We all have heard about cryptocurrencies, the market it caters and the future that it holds. The cryptocurrency market is huge and has attracted a lot of attention since its inception. Traders want to invest in bitcoins market to earn high profits. Where traders have no central authority to bother from, they can easily purchase and sell cryptocurrencies.
But, do you know about the first digital currency of the crypto market?
Bitcoin is the first digital cryptocurrency that was introduced in January 2009 by Satoshi Nakamoto. It was initially a whitepaper carrying the ideas, which was later transformed into Bitcoin. However, the persons who actually shaped it are still mysterious.
Trading in bitcoin is an art that traders and investors of the market can understand. The article details bitcoin and how traders can invest their funds in the same to increase their capital. So, without wasting time, let’s quickly drive in.
What is bitcoin?
A virtual currency based on the technology of decentralisation, traders can invest in digital coins to have a secure trade. Introduced in January 2009, bitcoin has gained a lot of popularity in the years traded. The most invested and trusted cryptocurrency, bitcoin, has low transaction fees in comparison to the traditional investments of the financial market.
With no government interference, the coin has the latest software used to protect privacy and at the same time maintains transparency of the transaction. Its cryptography technology verifies the transactions and traders to facilitate a secure trade. In addition, it uses blockchain technology that records the transaction as a ledger and segregates it for understanding and transparency of the traders.
These are not physical currencies and are traded online with proper encryption of the transactions. Bitcoin works on the mining process, where the currency uses massive computing power to verify the transactions. The digital currency does not involve any government or central authority; still, it has been traded globally. Which marked the launch of several other cryptocurrencies in the financial market.
It is abbreviated as “BTC” when traded and has a lot of altcoins triggered in the market.
Traders can invest in bitcoins in the market online to generate income. It can be used to buy merchandise, make international and national payments through virtual currency. Bitcoin makes the payment easy and cheap for traders as they have no regulation to stop them. Several small businesses use bitcoin to make payments as they have no credit card fees.
However, traders invest in these digital coins as an investment which will have high value over time to enhance the profits. A great source of investment than the traditional markets with better future scope of trading.
How does bitcoin work?
To understand the working of bitcoin, first, traders must know why bitcoins were created. So, when we trade in the market, we have central authorities like banks that operate as the middleman. These middlemen earn a good commission for their services with a huge profit, so bitcoin was invented to eliminate the authority and earn good profits.
For example, if one trader wants to process their payment, he has to take help from a bank for which they charge a fee. Thus, giving a portion of earnings to the government for the transaction. To avoid such extra payments, digital coins were created.
Moreover, a lot of data of the customers is stored with such authorities, which could be a threat for customers. As they are, systems of government authorities are hacked several times. So. traders have to compromise with their private data and privacy.
Bitcoin does not have such issues with the trade; traders can easily invest in the market and similarly exit the trade whenever they want without sharing their private data with anyone.
Now that we know why the virtual currency, bitcoin, was invented, let’s move to the next step, how do they work?
The operation of bitcoin digital cryptocurrency is based on three key principles that make it work. These are:
- Supply and demand
- Decentralised network
A trader who wants to invest and understand how bitcoin works have to go through these three concepts.
Cryptography is a technology that converts the messages into codes to maintain the privacy and security of the message. However, the codes are converted back into messages with the use of a key that makes them accessible. The technology is completely based on mathematical formulas that make it convenient for traders to have verified and secure trading.
The transaction data of traders of bitcoin are converted into codes to maintain the security of transactions. In addition, it also verifies the traders with the system.
Moreover, the system also incorporates blockchain technology that is established to record the transactions and maintain the transparency of the trade. Traders can easily check on the history of trade with blockchain technology. These make the trade convenient and secure for traders.
Supply and Demand
The two words are familiar for every trader as they are used frequently in business or any other kind of trade. Similarly, it has the same role in the cryptocurrency market.
For example, a digital coin, let’s say bitcoin, people want to invest their funds in the coin by purchasing it. But, unfortunately, there are only limited bitcoins available in the market for trade. So, the supply of crypto coins is less, and demand is high, which increases the value of the digital coin in the market.
So, that’s how it works; the opposite happens when the supply is high, and demand is low. Then, the currency has a low market value.
That is the role of supply and demand in the cryptocurrency market.
Before jumping directly to decentralisation, here we have what is centralisation to make it more understandable. Centralisation is storing of the data in one place and from there making it available for others when required. It is completely working on a computerised method. But, what if the centralised area faces a problem, so whoever needs the information won’t be able to get it. That’s quite inconvenient.
