How Does Bitcoin Work? Bitcoin explained in 2023
In a world of digitalization, it’s no shock that digital currencies have gained immense popularity. However, understanding how Bitcoin works’ can be puzzling for many; after all, cryptocurrencies are still a relatively new concept.
Out of 100’s of cryptocurrencies, Bitcoin has so far been the most successful one. Found by Satoshi Nakamoto, the first Bitcoin was mined by him back on 3rd January 2009. Since its inception, Bitcoin has seen a continuous and rapid rise in its value, making it an attraction for investors. The following guide aims to answer ‘How does Bitcoin work’ in a simple yet comprehensive manner.
How does Bitcoin work? Explain Bitcoin to me!
The first question that arises with any digital currency is; what gives it value if it’s digital and has no underlying asset? The simple answer is trust and adoption. The value of Bitcoin is determined by its growing base of users, startups, and merchants.
A great example is when Tesla first announced that they’d be accepting Bitcoin as a form of currency and bought 1.5 Billion USD worth of Bitcoin. The event led to a 300% rise in cryptocurrency’s value. It’s safe to say that Elon Musk has played a massive role in driving the popularity of cryptocurrencies, including Bitcoin and dogecoin. In simple words, the more people accept Bitcoin as a valid currency, the more it will be worth.
Following Elon Musk’s footsteps, many different companies stepped forward and accepted Bitcoin in return for their services or products. In fact, several companies, including us, are making an effort to regularize it by providing support and services for Bitcoin transactions.
Characteristics of Bitcoin
Bitcoin holds all the characteristics of currencies. It possesses durability, portability, scarcity, divisibility, fungibility, and recognition. However, it is backed by mathematics rather than a physical asset or financial authority.
So basically, while physical currencies are backed by gold/silver and financial authorities, you have to solve mathematical equations to mine Bitcoins.
The change of price in Bitcoin explained
In order to explain Bitcoin thoroughly, it’s essential to analyze what causes the shift in its price. The price of a Bitcoin simply relies on supply and demand. As the demand for Bitcoin rises, so does its price. Similarly, as soon as the demand for Bitcoin decreases, its price sees a decline as well. In general, that is cryptocurrency explained.
To avoid increased supply and decreased demand, there are only a limited amount of Bitcoins in circulation worldwide. To make sure Bitcoin does not lose its value moving forward, its supply decreases by 50% roughly every four years. This event is known as ‘crypto halving’. Bitcoin’s price tends to fluctuate a lot more before and after its halving date.
Having a decreasing supply and increasing demand allows Bitcoin to survive and gain further acceptance. It also attracts investors as people don’t fear that the cryptocurrency will suddenly increase in supply and hence lose its value.
Here at Zeply, our aim is to provide crypto traders with valuable insight paired with guidance to help them make profitable Bitcoin transactions. We can’t predict the future of Bitcoin or where it’ll end up in terms of price, but we can certainly provide guidance and support throughout your crypto exchange journey to make it smooth and rewarding.
What is Bitcoin mining, and how is it done?
Bitcoin mining refers to a temporary mechanism that is used in order to issue new Bitcoins. The mining process involves spending computing power to process transactions, secure the network, and keep everybody in the system synchronized.
Mining is completely decentralized, which means that miners are operating across the globe, but none of them have control over the network. In order to attract people to mine Bitcoins, mining is rewarded through crypto tokens, which compensates for its costly and time-consuming nature.
To begin mining Bitcoins, all you need is the ability to run software paired with specialized hardware. Though the process can take plenty of time and effort, hence people prefer outsourcing it to companies. Several companies now provide mining services and enjoy great rewards through crypto tokens and service charges from investors.
To sum it up, mining refers to the process of earning Bitcoin without having to spend money. As a miner completes blocks of verified transactions, they’re added to the blockchain, and the miner is rewarded with their Bitcoin.
Is mining the only way to get Bitcoin?
