Bitcoin (BTC)
What is Bitcoin?
Bitcoin is a digital currency (cryptocurrency) that isn’t controlled by any country, treasury or central bank.
It was created in 2009 by an anonymous developer, who goes by the pseudonym Satoshi Nakamoto, and hit the mainstream in 2013 following a rise in its value.
You can use Bitcoin to buy or sell items from people or companies that accept Bitcoin payments.
Bitcoin doesn’t exist as a physical currency, which means that there aren’t any actual coins or notes.
Once a user has a decent understanding of how Bitcoin works it can be a very useful and cheap way of handling transactions plus also, potentially, a very good investment.
How does Bitcoin work?
Bitcoin works using a system called ‘blockchain’.
Blockchain is a network of computers that all have access to every Bitcoin transaction that takes place.
Each time a Bitcoin transaction is completed, the entire network is updated with this information so it can be validated by users on the network.
The transaction information on the network is encoded using cryptography, which keeps the transaction data secure and prevents anyone from tracking who it belongs to.
Once validated, the transaction information is added to a chain of previously approved transactions.
What is Blockchain?
Blockchain aims to cut out middlemen, such as banks and online market places, when it comes to trading with one another.
The technology isn’t exclusive to Bitcoin and there are now many Cryptocurrencies in the market.
Its use is becoming more widespread and has been adopted by sectors such as pharmaceuticals, fashion, and even humanitarian agencies like the UN.
How are new Bitcoin created?
Every time a person makes a Bitcoin transaction online, the P2P network is updated with new information.
People called Bitcoin ‘miners’ solve complex mathematical equations to organise this new information into blocks.
The first miner to solve a particular equation is rewarded with newly created Bitcoin.
A maximum of 21m Bitcoins can be created, and there are currently around 18.5m in circulation.
It’s estimated that, at the current rate of creation, it will be 2140 until the 21 millionth bitcoin is made.
Where can I buy Bitcoin?
Bitcoin can be bought through online cryptocurrency exchanges.
A cryptocurrency exchange is a service for people to buy or sell their cryptocurrency.
There are a number of exchanges available including Coinbase, Coinfloor, Kraken and Bittylicious.
Current Price
Bitcoin
$70,132.05
How is Bitcoin stored?
Just the way we keep cash or cards in a physical wallet, bitcoins are also stored in a wallet—a digital wallet.
The digital wallet can be hardware-based or web-based. The wallet can also reside on a mobile device, on a computer desktop, or kept safe by printing the private keys and addresses used for access on paper.
Every wallet contains a set of private keys without which the bitcoin owner cannot access the currency. The biggest danger in bitcoin security is the individual user perhaps losing the private key or having the private key stolen. Without the private key, the user will never see her bitcoins again. Besides losing the private key, a user can also lose her bitcoin by computer malfunctions (crashing a hard drive), by hacking, or by physically losing a computer where the digital wallet resides.
A simple, but less safe way, to hold Bitcoin is to keep it with an exchange – but this is mainly done when wishing to regularly trade it.
Bitcoin is a very valuable asset to own, so should be secured as best you can.
What are the risks with Bitcoin?
Bitcoin is a high risk high reward investment and you should only consider investing if you’re financially equipped and willing to lose any money that you put into it.
The value of Bitcoin is volatile, and it’s common to see its price fluctuate by around 10% or more daily.
On top of that, Bitcoin and other cryptocurrencies, are not protected by the Financial Services Compensation Scheme (FSCS).
If something goes wrong with your Bitcoin investment, you stand to lose everything and if companies stop accepting Bitcoin, it will inevitably lose value and become worthless.
Similarly, if consumers lose favour with Bitcoin and move to a new cryptocurrency – or just leave digital currencies alone – Bitcoin will also lose value.
The blockchain system is very secure, making it difficult to break into people’s Bitcoin wallets, however, Cryptocurrency exchanges have fallen victim to cyber attacks in the past which has lead to Bitcoin being stolen on a large scale.
Alternatives to Bitcoin
While Bitcoin is the most recognised cryptocurrency, there are a number of other digital currencies available.
These include:
- Ethereum
- Litecoin
- Zcash
- Dash
- Ripple
All cryptocurrencies carry similar risks and should only be invested in if you have the financial capacity to lose whatever you decide to buy.
Is Bitcoin liable for tax?
Income from Bitcoin will usually be subject to capital gains tax or corporation tax. Capital gains tax is paid on the profit you make from selling an asset that’s increased in value.
This means that if you sell your Bitcoin for more than bought it for, you could be liable to pay tax on the profit made, minus your tax-free allowance and any allowable expenses (e.g. dealing costs, stamp duty, advertising.)
Useful Links
https://www.reddit.com/r/Bitcoin/
