One of the biggest investment trends to hit in the past couple of years is investing in cryptocurrency. Unfortunately, as talk of cryptocurrency, specifically it’s most well-known currency, Bitcoin continues to spread online, people have been rushing to invest and not taking the time to educate themselves first. That’s a mistake, and so in order to help our readers make smart financial decisions, we’ve listed a few things you should know about Bitcoin before you invest.
What is Bitcoin?
Bitcoin is a currency created in 2009 by an individual using the alias Satoshi Nakamoto. The unique thing about Bitcoin, however, is that all transactions are done without bank involvement. The deregulated system of bankless transactions is what appealed to early investors in Bitcoin. The most popular element of Bitcoin is the ability to trade Bitcoin, especially since the price of Bitcoin has risen significantly in the past year. The ability to make purchases anonymously is also appealing to many.
How does the bitcoin network work?
Unlike traditional payment networks like Visa, the Bitcoin network is not run by a single company or person. The system is run by a decentralized network of computers around the world that keep track of all Bitcoin transactions. Each Bitcoin is produced by people called miners. Bitcoin miners use special software to solve math problems and are issued a certain number of bitcoins in exchange. This provides a smart way to issue the currency and also creates an incentive for more people to mine. Bitcoin miners serve as gatekeepers for the Bitcoin system by helping to keep the Bitcoin network secure by approving transactions. Mining is an important and integral part of Bitcoin that ensures fairness while keeping the Bitcoin network stable, safe and secure.
Another element of the Bitcoin network is called the “blockchain”. Bitcoin miners add transaction records to Bitcoin’s public ledger of past transactions or blockchain. This ledger of past transactions is called the blockchain as it is a chain of blocks. The blockchain serves to confirm transactions to the rest of the network as having taken place. Bitcoin nodes use the blockchain to distinguish legitimate Bitcoin transactions from attempts to re-spend coins that have already been spent elsewhere.
Where can you learn more?
Coinsutra recently published a list of resources to learn more about Bitcoin and Cryptocurrency. Here are few:
Finally, it is important to know that all investments come with some risk, whether it’s Bitcoin or the Stock Exchange. When investing, one rule of thumb is to take educated risks as much as possible and to never invest more than you can afford to lose.