Mining a Bitcoin demands time and computational power, which might make it unsuitable for people. Hence, the easiest and fastest way to obtain a cryptocurrency is through a crypto exchange.
Here at Zeply, our aim is to provide crypto traders the ease of investing in Bitcoins easily and seamlessly. Users can instantly register an account through our website to purchase, store, or sell Bitcoins efficiently. Another plus point of exchanging Bitcoin with us is that our website is designed in a user-friendly manner to enhance our user’s crypto trading experience.
What's a mining pool?
A mining pool refers to a group of Bitcoin miners that come together and combine their computational resources to increase the chances of successfully mining cryptocurrencies. All participants of a mining pool put in their processing power to fasten the mining process. Once the combined computational resources are able to mine cryptocurrency, the reward is divided amongst all participants.
You can begin mining Bitcoins individually with your resources, or you can join a mining pool. The difference is that multiple mining devices put together lead to a much greater chance of success, whereas doing it as a sole individual can take a lot more time and effort.
How to store Bitcoin securely
Storing Bitcoin can be a thought-provoking concept. It’s not like physical currencies, where you can simply hide or protect your money. For digital currencies, you use cryptocurrency wallets instead, such as cold storage and hot wallets.
In case you’re wondering how secure digital wallets are, it depends on how well you manage your wallets. Each type of wallet consists of a set of private keys that enable the owner to access his currency. However, the risk in digital wallets is that the owner might lose his private key or somebody could steal it.
Similarly, all Bitcoins are present in a hard drive, which means there’s a chance of losing the Bitcoins if the computer’s hard drive crashes, it gets hacked, or the owner misplaces his computing device. In order to decrease the given risks, it’s essential to understand how different digital wallets work. Here are some secure ways you can protect your cryptocurrency.
Hot Wallet
Hot wallets simply refer to online wallets that are run through the internet. These wallets run on phones, tablets, computers, or internet-connected devices in short. The primary pro of using a hot wallet is that it offers convenience, allowing individuals to access and make transactions instantly without hassles.
The drawback of using a hot wallet is that they lack proper security, especially if you’re storing a larger sum of Bitcoins in it. People have previously reported that their Bitcoins were stolen from their hot wallets, so it’s not recommended to boast about your hot wallet and the number of Bitcoins you’ve stored there publicly.
These wallets are ideal for small amounts of money and can be used as a checking account. The bulk of your Bitcoins should ideally be in a saving account or investment account to ensure they’re secure and not easily accessible.
Cold storage
Cold storage refers to an offline wallet where your money is stored on a platform disconnected from the internet. Being disconnected from the internet makes the wallet safe as it blocks out the chances of unauthorized access and cyber hacks.
The main benefit offered by cold storage is that they’re the safest way to secure Bitcoins. This type of wallet is ideal for more significant amounts of Bitcoin as it’s not always convenient for urgent transactions but keeps the cryptocurrency relatively secure.
Cold storage also requires private keys in order to gain access. Once any transaction is initiated online, it is transferred to the offline wallet and secured in a device. This could be a USB, CD, hard drive, paper, or even an offline computer. To gain access to the cryptocurrency, the owner will have to digitally sign it before it appears on an online network.
Paper wallet
The most common type of cold storage is a paper wallet. A paper wallet is a paper document that contains the private and public keys to access the cryptocurrency. The document includes a QR code that can be used in order to sign in and make transactions with Bitcoins. Besides scanning the QR code, you also have to sign in before getting access to the wallet.
The risk of a paper wallet is that if the document is damaged or lost, the user will lose access to his wallet, resulting in complete loss of all cryptocurrency in the wallet.
Store your Bitcoin securely with us
Figuring out how to store your Bitcoins can be stressful as many people are afraid of losing their valuable currency.That’s where we step in. Here at Zeply, we allow all users to store their Bitcoins securely with us through a number of options. Our aim is to make Bitcoin investments and trading as easy and accessible as possible.
