A Beginner’s guide to Bitcoin

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Bitcoin was launched in 2009 and is regarded as the first cryptocurrency. It’s a decentralized form of digital cash that eliminates the need for traditional intermediaries like banks and governments to make financial transactions.

Fiat money (government-issued currency) is backed and regulated by the government that issues it; whereas Bitcoin is powered through a combination of peer-to-peer technology and software-driven cryptography. This creates a currency backed by code rather than items like gold or silver, or by trust in central authorities like the U.S. dollar.

 

We can buy bitcoins through cryptocurrency exchanges, investment brokerages, Bitcoin ATMs and directly from other bitcoin owners (peer to peer). Bitcoins also can be earned through mining, but the technical expertise and cost needed puts this option out of reach for most people.

 

Bitcoins can be stored in a hot wallet which is in the cloud on a trusted exchange or provider, or a cold wallet, an encrypted portable device like a thumb drive that allows you to download and carry your bitcoins. Basically, a hot wallet is connected to the internet whereas a cold wallet is not. But you need a hot wallet to download bitcoins into a portable cold wallet.

 

The value of Bitcoin follows the law of supply and demand — and because demand waxes and wanes, there’s a lot of volatility in the cryptocurrency’s price. Most people purchase bitcoins as a form of currency speculation. It’s worth remembering that picking stocks of established companies is generally less risky than investing in Bitcoin. A good rule to follow is to devote less than 10% of your overall portfolio to individual stocks or speculative assets like Bitcoin.

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