In a decentralised network, on which bitcoin works, the data is not stored at a place but made available everywhere to make it convenient and minimise the problems. Thus, the traders of bitcoin can access the data whenever and wherever they want, even if any area of the technology faces a problem. It won’t affect the working of the system.
How to invest in bitcoins?
To invest in bitcoins, traders have various methods which they can select as per their choice. Traders can invest in any trustable exchange through brokers and trade in digital currency. It is currently the most popular and profitable trade market that holds futuristic aspects. Mentioned below are the steps to invest in bitcoins:
The first step to invest in bitcoins or any other digital currency is to find a suitable and reliable broker. The broker must be regulated with all the required services, a legit broker that serves the market such as the TradeATF. With the help of brokers, traders can easily use the trading tools, analyse the market, and access the trade market.
After finding the correct broker, the trader has to choose an exchange that provides the bitcoin cryptocurrency. The exchange would allow the trader to buy, sell and hold the bitcoin for trading. Exchanges are useful as they secure the funds of the trader, and it is easy to withdraw the funds from the exchange e-wallets. There are many exchanges in the market to provide their services.
However, for online trade, investors should use proper security in their internet practices. For example, they can use two way authentication and other securities like passwords to protect the trade.
The second step is to connect the exchange with a payment option. But before this, traders have to submit their identity proofs like driver license or passport for verification with the broker and exchange. After which, traders can select a payment option to trade. Traders can use bank accounts, bank wire transfers, e-wallets and credit/debit cards for such transactions.
However, traders should avoid using credit/debit cards due to the uncertainty of the cryptocurrency market.
The third step of the process is to place an order for trade. Traders can invest in bitcoins from the market. Traders can choose the number of coins they want to trade and accordingly can set their stop-loss/take profit orders and even have order execution from the trading platforms directly.
Safe storage is the last step that traders have to take for investing or trading in bitcoins. Traders have to select safe storage for their bitcoins. There are e-wallets that store the bitcoins and other cryptocurrencies for the security of the trade.
Traders can store their bitcoins away from the exchange and broker and have private control over the same. This minimises the risk of hack or theft from the exchange or brokerage accounts.
Traders monitor their bitcoins, and according to the market trend, invest or sell the bitcoins in the market to make money.
These are the e-wallets that traders use to store their bitcoins or other cryptocurrencies. Traders have a number of options to store the coins safely. There are hot and cold wallets available in the market for the purpose of storing cryptocurrencies.
Hot wallets are online wallets that store cryptocurrencies. These work on internet-connected devices such as computers or smartphones etc. It is a convenient source for storage due to its quick work. It is prone to theft, as it creates private keys online. Trader coins could be hacked via internet-based wallets.
Therefore, traders using hot wallets should secure their bitcoins with strong security. There are many ways through which hackers or frauds hack the software and take away the digital coins. Traders should set strong passwords, use two-way authentication etc., to have complete control over the wallet.
Traders should keep small amounts in such wallets to avoid high risks. Examples of hot wallets are Multi-currency wallets.
In contrast to hot wallets, cold wallets are not online. They are more secure and less risky than hot wallets. Also referred to the offline wallets. The trader’s private key is not online and therefore not prone to hacking. It works with parallel software that allows traders to view their portfolios without risking their wallets.
A paper wallet is a significant and secure way of storing bitcoins in a cold wallet. The cold wallet is a hardware wallet that secures the private key of the investors of the cryptocurrency market. Where the private keys never come in contact with network-connected software.
Other options to invest in bitcoins:
There are other options that investors can use to invest in bitcoins. Below listed are the options:
These are the in person bitcoin exchanges that allow traders to invest in bitcoins. Traders can put cash into the machine and buy the bitcoins, which gets transferred to the digital wallet of the trader. A secure and popular method of trading bitcoins.
Peer to peer method is more direct, which connects the traders and investors. With the trade account, traders can invest in bitcoins with the payment method and price of the bitcoin. Then surf through the listings of the offerings and choose the trade partners and do the transactions.
Cryptocurrencies hold a better position in the market with good chances of becoming a leading market in future. Bitcoin being the first trade cryptocurrency in the market, is most traded with effective and profitable outcomes. Traders can easily invest in bitcoins, store them using e-wallets and sell in the market when they see an opportunity.
However, traders should be careful with their decisions of investment. As the market is new and requires proper knowledge before putting in funds. Traders cannot just invest in the market. To earn profits, they have to study and analyse it well in advance to make strategies. Traders can focus on the reputated platforms which are recommended by us, read PrimeFin review.