How Bitcoin exchanges work
A Bitcoin exchange is a digital marketplace where buyers and sellers meet to purchase or sell Bitcoins. In short, it’s an online platform that acts as a middle ground for trading cryptocurrency. In cryptocurrency language, a buyer and seller would be referred to as a maker and a taker.
You can picture a Bitcoin exchange as a brokerage for cryptocurrency. You get to deposit money through bank transfer or other means of deposits. The purchases and sales are made similar to brokerage firms.
Speaking of charges, when you exchange cryptocurrencies, you’re subject to a conversion fee as well, just like institutional banks have a charge for trading money between countries.
How to begin your journey with a crypto exchange
In order to use a Bitcoin exchange for transactions, you have to register an account with your chosen exchange. The account opening process is quite simple but requires identity verification. After your account is live, you can fund it according to your desired transactions and make exchanges or purchase coins.
As a crypto exchange we allow users to store their Bitcoins securely and exchange them under the same roof, rather than having separate accounts to do so. The multiple benefits of storing and exchanging Bitcoins with us include 0% transaction fees, the ease of usage, quick switch from traditional to digital currency, and seamless KYC process.
Pros and cons of purchasing Bitcoin
Investing in Bitcoin can be confusing for people because it has its own set of pros and cons. To help you make the decision, we’ve highlighted the main advantages and disadvantages that tag along with purchasing Bitcoins.
Pros
- Bitcoin has gained the most popularity and acceptance when compared to any other crypto currency so far. This has enabled it to hold greater liquidity in comparison as well.
- Day after day, more companies are accepting Bitcoin as a form of payment.
- Making international transactions with Bitcoins is much easier compared to regular currencies.
- The transaction fee for cryptocurrency is noticeably lower when compared to regular currencies.
- One does not have to worry about their transaction being traced or tracked. This allows one to maintain anonymity and privacy while making purchases.
- Bitcoin is expected to increase in value moving forward. Its potential to grow can lead to significant investment returns; however, this isn’t 100% certain.
Cons
- The primary threat of investing in Bitcoins is that they can be hacked into or stolen if not kept securely.
- The Bitcoin market is not yet regulated and operates without a regulator.
- The use of Bitcoin is limited. People cannot make regular purchases with Bitcoin.
How to begin investing in Bitcoins today
The easiest and most straightforward way to purchase Bitcoins is with a reliable crypto exchange. Here at Zeply, we allow users to buy, send, exchange, and secure Bitcoins efficiently. The ease of making instant Bitcoin transactions with 0% fees makes our website ideal for beginners and experts alike.
The best part about storing and exchanging your Bitcoins with us is that we don’t have any hidden costs. We also make sure your Bitcoins are fully secure and allow users to send and receive BTC payments within seconds. Lastly, we aim to enable users to make instant exchanges from BTC to Euro or vice versa on a real-time exchange.
If you’re thinking of jumping on the bandwagon and experimenting with the digital currency that has taken the world by storm, register an account with us now and begin your journey smoothly and securely.
How Bitcoin Works FAQ
There are two main ways a beginner can get their hands on Bitcoins without having to mine them. Firstly, they can get a Bitcoin wallet and purchase Bitcoin with cash. The second option is to get paid in Bitcoin by offering a good or service in return. Once a person has acquired Bitcoins, they can transfer those Bitcoins to their crypto wallets and continue trading with Bitcoins as they please.
The founder of the famous cryptocurrency, Satoshi Nakamoto, is known to hold the highest amount of Bitcoins in the world. Though the actual identity of Satoshi Nakamoto is unknown to the public, he is rumored to have a hold of 1 million Bitcoins.
Collectively there are only 21 million Bitcoins that can be mined. Once every last Bitcoin has been mined, its supply will suddenly stop throughout the planet. Following the event, the 21 million Bitcoins that would have been mined will circulate across countries, and their adoption rate will determine their value.
