as general uncertainty or bad news about Bitcoin. Bitcoin’s price would fall if there was more demand than supply, which would result in more people selling it rather than buying it.
3. What does the term “volatile market” mean?
Bitcoin and the crypto market are often described as extremely volatile by investors. Volatility occurs when an asset’s price fluctuates sharply and without warning in a short period of time. There are ups and downs, much like a roller coaster! When you purchase higher and your assets suddenly drop a great deal, it can be frightening, but it can also increase as quickly as it went down.
In December 2017, Bitcoin was at its last all-time high price. It seems to be hovering around the same price at the moment. Even though you are aware of Bitcoin’s volatile nature, you should invest responsibly.
The fact that a volatile market can increase the potential to earn a return on your investment (the price suddenly rises within days) is true. It could also go the other way (where the price suddenly crashes), so higher volatility entails greater risk. All of this information is relevant to you only if you plan to sell and cash out. Hence, the term “hodl”, is derived from a typographical error of the word “hold” and means nothing more than to wait out extreme volatility and relax.
4. Is Bitcoin like Stocks?
Stock represents a small stake in a company. It doesn’t mean that you own a share of a company if you purchase Bitcoin through a specific trading platform. Bitcoins are instead owned by you as a share. Bitcoin can be compared to gold if you want to compare it to a traditional asset. Many investors and industry insiders refer to Bitcoin as “digital gold” or “gold 2.0” since it shares quite a lot of characteristics with gold. However, Bitcoin is also more than that since it’s not only a store of value, but it’s also a fully decentralized payment network, so it functions like digital money.
5. Is Bitcoin spendable?
Definitely, without a doubt. While Bitcoin is increasingly regarded as a form of “digital gold,” it can also be used to purchase goods and services or to send money to friends and family. In addition, you may be able to convert your Bitcoin holdings into fiat currency. It is entirely up to you as an investor to make this decision.
6. What is the best place to store Bitcoin?
Unlike physical coins, bitcoins cannot be locked away under lock and key. The Bitcoin network is and always will be entirely online, and bitcoins are stored in what’s called a wallet (a digital wallet, of course). Like a physical wallet, you will be given a digital wallet by your broker or exchange. In addition, you can create your own Bitcoin wallet, where you know the private keys that you should never divulge to anyone.
In Conclusion — It is our hope that this article has been insightful. As opposed to fiat money created by bank loans, which is tied to a real economy, cryptocurrencies are not tied to any economic value. By regarding crypto like Bitcoin as a form of actual wealth on the same level as labor earnings and returns on actual investments, you are granting enormous purchasing power to people who have done nothing to expand the economy’s productive capacity. The legalization of cryptocurrency like Bitcoin would amount to the legalization of counterfeit money. Providing crypto operators with access to the core of the regulated financial system does bring Speculative Risk.
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