Understanding Bitcoin basics
What is Bitcoin?
Bitcoin is a decentralised digital currency, known more commonly as a cryptocurrency, that exists entirely online and uses cryptography for security. Unlike the dollars in your bank account or wallet, you can’t hold Bitcoin in your hand. Instead, it’s stored digitally and can be sent directly from one person to another without going through a bank.
What makes Bitcoin different is its decentralised structure. Rather than being controlled by governments or banks, Bitcoin operates independently through a global network of computers. This ensures no single entity can control or manipulate it.
This unique design has earned Bitcoin the nickname “digital gold.” Like gold, Bitcoin has a limited supply – only 21 million coins will ever exist. This built-in scarcity contrasts sharply with traditional currencies that central banks can print indefinitely, making it an alternative to conventional assets.
How does Bitcoin work?
Bitcoin transactions work through a network of computers that verify and record every exchange. When you send Bitcoin, your transaction is broadcast to the network and grouped with others into a “block.” Specialised computers called miners solve complex mathematical puzzles to verify these transactions and add the new block to the blockchain – a permanent, public chain of transaction records that can’t be altered.
Your Bitcoin is secured by cryptographic keys: a public key (like an account number for receiving Bitcoin) and a private key (like a PIN for sending it). This combination of distributed verification, permanent record-keeping and cryptographic security allows Bitcoin to work without banks or intermediaries.
How did Bitcoin start?
Bitcoin, launched in 2009 by an anonymous creator known as Satoshi Nakamoto, was the first cryptocurrency and remains the most well-known. It was created as a peer-to-peer electronic cash system, allowing people to send and receive payments without relying on financial institutions. Since its launch, Bitcoin has evolved from an experimental technology into a globally recognised digital asset.
What moves Bitcoin’s price?
Before deciding when to buy bitcoin or when to sell, it’s important to understand the forces that influence its market value. These factors shape whether prices rise, fall or remain volatile:
- Bitcoin supply. The current Bitcoin supply is capped at 21 million, which is expected to be exhausted by 2140. A finite supply means that the price of Bitcoin could increase if demand rises in the coming years
- Bad press. Any breaking news that concerns Bitcoin’s security, value and longevity tends to have a negative effect on the coin’s overall market price
- Integration. Bitcoin’s public profile depends on its integration into new payment systems and banking frameworks. If this is carried out successfully, demand might rise which will have a positive effect on Bitcoin’s price
- Key events. Regulation changes, security breaches and macroeconomic Bitcoin announcements can all affect prices. Any agreement between users on how to speed the network up could also see confidence in Bitcoin rise – pushing the price up
- Market capitalisation. The value of all the coins in existence and how users perceive this to be developing will increase or dampen demand. Growing market capitalisation could see Bitcoin become a more sought-after investment