What is Bitcoin? | How does Bitcoin work?

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What is Bitcoin? | How does Bitcoin work?

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by now most of us will have heard the term bitcoin flying around the internet in fact according to a recent study bitcoin pops up in a new post on social media every three seconds

if you’re curious to know more what bitcoin is and how it works why it’s so popular and how you can get in on the action simply put bitcoin is a digital currency established in 2008 it has become the world’s most well-known cryptocurrency of which there are thousands

if cryptocurrencies were tv streaming services bitcoin would be netflix to understand why bitcoin was created and how it works you first need to understand how regular money known as fiat money works fiat money is issued and regulated by governments and banks and has value essentially because they say so when you go to buy something on your debit or credit card your bank or credit card provider acts as a middleman between you and the seller to vouch for you that you are who you say you are and you have the money you say you have and they take a cut for doing so every time we spend on our cards we put a lot of implicit trust in one centralized institution


our banks and card providers the brainchild of an anonymous developer known as satoshi nakamoto bitcoin was initially created as a way to cut out the middleman and create a quicker easier and cheaper way to make payments with no single bank or credit card provider in control so how does it work instead of being regulated by a bank or government body bitcoin’s accounts are recorded on a distributed ledger which takes the form of a massive decentralized network of computers around the world 


if you make a payment using bitcoin instead of it being recorded by your bank in one private accounts log every computer in the bitcoin network will make a record of your transaction in this way bitcoin payments are super secure 

if someone were to try and tamper with the data on this record thousands of computers worldwide would flag the inconsistency and it would be blocked bitcoin’s ledger or record is called a blockchain it’s called that because the data can be pictured like a series of blocks that have been chained together bitcoin’s blockchain can’t be censored or manipulated and in theory


everyone can see every transaction made every time a new block is created the network analyzes the content processes any payments and makes a record of those transactions to create a new block one of the computers or computer systems on the bitcoin network must solve a complex puzzle from the last block as a reward for solving the puzzle and keeping the system ticking over whoever is in charge of that computer system gets a chunk of bitcoin as a reward

this is what’s known as bitcoin mining solve the puzzle from the last block create a new block of data get some bitcoin today a new block is created roughly every 10 minutes thanks to savvy people setting up massive bitcoin mining systems you can give it a go but it’s unlikely you’ll get far just crunching numbers on your personal computer initially bitcoin was intended to be used as an everyday currency but a huge boom in demand and subsequently its prices has meant you could pay much higher transaction fees as well as the fact that bitcoin transactions can take on average around 10 minutes to complete sometimes longer not ideal for everyday spending so these days with one bitcoin costing tens of thousands of pounds most people buy bitcoin as a speculative investment


 it can be helpful to think about bitcoin as digital gold back in the day when someone first went to pay for something with gold people must have thought they were mad i mean who pays for something with a shiny rock however when people start to cotton on to its value there is a gold rush as people scrabble to mine as much as possible and because there is a finite amount of it prices skyrocket the same thing happened with bitcoin in the beginning it was only taken seriously by super nerds and on the dark web but in 2017


it underwent a gold rush of sorts and light gold because it has a finite amount nakamoto set a limit on the amount of bitcoin available to be mined at 21 million its prices have also soared other reasons people buy bitcoin are as a means of potentially getting high returns on their savings when compared to the poultry savings rate in the uk as well as the fact that thanks to dedicated investing apps and platforms cryptocurrencies are more accessible than ever and for some it’s a case of plain old fomo or fear of missing out as roughly a fifth of brits are now owners of some form of cryptocurrency


if you don’t happen to have a spare 10 20 30 grand lying around never fear because you can actually invest in a fraction of bitcoin to suit your budget follow these steps to buy your first bit of bitcoin one compare platforms that trade bitcoin you can buy bitcoin from some share trading platforms crypto exchanges and apps like revolut make sure you shop around to make sure all of its services and any potential fees suit your preferences and trading expertise two choose a platform and open an account three load your account with funds four start buying well the process of buying bitcoin is fairly straightforward no investment is without risk and you should carefully weigh up the pros and cons before passing with your cash and remember 


if you make money from any cryptocurrency capital gains and income are fully taxed this guide is just the tip of the iceberg when it comes to bitcoin and cryptocurrencies

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