December 6, 2022 2:15 pm in Bitcoin

Bitcoin: Mine It, Buy It, Use It

Bitcoin’s popularity has skyrocketed in recent years. Today, Bitcoin is commonly referred to by its acronym, which is BTC. In November 2021, it had a 10-year return point of 230%. It was hard for many to believe that the crypto coin once valued at a fraction of a penny had reached a value of nearly $69,000. Despite cryptocurrencies being considered volatile investments, BTC has performed well and has several advantages.

Some reasons why investors find it attractive are because it is one of the most popular cryptocurrencies, it has good short-term earning potential and there is a limited supply. Bitcoin investors often hold onto the cryptocurrency, which limits the supply in circulation and may increase demand. In 2020, the National Bureau of Economic Research reported that the top 10,000 investors held 33% of the BTC supply.

What Is Bitcoin?

Bitcoin was invented by Satoshi Nakamoto. Nobody knows for sure if the name is a pseudonym of just one person or a group of developers. The currency is part of a blockchain network, which is an infrastructure where applications can access smart contracts and ledgers. Transactions are immutably recorded on the ledger and transmitted to each of the network peer nodes.

BTC’s use of a blockchain is one way that it differs from fiat currency. It is a decentralized form of currency. The proof-of-work consensus that secures BTC and its ledger is part of the process of mining, which creates new coins. This is a more complex process that will be discussed in an upcoming section. BTC can also be bought online and used for transactions through crypto wallets.

Bitcoin is a fully peer-to-peer currency and was the first to appear in the crypto world. BTC can be sold on multiple platforms and is one of the easiest cryptocurrencies to trade. Each coin can be divided into increments as well. The idea is similar to how a dollar can be divided into cents. Each coin can be divided up to eight decimal places, which is equal to one millionth of a coin. That tiniest unit is called a satoshi.

A Brief History of Bitcoin

During the months that followed the launch of BTC in 2009, the creator mined about 1.1 million coins. Each coin was worth less than $1. While most people thought the currency would never be worth much, some intrigued people invested in it.

In 2010, a man in Florida used 10,000 BTC to buy two pizzas that were worth about $25. That purchase also marked the first notable real-world merchandise transaction of BTC. Despite that large step, investors were still unsure about what BTC might evolve to be in the future. Bitcoin passed the $1 value threshold in 2011. One 12-year-old boy spent $1,000 in 2011 to buy BTC. In 2019, the remaining 446 BTC he held had a total value of about $4.5 million.

With all the astounding stories of crypto millionaires from values increasing, more people became interested in buying or mining the cryptocurrency in the past several years. Although BTC is the leading cryptocurrency by market cap, it has still gone through several ups and downs during its history. The value spiked significantly in 2017 and led to a bull run. It went from barely breaking $1,000 in January to $19,000 in December that year.

Understanding Bitcoin Mining

The process of mining BTC involves solving complex puzzles called hashes, and those who solve them have the opportunity to enter a chain of BTC transactions on the blockchain. That new block is then sent to the whole network for other participating computers to validate and update their copies of the blockchain. Once this is done, the winning miner is paid. That miner receives a set reward, which is currently 6.25 BTC. In addition to that reward, the miner receives the transaction fees that users paid on the validated transaction block.

The idea behind rewarding miners is that the incentives will encourage them to continue mining. They are important parts of the blockchain’s transactional validity, which is crucial for maintaining honesty and reliability. Also, the blockchain mining structure prevents double spending of BTC currency. When people first hear of mining, they often underestimate what it involves.

Mining Difficulty

Each hash is a 64-digit hexadecimal number that is equal to or less than the proof-of-work algorithm for BTC. As more miners participate by competing to solve the hashes, the puzzles become more difficult. The difficulty level changes about every two weeks based on the number of participating miners and miners’ efficiency in solving previous puzzles.

Also, mining is difficult because of how competitive it has become today. In the early days of BTC mining, single users could participate with their desktop computers and directly compete. This process was extremely slow. More people built sophisticated computing systems for mining to accomplish it quicker and more competitively. Today, these large mining operations use so much power that they spend significant amounts of money on electricity and cooling. Modern mining operations can generate about 220 quintillion hashes per second. ASIC mining machines cost approximately $20,000 for a new one.

