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Bitcoin is the world's first cryptocurrency and is based on blockchain technology. Its main idea is decentralization: the absence of a single governing body, which makes it independent from financial institutions.
What is bitcoin
Bitcoin (Bitcoin, BTC) is a digital currency that exists only in virtual space. It was created to become an alternative to traditional money and provide secure, fast and decentralized financial transactions. Its key feature is the use of blockchain technology, which is a transaction registry protected by cryptography.
History of the emergence of bitcoin
The main stages of the emergence of bitcoin:
2008 - Beginning of the idea: Against the backdrop of the global financial crisis, Nakamoto came up with the idea of a decentralized digital currency. The main goal was to create a system free from the influence of banks and other centralized organizations. Bitcoin was conceived to provide secure and transparent transactions using blockchain technology.
2009 - Launch of the bitcoin network creation of the first block in the blockchain, which was called the genesis block.
2010 - First transaction: In 2010, programmer Laszlo Heinitz made the first known purchase using bitcoins.
2011 - Growing popularity: Bitcoin began to be actively discussed on the Internet. The first competitors such as Litecoin, which were based on the bitcoin concept, appeared.
Development and increasing interest: Since 2012, bitcoin began to be considered not only as a technical innovation, but also as an investment instrument. Major cryptocurrency exchanges such as Coinbase and Kraken began to form, making the process of buying and selling BTC more accessible.
How bitcoin works
Bitcoin operates on the basis of the blockchain - a chain of blocks containing data on all transactions. The main aspects of its operation are:
1. The blockchain is the foundation of the system
Blockchain is a sequence of blocks with transaction information. Each block is connected to the previous block through a unique cryptographic hash, which guarantees data integrity.
Block: A set of transactions collected in a specific time period.
Hash: A unique identifier for a block that depends on its contents.
Decentralization: All data is stored on the computers of network participants (nodes) rather than in a single location.
2. Transactions
A transaction is the process of transferring bitcoins between users.
The sender specifies the address of the recipient and the amount of the transfer.
Electronic signature: The sender's private key is used to confirm the transaction.
Network transfer: The transaction is placed in a mempool before it is added to the blockchain.
3. Mining
Mining is the process by which transactions are confirmed and recorded on the blockchain. Participants in this process, known as miners, are engaged in solving complex mathematical problems to obtain a hash of a new block.
Reward: A successful miner receives bitcoins for adding a block.
Difficulty: Changes every 2016 blocks, maintaining a stable creation time (~10 minutes).
4. Security and Consensus
The bitcoin network uses the Proof-of-Work (PoW) consensus algorithm to verify transactions.
Attack 51%: An attacker needs to control more than 50% of the network's power, so due to the complexity of execution, this makes such an attack difficult to execute.
5. Issuance and limitation
The total supply of bitcoins is limited to 21 million coins. This limitation is encoded in the bitcoin protocol.
Issuance: New bitcoins are issued as a reward for mining.
Halving: Every 210,000 blocks (roughly every 4 years) the mining reward is halved. This slows down the issuance of new coins.
6. Anonymity
The Bitcoin network strikes a balance between anonymity and transparency.
Anonymity: Users are identified using public addresses that are not directly linked to personal data.
Transparency: All transactions conducted are recorded on the blockchain and can be verified in any blockchain browser.
7. Wallets and addresses
Cryptocurrency wallets are required to work with bitcoins.
A public key is needed to receive and a private key is needed to control the funds.
What bitcoin is for
Bitcoin has a wide range of uses:
1. A means of payment
Bitcoin is actively used to purchase goods and services around the world.
International transfers: Bitcoin allows you to transfer money anywhere in the world without intermediaries in the role of banks or payment systems.
Low fees: Bitcoin transactions are often cheaper than traditional payment systems, especially for large transfers.
Alternative in unstable economies: In regions with hyperinflation or restrictions on bank transfers, bitcoin provides a way to preserve capital and make payments.
2. Investment tool
Bitcoin has become a popular asset for investors looking to protect their funds or earn a return.
Store of value: Many compare bitcoin to “digital gold” because its limited issuance makes it a scarce asset.
Long-term investment: Bitcoin's value has increased significantly over the years, attracting long-term investors.
Speculative Instrument: Due to the volatility of the exchange rate, bitcoin is actively used by traders for short-term transactions.
3. Capital preservation tool
Bitcoin provides asset protection against inflation and economic instability.
Decentralization: Bitcoin is not controlled by the government or financial institutions, making it less vulnerable to economic crises.
Inflation protection: The 21 million coin limit prevents the asset from depreciating due to excessive issuance, as can happen with fiat currencies.
4. Financial independence
Bitcoin gives users control over their money without the involvement of third parties.
No intermediaries: Users can make transfers directly, without banks, payment processors or other institutions.
