What is Bitcoin? Revealing the latest ways to invest in bitcoin

What is Bitcoin? Even those who have been in the cryptocurrency market for a long time or have never heard of this market before have likely come across the term “Bitcoin” at least once. However, not everyone fully understands what Bitcoin is, what Bitcoin mining entails, how Bitcoin generates profit, or whether Bitcoin is a scam. So, let today’s article from Finance Solutes help you gain a deeper understanding of this digital currency! 

1. WHAT IS BITCOIN?

Bitcoin is considered the first cryptocurrency and also the most valuable one. Essentially, Bitcoin is a form of digital currency that eliminates intermediaries such as banks and governments. Instead, it uses a peer-to-peer (P2P) network to validate transactions directly between users.

If someone asks about a cryptocurrency you must know, the answer is undoubtedly Bitcoin. Since its first public introduction, Bitcoin has become the most valuable digital currency in the market. From its initial price of $0.00076 in 2009 to reaching an all-time high of $69,000 in November 2021, Bitcoin has made an incredible journey. Despite market fluctuations that sometimes cause Bitcoin’s price to drop significantly—often humorously referred to as “Bitcoin going back to the Stone Age” by traders—its value and popularity continue to grow.

1.1. Who is Satoshi Nakamoto – the creator of Bitcoin?

Beyond just knowing what Bitcoin is, many people are curious about the person who “gave birth” to this cryptocurrency. The concept of Bitcoin first appeared in a whitepaper written by an anonymous figure under the name Satoshi Nakamoto, published in 2008. Unfortunately, to this day, no one knows the true identity of Satoshi Nakamoto.

This is because, in all the publicly released messages and documents, Satoshi Nakamoto never mentioned anything personal. No one knows the biography of Bitcoin’s creator. All that is known is that Satoshi used two email addresses and a website. In an era where almost everything is public and anonymous data is rare, Satoshi Nakamoto managed to remain completely hidden. There have been countless rumors about Satoshi Nakamoto’s true identity, but to this day, the question remains unanswered.

1.2. The History of Bitcoin’s Creation

Bitcoin was first introduced in 2008 as a decentralized currency that eliminates intermediaries like banks or governments, as mentioned in the section What is Bitcoin? A paper titled “Peer-to-Peer Electronic Cash System” was published in late October 2008 via a mailing list, with the author listed as Satoshi Nakamoto.

By 2009, this digital currency was first used after being released as open-source software. Satoshi mined the Genesis Block, which contained the first 50 Bitcoins of the blockchain. However, at that time, Bitcoin was only mined and had not yet been transacted, meaning its true value was still undetermined.

It wasn’t until May 2010 that a programmer named Laszlo Hanyecz used 10,000 BTC to purchase two pizzas from Papa John’s. An interesting fact is that, at today’s value, those 10,000 BTC would be worth nearly $430 million. Since then, Bitcoin has facilitated hundreds of millions of transactions, with the first large-value trades appearing in the dark web before the emergence of what we now call cryptocurrency exchanges.

2. WHAT IS BITCOIN BTC USED FOR?

Depending on the user’s purpose, Bitcoin is widely used for various functions, including:

• An investment asset
• A store of value
• A global medium of exchange and transactions
• A stepping stone into exploring blockchain technology

Bitcoin possesses all the characteristics and properties of money, including its role as a medium of exchange and store of value. However, unlike fiat currency, Bitcoin exists only in digital form and does not have a physical counterpart. In September 2021, El Salvador became the first country to officially recognize Bitcoin as legal tender.

3. KEY FEATURES OF BITCOIN 

Today, cryptocurrencies have become much more mainstream, but what makes Bitcoin stand out and continue to dominate the crypto market?

3.1. Simple Setup & Transparency

One of Bitcoin’s most notable features is its high level of transparency for both users and holders. Thanks to blockchain technology, which powers Bitcoin, all transactions are recorded on a global public ledger, ensuring security and transparency.