Alternately, a single desktop computer that is optimized for BTC mining can only generate about 100 million hashes per second. This disparity puts individuals at a disadvantage and makes it unlikely for them to compete alone with large-scale mining operations. However, individuals may still mine BTC by joining a mining pool, which is a group of miners who combine their power to compete. The payouts are shared, and some groups require members to have expensive equipment. Any new BTC enthusiasts who think about investing in mining must consider the potential investment required versus profit potential. While large mining pools can sometimes signify a group’s trustworthiness, looking for a mining pool with a good hash rate is more important.

Reward Halving

The current BTC reward mentioned earlier has not always been the standard incentive amount. In BTC’s early days of mining, the reward was 50 BTC. Every 210,000 blocks, BTC halves the mining reward. For instance, the reward was reduced to 25 in 2013 and 12.5 in 2016. Despite reductions in coin rewards, the value of those rewards has increased as the value of the cryptocurrency has grown. For example, the value of a 50 BTC reward in 2009 would have been worth almost nothing then. In 2016, the value of even one BTC was more than $950 at the end of December. The standard reward would have been close to $12,000 in 2016. As of late November 2022, a 6.5 BTC reward alone would be worth nearly $105,000 with the value being about $16,150.

Buying Bitcoin

Fortunately, people do not have to mine BTC to own it. For many people, buying is much more feasible than finding a profitable mining pool or investing in a sophisticated mining system. BTC currency is often purchased on a cryptocurrency exchange, which is a platform that allows people to buy or trade cryptocurrencies online with a computer or mobile device.

Another convenient way for people to buy cryptocurrencies without using a credit card is with a cryptocurrency ATM. Bitcoin ATMs are similar to regular ATMs in design. The machine is a terminal or kiosk securely connected to the internet, and it can send BTC to users’ crypto wallets. This is advantageous to people who want to avoid some of the security risks of using an exchange or prefer to buy BTC with cash.

To buy BTC, users must first set up a crypto wallet. There are several good wallets available, and it helps to read reviews before selecting one. Also, it helps to understand the differences between desktop, mobile and hardware wallets. Depending on the choice, the next step is downloading or buying the wallet. After following the specific wallet installation instructions, a user can then buy BTC by following prompts on a platform or using a crypto ATM.

Buying BTC with a convenient ATM involves going to a nearby kiosk, setting up an account with the provider, scanning a code to connect the crypto wallet and following the prompts to select BTC. After that, the next step is inserting the chosen amount of cash. The ATM provider sends a notification when the transaction is finalized. BTC can be stored in a wallet as an investment or used for peer-to-peer transactions.

Using Bitcoin

Originally, the mysterious entity behind BTC hoped that the currency would one day be used for everyday transactions. After it was used for buying pizza as mentioned in the earlier history section, BTC commemorated the event with a “Pizza Day” holiday that its community still celebrates every year. Today, it appears that the creator’s vision is becoming more a reality than a hope for the future. When BTC’s popularity spiked in 2017, more retailers announced they would start accepting the currency as a form of payment. Many later backed away from implementing the change. However, some companies have recently started integrating BTC into operations.

Improvements in fast transaction technology and the popularity of cryptocurrencies are two reasons why more companies are adopting BTC crypto payments. Some car dealerships accept BTC today. Microsoft, Newegg and a few other tech companies accept it. Also, restaurants like Burger King, Subway and KFC accept the currency, and Overstock is an online retailer that allows it. More companies are expected to implement BTC payments in the future. There are also companies that allow people to use crypto to buy gift cards for retailers, restaurants and more. Some crypto enthusiasts today use BTC to invest in other cryptocurrencies or crypto assets like NFTs.

With the variety of ways to spend BTC, using it depends on the purpose. When using it for transactions with any company in a real-world-use setting, look up that company’s policy and instructions for using a cryptocurrency for transactions. Sending it to another crypto wallet to buy services, products or crypto assets involves several steps.

The sending user must enter the recipient’s wallet address or use an app-generated QR code. Next, the sender must specify the type of currency to send, and the recipient’s wallet must be compatible. For instance, sending standard BTC to a BCH cash wallet will not work and will result in lost currency. Some BTC users send a small test amount first before sending the full amount for a large transaction. The last step is broadcasting the transaction, and the sender pays a fee. That fee is the same one that goes to miners as incentive. Fees are variable. Two of the key factors that affect fees are desired transaction speed and volume of the transaction.

Investors often recommend that people hold their BTC rather than spend it on things like food or merchandise. There are also other cryptocurrencies that people can use for transactions. With its history of price growth and limited supply, BTC can be a valuable tool for short-term earning. Thanks to the convenience offered by crypto ATMs today, buying it securely with cash for an investment or for transactions has never been easier.