By now, you’ve likely heard about Bitcoin, as it’s simply unavoidable. It’s actually one of the most talked-about technologies in the financial world, and it’s in the headlines for the blockchain that backs it, its impact on the global economy, and its price fluctuations. You may already know that Bitcoin is a type of cryptocurrency which you can get in many ways, whether through p2p bitcoin trading, centralized exchanges, Bitcoin ATMs, etc. Plus, early investors have seen its value increase significantly over the years. But what is Bitcoin beyond that hype, and how does it work? And why do many individuals believe it could entirely change people’s views on money?
In this guide, we will walk you through how Bitcoin operates and why it was created to its impact on the economy, as well as how to buy bitcoin for the first time and a few other things to keep in mind when getting started with it. Ready?
What is Bitcoin, anyway?
In October 2008, Satoshi Nakamoto, an anonymous person or group, published a document known as a white paper that proposed a way to build a system for a decentralized asset called Bitcoin. This system aimed to create digital money to solve the double-spending problem without needing an intermediary.
At its core, Bitcoin is a transparent ledger without a middleman, but this phrase can be confusing for beginners, so let’s clarify it by comparing Bitcoin to a bank. Because most money is digital today, the bank is responsible for handling its ledger of balances and transactions. But we know the ledger isn’t transparent, and it’s stored on the bank’s main computer. Only the bank can control it, and no one else can sneak a peek into the ledger. But Bitcoin is different, allowing anyone to sneak a peek at the blockchain and see every single transaction that takes place (although they cannot know who is behind the transaction). This makes Bitcoin a pseudo-anonymous technology, where everything is transparent, trackable, and open, though privacy remains.
Why does Bitcoin matter?
The traditional financial system is centralized. This means someone else has control over the money supply, giving them enormous power, and creating three major problems:
- Corruption. Power corrupts, especially absolute power. When banks can create money or value as they please, they control the flow of value in the world, thereby exerting unlimited power. The Wells Fargo scandal is a good example of the way power can corrupt. Basically, employees created millions of credit cards and bank accounts (unauthorized), in an attempt to inflate the revenue stream of the bank without customers being aware of what was going on for years.
- Mismanagement. Suppose the interests of the central authority aren’t aligned with those of the individuals it controls; this could lead to mismanagement of funds. For instance, printing a lot of money to save an institution from collapsing, as occurred in 2008. Printing too much money is a problem because it leads to inflation and erodes the value of people’s money.
- Control. Centralization means you’re giving away control of your money to the bank or government, so at any point, they could deny access to your funds. Even if you only opted for cold hard cash, the government was still able to cancel your currency’s legal status. That was how things were until 2009. While creating an alternative to the actual monetary system looked like a lost cause, it changed everything.
Bitcoin is a big thing in the financial world because it’s a genuine alternative to the traditional system. Compared to fiat currencies like the euro or the dollar, you can’t print Bitcoin at will, and the bank or government cannot control it. This transformation is similar to what happened to the internet: before the web, there was centralized access to information, with a handful of major outlets controlling it. However, information became decentralized, allowing anyone to share and consume it with a single click. In the same way, Bitcoin decentralizes financial transactions, which enables a borderless, censorship-resistant monetary system. That’s why Bitcoin is viewed as the internet of money, a huge step in the way people store and transfer value.
What is Bitcoin’s role in the world economy?
Bitcoin is increasingly embraced as a hedge against inflation and currency devaluation, particularly in areas where financial institutions are shaky, enabling the unbanked to gain access to financial services. Bitcoin’s fixed supply also introduces a deflationary element, unlike fiat currencies that are prone to inflationary pressures. Financial institutions and businesses alike are making Bitcoin a part of their portfolios and services, highlighting a growth in institutional adoption, and therefore, a change in perceptions of Bitcoin as a legitimate part of the global economy.
How exactly is Bitcoin different from banks? Well, first, you’re the one who can access your funds, and there’s no bank or government that can confiscate your holdings or freeze your account. Since it cuts out the middleman, Bitcoin is cheaper than money orders or traditional wire transfers. Plus, because of its digital nature, you can add extra layers of programming on top of it, making it smart money.
How do you get started with Bitcoin?
First things first, you need to educate yourself about what Bitcoin truly is: what gives it value, who created it, and why, and what makes it different from other digital assets. Understanding these things will help you make better investment decisions, and the good news is that there are plenty of resources (including tutorials and comprehensive courses) to get you started. Once you have the knowledge, the next step is to get hands-on experience by purchasing your first Bitcoin on a crypto exchange.
Note that it can be challenging to find the right exchange, as each platform has its own rules, payment methods, features, and fees, to name a few. Give yourself enough time to research and make an informed decision. Once you sign up on the platform, you need to complete a KYC process, which involves giving a few personal details, and then add funds by linking your debit or credit card, a payment app of your choice, or your bank account. Finally, you can deposit your funds into the account, place the order, and check the transaction details so you can then confirm the purchase. As soon as you get your hands on Bitcoin, you need to stay updated with the latest news and changes in the market, as this will help you anticipate movements and allow you to be prepared for what’s to come.
The bottom line
Bitcoin is more than a digital currency; it’s a new way of thinking about money and how value moves all across the world. Whether you’re drawn to it for its use in payments, want to invest in it as a long-term store of value, or because you find the technology fascinating, taking the time to learn how the digital asset works is the first important step. Now that you have a clearer idea of the asset, you’re better equipped to explore the broader crypto ecosystem confidently.