Freedom of action: There is no need to request permission to use bitcoin, open a wallet, or conduct a transaction.
Accessibility: All it takes is the internet and a cryptocurrency wallet to manage bitcoins, this makes it accessible to millions of people without a bank account.
5. Security
Bitcoin offers a high level of security thanks to blockchain technology.
Transparency: Every transaction goes into a public registry that can be verified at any time.
Anti-counterfeiting: The use of cryptographic algorithms eliminates the possibility of counterfeiting or double spending.
6. Hedging Function
Bitcoin is used to protect the portfolio against risks.
Hedge against inflation: During times of economic instability, investors often move assets into bitcoin to protect their funds.
Protection against currency fluctuations: In countries with unstable currency exchange rates, bitcoin helps to preserve the value of assets.
7. Platform for innovation
Bitcoin has become the foundation for the creation of many new technologies and businesses.
Smart contracts: Although smart contracts are mostly associated with Ethereum, simplified versions of them are also possible on the bitcoin blockchain.
Financial product development: Bitcoin is being used to develop tools for lending, staking, and other financial transactions.
8. Means of charity
Bitcoin is used for transparent charitable donations.
Anonymity: Allows donations to be made without revealing identity.
Global reach: Donations can be sent to any organization or person regardless of their location.
9. Mechanism against censorship
Bitcoin provides financial freedom in the face of restrictions and censorship.
No blockchain: Bitcoin transactions cannot be stopped or frozen.
Alternative to banking systems: In case of sanctions, blocked bank accounts or restricted access to traditional finance, bitcoin remains available.
10. A tool for education and research
Bitcoin has become an object of study in economics, finance, computer science, and other disciplines.
Financial literacy: The use of bitcoin for payments and other purposes helps people better understand modern financial systems and technologies.
Blockchain research: The development of new bitcoin-based technologies is driving research and innovation.
How to use bitcoin
1. Creating a cryptocurrency wallet
The main types of wallets:
Hardware wallets (Ledger, Trezor and others): The most secure options as the keys are stored offline.
Mobile apps (Trust Wallet, Coinbase Wallet): Convenient for everyday use.
Desktop wallets (Electrum, Exodus): Installed on your computer.
Online wallets (Blockchain.com, Binance): Work through a web browser.
Steps to create a wallet:
Select the appropriate wallet type.
Install the app or register on the platform.
Create a key backup (seed-phrase) and save it in a safe place.
Make sure the wallet is protected with a password and additional authentication.
2. Buying bitcoin
To start using bitcoin, you need to purchase it. There are several methods available for purchase :
Cryptocurrency exchanges : Suitable for purchase with a bank card or P2P trading.
Online exchanges (BestChange) : A quick way to exchange fiat money for BTC.
P2P platforms: Buy from other users directly.
Bitcoin ATMs: Suitable for buying with cash.
Steps to buy:
Register on the chosen platform.
Complete verification (if required).
Specify the amount in fiat currency or BTC.
Complete the payment and receive bitcoins to your wallet.
3. sending bitcoin
Sending BTC requires minimal steps, but it's important to be accurate with your data entry.
Steps to send:
Open your wallet and select the “Send” function.
Enter the recipient's address. Check it several times, as transactions are irreversible.
Enter the amount in BTC or the equivalent in fiat.
Set the transaction fee (you can choose standard or fast).
Confirm the sending.
4. Receiving bitcoin
You can get bitcoins from other users, through exchanges, mining or payment for services.
Steps to receive:
Open your wallet and select the “Receive” function.
Copy your bitcoin address or generate a QR code.
Give the address or code to the sender.
Once the funds are sent, you will be able to track the transaction in the blockchain.
5. Paying for goods and services with bitcoin
Bitcoin is accepted in many online and offline stores. You can pay for goods, services or subscriptions with it.
Steps to pay:
On the payment page, select bitcoin as the payment method.
Copy the address provided or scan the QR code.
Enter the details in your wallet and confirm the payment.
Wait for transaction confirmation (usually 10-60 minutes).
6. Bitcoin to fiat money exchange
You can use exchanges, exchangers or P2P platforms to convert bitcoin to fiat money.
Steps to exchange:
Transfer BTC to the exchange platform.
Specify the amount to sell.
Select the withdrawal method (bank card, e-wallets, cash).
Confirm the transaction and receive the funds.
7. Safe storage of bitcoin
Cryptocurrency requires responsible storage to avoid loss or theft of funds.
Tips:
Store large amounts on hardware wallets.
Enable two-factor authentication to protect accounts.
Do not share seed phrase and private keys.
Update your wallet software on a regular basis.
Advantages and disadvantages of bitcoin
Advantages of bitcoin:
1. Decentralized
Bitcoin operates on the basis of blockchain technology, it in turn is not under the control of any banks or government agencies. This enables users to transact directly without the need for intermediaries.
