Bitcoin is an innovative new form of virtual money created specifically for the internet that allows people to transfer value without going through banks, credit-card companies or any other intermediary entities. Its fixed protocol is secure and immutable; powered by thousands of incentivized miners.
Institutional access through ETFs and Treasury holdings has propelled bitcoin’s rapid ascension as an alternative store of value, protection from inflation and medium of exchange.
What is Bitcoin?
Bitcoin was developed after the global financial crisis by an unknown individual or group under the pseudonym Satoshi Nakamoto and widely adopted since 2008. People value it because payments can be sent directly between users without going through banks, as well as being highly secure (with limited supply – 21 million in total) and being accepted in countries where traditional currencies may not.
To prevent double spending, every transaction on the Bitcoin network is recorded in a public ledger called blockchain and verified by miners rewarded for their work with Bitcoins. Users of this cryptocurrency network possess two keys – public keys that act like email addresses and private keys which unlock virtual wallets where coins can be stored securely on computers, mobile apps or hardware devices for increased protection.
As with any asset, Bitcoin can be bought and sold on markets by investors looking for investments or to purchase goods with it. Due to its rapidly fluctuating price, day traders frequently turn their focus towards it to capitalize on rapid price shifts.
How does it work?
Bitcoin is an online currency that enables direct money transfers between people without going through a central authority, making the transaction quicker and cheaper than conventional banking or payment systems.
When buying or receiving Bitcoins, they are assigned both a public key (which resembles an email address) and private key. Transactions are verified by the Bitcoin network and recorded on an open ledger called blockchain; anyone with access to a computer can set up a server to join this global community of owners of various Bitcoins.
Blockchain transactions are secured with cryptography, making it virtually impossible to tamper or alter historical records, which helps ensure greater security. Bitcoin operates across a network of thousands of computers that process and verify transactions; each new addition to the blockchain must first pass muster before being added to Bitcoin’s history. These machines are known as nodes.
The network is also driven by a continuous lottery in which mining rigs around the world compete to be first to solve an increasingly challenging math problem and win an equivalent reward, currently 12.5 Bitcoin per block but decreasing every four years as part of an effort to increase scarcity and spur innovation.
How do I get started?
There are various ways to start trading cryptocurrencies. One is through cryptocurrency exchanges, which provide access to a range of Bitcoin options and other cryptocurrencies as well as digital wallets to store coins securely. Once you have an exchange account set up and your digital wallet in place, buying Bitcoin becomes simpler; alternatively, traditional stockbrokers, cryptocurrency ATMs or in-app purchases through certain crypto apps may also provide solutions.
Investment in Bitcoin can be risky, so it’s essential that you carefully assess both your risk tolerance and strategy before committing any money. To reduce risk, start small with dollar cost averaging and gradually increase purchases over time – this strategy may prevent sudden large losses if asset prices decline unexpectedly.
As another option for purchasing Bitcoin indirectly, investing in companies using blockchain technologies may provide more secure returns – some exchange-traded funds (ETFs) have shares in blockchain companies like Amplify Transformational Data Sharing ETF (BLOK).
Bitcoin’s primary purpose is as an exchange medium, used for purchasing goods and services from businesses accepting this currency. You can even use it to pay travel or other expenses with this digital coin. More experienced users may consider investing in mining strategies or trading the coin on exchanges.
What are the risks?
Bitcoin has captured the world with its dramatic price fluctuations and is part of an evolving financial ecosystem. It may bring many potential advantages, including decentralizing transactions across borders and serving as an inflation hedge; furthermore it may help promote financial inclusion by giving individuals control of their own funds.
However, cryptocurrencies do come with their own set of risks. Without the backing of any central government body, cryptocurrencies are subject to market manipulation and lack consumer protections available with legal tender and regulated securities.
Cryptocurrency investors face similar risks as cash holders: their assets may be stolen or lost. Exchanges and wallets may be subject to cyberattacks, phishing scams, fraudsters or the loss of private keys (the login ID and password that allows users to access cryptocurrency). Furthermore, once crypto assets have been sent via sending platforms they often vanish for good.
Additionally, the global regulatory environment surrounding cryptocurrency management is rapidly shifting as regulators establish policies regarding their management and valuation. Sudden changes to regulations could impact cryptocurrency values or limit their usage; for institutional investors gaining exposure through an ETF may be the easiest and safest way to take advantage of this technological advancement. Discover our products that give institutions access to Bitcoin market through existing brokerage and custody workflows.
