What is bitcoin and how do i invest in it

What Is Bitcoin And How To Invest In It?

What Is Bitcoin And How To Invest In It?

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So what is Bitcoin and how to invest in it? Bitcoin, also represented as (BTC), is an idea, a technology, a network, freedom, it’s outside the financial system and not backed or supported by any central bank or government entity. 

Bitcoin is an alternative form of investment, an instrument on a payment network, considered a store of value & a hedge towards government-issued fiat currency.

I’ve been involved in blockchain and financial technology for over 10 years, spoken at many conferences, was a founding member of the Boston Blockchain Association and an active member of the blockchain fintech community. I’m going to share with you my unique perspective of all the aspects of Bitcoin through all of my years of experience.

Be sure to watch the YouTube video below with my complete overview of Bitcoin, Bitcoin mining, blockchain, investing in Bitcoin and so much more.

Bitcoin is an extremely volatile asset and is for advanced investors only. Please be sure to only invest what you can afford to lose.

What problem does Bitcoin solve?

Bitcoin was launched to solve two main problems, the double-spending problem and the elimination of the need for intermediaries to be involved in payments. 

The double-spend problem.

The double-spend problem is an accounting problem where you can possibly spend the same funds within an account twice. For example, let’s say in your checking account you have a balance of $10. You then proceed to write two checks at the same time in the amount of $10 to two different people. You just spent the same $10 twice, or double-spent those funds, incurring a negative balance on your checking account. With Bitcoin that can never happen. Bitcoin set out to solve that problem so that you can never spend more money than what you already have on hand.

The Elimination of payment intermediaries. 

The second main problem Bitcoin set to solve was the payment intermediary problem. Today, for two parties to transact, you need a financial institution involved as an intermediary, typically a bank, payment or fintech company is involved as an intermediary in the payment transaction. These intermediaries are there to provide a level of trust when the payment is executed. They do so by providing confidence to both parties in the payment transaction that the funds will ultimately be transferred successfully. Bitcoin set out to eliminate the need for payment intermediaries to allow people to pay each other directly. This is called a peer-to-peer payment, or where two parties send money to each other directly.

Who created Bitcoin?

If you want to learn more about the specifics of Bitcoin, there is a whitepaper written by an anonymous person or persons going by the pseudo name of Satoshi Nakamoto. There has been a lot of speculation to date of who or whom Satoshi might be. The Bitcoin whitepaper is a great short read and I highly recommend at least reading it once.

What is Bitcoin used for?

Bitcoin at its fundamental is a payment network with payment units called Bitcoins. These Bitcoins are not physical but are representative coins on an electronic ledger on the Bitcoin network called the blockchain. 

Blockchain is one of the core technologies behind Bitcoin that helps to solve the double-spending problem. The blockchain stores all the transactions on its immutable ledger or a ledger that cannot be changed or modified. Every time there is a transaction on the Bitcoin network it is recorded on the blockchain. 

Bitcoin Transaction Inputs and Outputs

How is Bitcoin secure?

Another key thing about Bitcoin is that the network is secured through cryptographic hashing and a consensus algorithm called proof of work. A hash function is a way to simply convert one data value set to another.

Hash function normal 999

What is proof of work and SHA-256?

Proof-of-work is the mechanism that requires a lot of computing or hash power to calculate complex mathematical formulas such that whoever successfully calculates the answer to the mathematical problem first, is rewarded with an amount of predetermined Bitcoin. This reward for the computer power model is what drives all the Bitcoin miners to build complex machines to fight for these Bitcoin rewards all while providing security and robustness to the Bitcoin network. 

network architecture

Because no one person controls the entire network, anyone who has enough computer calculating hash power can contribute to the network. The Bitcoin network is therefore decentralized and not centralized in nature. It does this all while making the network tamper-resistant and more secure. 

Bitcoin uses the SHA-256 proof-of-work scheme. The calculated difficulties are built into the network based on key metrics and change over time. So the takeaway here is Bitcoin mining is done on powerful computers that want to earn Bitcoins for their computing power, all while providing robustness to the Bitcoin network in return.

Cryptocurrency Mining Farm
Bitcoin mining farm.

What determines the value of Bitcoin?

The price of Bitcoin is what the open market thinks it’s worth. Some people speculate that Bitcoin will be worth a million dollars or more someday in the not too distant future, while others think it will go down to zero. The million-dollar believers’ argument is that there is a limited supply of Bitcoin and it has intrinsic value. You can either use it as a store of value or purchase goods and services with it. While others argue that Bitcoin has no intrinsic value at all and you can barely use it anywhere for anything.

These are general statements but are important in understanding potential arguments for the extremes views on the potential value of the asset.

How can I buy Bitcoins?

Where can you purchase Bitcoin? There are many places you can buy Bitcoin. The place I do recommend for people to at least start that has a great reputation, a simple user experience and an interface to purchase Bitcoin, is Coinbase

Virtual currencies like Bitcoin come with specific tax rules. Please click the link to the IRS website for additional information.

#1 Rated Cryptocurrency Trading Platform

#1 Rated Cryptocurrency Trading Platform

I have personally used Coinbase for years. They’ve made the process of purchasing cryptocurrencies extremely simple and seamless. If you’re looking for a reliable and trusted platform to start your journey into cryptocurrency trading, you can’t go wrong with Coinbase. Remember cryptocurrencies are a very risky asset class to invest in, so please do your own research.

Coinbase App

How to get Bitcoin exposure in an IRA?

IRA retirement accounts provide tax-advantaged investment savings and other benefits. Click here to learn more about investing in an IRA.

#1 Rated For Retirement Cryptocurrency Investing

If you’re looking for a bit of diversification and you a fan of cryptocurrencies, then you need to look into BitcoinIRA. BitcoinIRA as the name says it all, it is the world’s first and still the largest most secure Bitcoin IRA. Invest in Bitcoin and other cryptocurrencies within a retirement IRA. Cryptocurrencies come with a lot of risk, so please do your own research.

bitcoinira phone

Summary

To summarize Bitcoin is internet money that has no central authority, eliminates intermediaries in payments and solves the double-spend problem. It could be used as a store of value or potential hedge towards inflation. Today there are simple to use applications and retirement IRAs that allow you to purchase Bitcoin faster and easier than ever before.

So what are your thoughts on Bitcoin? Did I miss anything? What do you think the future of Bitcoin is? Do you own any? Please share your thoughts in the comments section below.

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Frank Makrides

Frank Makrides

Is a former financial technology industry executive, licensed realtor, real estate investor, an award-winning speaker, has been published, holds multiple patents and is passionate about all things personal finance and entrepreneurship. He is also a proud husband and father of 2 amazing children.

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