Bitcoin Introduction: 9 Quick Cryptocurrency Tips & Terms To Ask?

If you have been paying attention to the headlines lately, you’ll have observed a new form of investment that is swiftly gaining traction around the world. You’ve heard of Bitcoin. However, do you know how it works and how to use it? Here are some basic things to know about this up and coming form of anonymous and instant transfer of value.

How Bitcoin Came To Be

Bitcoin came about in 2008, created by an anonymous individual going by pseudonym Satoshi Nakamoto. Nobody currently knows exactly who (or what group) represents Satoshi. While there have been many theories, what matters most is the significant financial implications that Satoshi brought to the world in the form of Bitcoin.

In January of 2008, the first block of Bitcoin came into existence through mining by Satoshi himself. Through a series of online forums, Satoshi communicated with other early adopters and helped guide them into understanding his creator.

How It’s Used

Bitcoin itself does not exist apart from the wallet it belongs to, much unlike traditional paper currency that stands alone. Think of Bitcoin as a value that a digital wallet holds; the Bitcoin itself is the wallet’s private key. Therefore, when someone transfers a portion of a Bitcoin, they are essentially transferring a portion of their wallet into someone else’s.

Fungibility

Because of this, Bitcoin is known as a ‘fungible’ currency. It can be broken down into very small parts, and it can be put together into larger amounts. An American dollar bill can be broken into four quarters, but the dollar bill still exists. A Bitcoin is like a dollar bill transforming into four quarters, opposed to replacing them.

Due to Bitcoin’s fungibility, each and every person can afford at least a portion of a Bitcoin, no matter how small it is. The smallest unit of a Bitcoin is called a satoshi (named after its creator), which represents one hundred-millionth of one whole Bitcoin. There are one hundred million portions of a Bitcoin because Satoshi seems to have predicted a future in which owning one whole Bitcoin may be an improbable investment for most of the population.

Mining And Transactions

If you wanted to generate a block of Bitcoin yourself, you’d need a lot of computing power. Bitcoin blocks are rewarded mostly at random to people who use computers to solve very long mathematical calculations. The first computer (or series of computers, known as a mining pool) to properly guess the equation discover a block of Bitcoin.

In the very early days of 2008 and ’09, finding Bitcoins was an inevitable fate based on how few people were searching for them. Satoshi programmed into the mining functionality a sort of equilibrium. The fewer computers mining Bitcoin, the easier it is to guess the math equation. The more computers mining, the harder it is. This is known as mining difficulty.

Currently, it’s highly improbable for one person with average computational power to find a block of Bitcoins on his or her own (though it has happened). Therefore miners take part in mining pool. This is a contract between miners, sort of like a lottery pool. If one person finds the coins, they’re divvied up between all other miners on the same network based on computational contribution. However, before you buy an expensive graphics card and jump into a mining pool, consider the cost of electricity compared to the expected reward. Therefore, many experts claim that it’s much more favorable to purchase Bitcoin directly and wait for its value to increase than to accrue a serious utility bill in hopes of discovering a new block reward.

21 Million Bitcoin … When?

Bitcoin will be mineable for a very, very long time. There may be a limited supply of Bitcoin, but based on the block rewards cutting in half every four years, miners will be active for the next 100+ years. In fact, the very last Bitcoin block reward will be discovered in mid-2140.

Reverse Inflation

The number of Bitcoin entering the economy shrinks over time. When the block reward cuts in half, this is known as a ‘halvening’. It’s a very significant and celebrated time because these halvenings have an observable direct correlation to the market price of Bitcoin. Investors witness firsthand the very limited nature of this digital currency, and usually out of fear of missing out (FOMO) they pump more investing funds into collecting all they can while they still can.

Bitcoin’s price is largely driven by this reverse inflation; there will be fewer and fewer coins available, and there will be an increasing demand. This has an exponential impact on the market, which is why you can see sharp increases in price when there’s a surge of hype in the media and online communities.

Is It Too Late To Invest?

The number one misconception is that you can only buy one whole Bitcoin (and not fewer), and the number two misconception is that it’s too late to invest in this blossoming world. Many theorists and cryptocurrency investors will tell you that it’s just the beginning. They may be right or wrong, but – given the price graph over the past 3 years – what reality seems more probable to you?

Invest Small, Invest Often

One of the most successful (and financially sound) investment strategies is to get in this crazy world as soon as you can, but do so in very small increments. This desire to own one whole Bitcoin presents many new investors from getting involved. The price may double or triple, and they are soon left regretting their hesitation. Therefore, by investing small, you’re stepping your foot in the waters so to speak. You’re bridging the gap between being an observer and a player. Do yourself a favor and, just for fun, buy Bitcoin that you would otherwise spend on your morning chain coffee. Watch the value over time; after one year, how many coffees did your investment grow?

By investing small you’re eliminating the first step, which is always the hardest. By getting involved in a seemingly small and innocent way, you open yourself up to more frequent – and perhaps even larger – investments.

A Fair Warning

Remember, the future of Bitcoin is not guaranteed. As we’ve seen, the price can come tumbling down at ant time for absolutely any reason. Therefore, approach Bitcoin cautiously, but don’t allow your initial hesitation to prevent a small entry investment. Therefore, don’t invest beyond what you’d be comfortable losing. This mindset will ensure you that you’re never getting in over your head. This approach also ensures that, in the years to come, you’ll be able to take part in this wild ride of digital currency known as Bitcoin.