2. Transparency
All transactions are recorded on the blockchain, which is open and available for everyone to view. This reduces the possibility of fraud and ensures a high level of trust among users.
3. Global accessibility
Bitcoin can be used in almost any part of the world where there is an internet connection. It is not tied to a specific country and this makes it a universal tool for exchange.
4. Low fees
Bitcoin transaction fees, especially for large amounts, are generally lower than banks or payment processors, making it a favorable option for international transfers.
5. Inflation protection
Bitcoins are strictly limited to 21 million units. This approach to issuance protects it from inflation risks, compared to fiat currencies, which can be printed in unlimited quantities.
6. Anonymity
Bitcoin provides relative anonymity: transactions are not tied to a user name, but to a unique wallet address. This increases the confidentiality of financial transactions.
7. Investment appeal
Bitcoin is considered “digital gold” due to its limited issuance and growing value. Many investors view it as an asset for long-term capital preservation.
8. Ease of transferring funds
With bitcoin, you can send money anywhere in the world in minutes, with no time limit (works 24/7) and regardless of the location of the sender or recipient.
Disadvantages of bitcoin:
1. High volatility
The price of bitcoin is subject to sudden changes. This can be attractive for traders, but increases risks for long-term investors and users.
2. Lack of regulation
While decentralization is a major advantage, the lack of regulation can be a disadvantage. If you fall victim to fraud or error it will be almost impossible to recover your funds.
3. Slow transaction speeds
The bitcoin network can only process a limited number of transactions per second (about 7). This feature makes it less efficient to use on a large scale, especially during peak times.
4. Energy consumption
The mining process consumes a significant amount of energy, which has an unfavorable impact on the environment.
5. Difficulty to learn and use for beginners
For many people, working with wallets, keys and making transactions can be daunting, especially if they are not familiar with cryptocurrencies.
6. Risks of cyberattacks
Although the bitcoin network itself is considered secure, users can fall victim to phishing, hacking of wallets or exchanges.
7. Limited adoption
Bitcoin is growing in popularity, but it is not yet universally accepted as a means of payment. Many organizations still do not support cryptocurrency.
8. Legal restrictions
Some of the countries completely or partially prohibit the use of bitcoin, which may limit the ability to use or own it.
9. Lack of physical collateral
Bitcoin has no intrinsic value or asset backing. Its price is determined solely by supply and demand, making it vulnerable to speculation.
How you can make money from bitcoin
Trading with bots: You can trade bitcoin on exchanges not only manually, but also with the help of trading bots that fully automate the process. The Veles Finance platform provides opportunities to create your own bot and connect ready-made bots for BTC trading.
Investing: Buying bitcoins and storing them in order to sell them at a higher price.
Trading: Short-term trading on exchanges using exchange rate changes.
Mining: Creating new bitcoins using specialized equipment.
Affiliate Programs: Receive rewards for referring new users.
How you can buy and sell bitcoin
There are quite a number of ways to buy bitcoin, each of which has already been discussed in detail in our blog - How to buy bitcoin in Russia in 2024 - detailed instructions
Crypto exchanges
To buy bitcoin on crypto exchanges such as Binance, Bybit, OKX, Gate.io, HTX, Bing X and others, you need to register, pass verification and choose a convenient from the proposed methods of purchase.
Online exchangers
Exchangers offer a convenient way to exchange fiat money for bitcoins. They are suitable for quick transactions, but the commission can be higher than on exchanges.
P2P platforms
On P2P platforms, users exchange cryptocurrency between each other. To do this, you need to choose a maker with suitable conditions and make a deal with him.
Telegram bots
Some bots in Telegram provide services for buying and selling cryptocurrencies, including bitcoin. This is a quick way to make transactions directly within the messenger, but it has an increased risk of fraud.
Is bitcoin legal?
The legality of bitcoin depends on the country. In many countries it is recognized as a digital asset, while in some it is banned. It is important to research local laws before using cryptocurrency.
Conclusion
Bitcoin is a revolutionary technology that continues to change the financial world. Despite its flaws, it remains popular among investors and users due to its decentralization, security, and earning potential.
FAQ
1. What is blockchain called?
Blockchain is the distributed ledger technology on which bitcoin is based. It provides security and full access to track transactions.
2. Is it possible to lose bitcoins?
Yes, if you lose access to your wallet or private keys, it will be impossible to recover bitcoins.
3. Where to store bitcoins?
It is best to use hardware wallets for storage, they offer maximum security.
4. How much is one bitcoin worth?
The price of bitcoin is constantly changing and depends on many market factors.
5. Can bitcoin be considered for long-term investment?
Evaluating all the advantages of bitcoin, it can be a good tool for long-term investment, but it is important to consider its volatility and risks.