In theory, if a cryptocurrency wallet address is made public, it is not difficult to see its balance and transaction history. However, there are still many ways to conduct transactions anonymously if desired.

3.2. Decentralized Network

This concept was introduced earlier in the “What is Bitcoin?” section and is reiterated throughout. By eliminating intermediaries such as banks or governments, Bitcoin’s network remains independent, free from any third-party control.

Each computer participating in mining and verifying transactions is part of a large cryptocurrency system. In this system, even if one part fails, the mining process and exchange of Bitcoin will continue without disruption.

3.3. High Security

Bitcoin cannot be counterfeited. The technology behind Bitcoin is highly secure. Compared to traditional financial systems, blockchain is considered an innovative technology that ensures immutable transactions and high data security.

The Bitcoin network is decentralized, with more than 10,000 nodes worldwide monitoring and reporting errors from transactions within the system. Thanks to cryptographic encryption, Bitcoin transactions are fundamentally more secure than credit card payments. Your financial information and identity are at lower risk of being compromised or stolen.

4. HOW BITCOIN WORKS  

To simplify how Bitcoin operates, its working mechanism includes:

• Specialized computers, known as Bitcoin miners, solve complex mathematical equations to verify and process transactions. These high-powered computers require significant computational power to mine Bitcoin.
• The computational power of these mining machines ensures the accuracy of the distributed ledger technology (blockchain).
• To incentivize miners, every 10 minutes, one mining rig that successfully solves a mathematical problem earns a block reward of 12.5 BTC.
• Bitcoin has a limited supply set by Satoshi Nakamoto, with a maximum cap of 21 million BTC, making mining a finite process.

The creator of Bitcoin defined the Bitcoin network as a chain of digital signatures. At first glance, this term might seem more complex than simply understanding what Bitcoin is. To simplify: when a Bitcoin owner transfers Bitcoin to someone else, the transaction details are recorded on the blockchain. This recorded information is known as the “public key.”

You can think of a public key as being similar to your bank account number—you can share it with third parties for verification, but it does not compromise the security or privacy of your assets.

5. WHERE TO STORE  BITCOIN?

Bitcoin can be stored in a digital wallet, also known as a Bitcoin Wallet. Financial institutions usually recommend that Bitcoin owners store their assets in two different types of wallets for added security.

5.1. What is a Bitcoin Wallet?

A Bitcoin Wallet is a storage solution for Bitcoin, just like wallets for other cryptocurrencies. A Bitcoin wallet contains both a public key and a private key, which together allow users to digitally sign transactions.

There are two main types of Bitcoin wallets:

• Hot Wallet: This is a type of electronic wallet that stores not only Bitcoin but also other cryptocurrencies online. It can be electronic wallets on phones or utilities on browsers.

• Cold wallet: Looking at the name of this type of Bitcoin wallet, you can probably guess that the characteristics of a cold wallet are opposite to a hot wallet. This is an encrypted offline storage wallet that resembles a hard drive that is usually shaped like a USB stick.

For more details about these two types of wallets, you can read Finance Solutes previous article on what is a cold wallet.

5.2. Which Bitcoin Wallet is the best?

According to expert advice, if you hold a large amount of Bitcoin, you should divide it into two separate types of wallets for storage. Additionally, considering your specific needs will help you determine which Bitcoin wallet is the best.

First, due to risks related to cyberattacks, traders should use this type of wallet to store a small to medium portion of their Bitcoin holdings for transactions or capital rotation. For long-term traders, you can store Bitcoin in a cold wallet since there is no frequent trading demand, and this type of wallet offers high security.

Some of the most reliable and popular hot wallets for storing Bitcoin today include Metamask, Trust Wallet, and Coin98. Meanwhile, the most widely trusted cold wallets include Ledger, Trezor, and SafePal.

6. WHAT MAKES BITCOIN VALUE?

Bitcoin’s price has multiplied many times since it was first officially introduced and traded. While there have been periods of price declines, Bitcoin has consistently reached new historical highs. It is no coincidence that when Bitcoin drops, the entire market experiences turbulence. So, what exactly creates the value of this pioneering cryptocurrency?

All the characteristics that Bitcoin possesses—such as its limited supply, ease of transferability, and resistance to duplication—make it similar to a currency. However, these factors alone do not explain why Bitcoin holds such value, why its price has increased exponentially, or why people are so drawn to mining and investing in Bitcoin.

A particularly striking statement by an associate professor of finance at the Tepper School of Business sums up the essence of Bitcoin’s value: “Bitcoin has value because people think it has value.” This is indeed true—whether it’s money, gold, or any other asset, their value is derived from the belief that they are valuable. The act of assigning value represents the collective confidence that the asset’s price will continue to grow in the future.

7. HOW TO OWN BITCOIN 

So, what are the ways to acquire Bitcoin? The two most common methods to own Bitcoin are purchasing it through cryptocurrency exchanges or mining it.

7.1. What is Bitcoin Mining?

Bitcoin mining refers to the process of solving cryptographic equations designed to verify new transactions, ensuring they are consistent with past completed transactions. This prevents users from spending Bitcoin they do not own or reusing Bitcoin from previous transactions. It is important to note that mining not only sustains the Bitcoin network but is also the mechanism through which new Bitcoins are created.

Most Bitcoin miners use specialized mining rigs designed exclusively for this purpose. This is because mining consumes an enormous amount of energy, making the associated costs a significant barrier for many individuals. However, alternative solutions have emerged, such as renting third-party mining platforms like Cloud Mining or joining a group of smaller-scale miners to share resources.

7.2. Where to buy Bitcoin?

With the rapid growth of the cryptocurrency market, buying Bitcoin has become incredibly easy. Like other cryptocurrencies, Bitcoin is regularly traded on exchanges. However, what sets Bitcoin apart is that it can be purchased on virtually any exchange worldwide.

The first step after understanding what Bitcoin is and deciding to invest in it is selecting a reliable cryptocurrency exchange. Key factors to consider include security, transaction fees, and privacy policies. Once you’ve chosen a platform, you need to deposit funds into your exchange wallet. Nowadays, most exchanges support P2P (peer-to-peer) markets, making it simple to buy USDT for trading or even purchase BTC directly using Vietnamese currency.

After purchasing Bitcoin, you can choose to store it in the exchange’s wallet or transfer it to another wallet for safekeeping. Details on Bitcoin storage options have been discussed in the section “Where to Store Bitcoin” above.

8. WHAT IS BITCOIN INVESTMENT? IS BITCOIN A SCAM?

A very common concern is: What does investing in Bitcoin mean? Is Bitcoin a scam? Before questioning whether Bitcoin is a scam or a safe investment, you must remember that for any investment, proper research is essential to understand what you are investing in and the nature of the asset.

Similar to the stock market, Bitcoin is considered a financial investment. Some investors choose to buy and hold long-term, while others take advantage of price fluctuations for short-term trading. While Bitcoin offers many advantages as a digital asset, it also comes with certain risks and limitations that investors need to be aware of.

The first major concern is price volatility, which is an inherent characteristic of the crypto market. Many traders habitually check the Bitcoin price chart daily before looking at other cryptocurrencies. Bitcoin’s price can surge significantly during the day, only to drop sharply by nightfall.

There have also been incidents of Bitcoin transactions being hacked, leading to stolen funds. However, it is important to distinguish between a compromised exchange platform and an attack on the Bitcoin network itself. Bitcoin’s decentralized nature means that no third party controls the network, making security a personal responsibility. If you send Bitcoin to the wrong address or lose your private key, there is no way to recover your funds, and no one can assist in retrieving them.

9. CONCLUSION 

This article not only explains what Bitcoin is but also clarifies many misconceptions that people may think they understand but do not fully grasp. Bitcoin’s high volatility and unpredictability can make some investors hesitant, yet it is also what makes Bitcoin investment uniquely appealing. Ultimately, the decision to invest—or not—is entirely up to you.