Artificial intelligence (AI) is the ability of a computer program to think, learn and mimic human thought. Introduced in 1955 by John McCarthy, artificial intelligence has several different fields of study. These fields include computer science, mathematics, psychology, and philosophy, among many others. AI is linked to several different use cases. The most prominent use cases include machine learning, supply chain optimization, speech recognition, self-driving cars, and manufacturing optimization.
Now we know a bit about AI, let’s review a few examples of how AI is improving decentralized networks like blockchain.
During the past few years, artificial intelligence has substantially increased its presence in the area of crypto trading. This is particularly true with high-frequency trading (HFT). Essentially, HFT is a type of algorithmic financial trading characterized by high speeds and high turnover rates. High-frequency trading is a perfect vehicle for cryptocurrency trading because the crypto universe has several different exchanges.
HFT uses artificial intelligence to analyze multiple technical indicators across various exchanges in an effort to take advantage of market opportunities. AI is still in its infancy stage in regard to crypto trading. Going forward, artificial intelligence will play a pivotal role within the crypto trading community. These are commonly known as trading bots.
Unfortunately, industries that find themselves in a hyper-growth phase are more susceptible to cyberattacks and malware. Without question, blockchain technology, along with digital assets, is currently experiencing an explosive rate of growth. Consequently, the blockchain industry has endured an exponential increase in malware, phishing, fraud, and digital theft. Based on data provided by industry experts, $9 million is lost to cryptocurrency scams on a daily basis.
The key to successfully thwarting a blockchain hack is to identify the threat and understand the nature of the attack as quickly as possible. Hackers are acutely aware that they must strike quickly in order to launch a profitable attack. Unfortunately, crypto exchanges have a poor track record in preventing cyber-attacks. AI-based cybersecurity systems are designed to detect a hack in real-time and dramatically increase the likelihood of stopping the attack. AI systems are far superior to traditional cybersecurity systems because AI has the ability to detect patterns from previous attacks. This information can be used to prevent future cyber threats.
As you know, all crypto transactions are verified and added to the blockchain by Bitcoin miners to maintain the integrity of the network. In exchange for their work, miners are rewarded with Bitcoin. Crypto mining requires energy consumption and computing power. Over the past few years, Bitcoin miners have explored the idea of using artificial intelligence to reduce energy waste and computing power to reduce costs.
A few of the largest mining companies have created AI-based systems, allowing companies to share power and increase profitability. AI algorithms have made crypto mining faster, more profitable, and more efficient. Without question, artificial intelligence will continue to play an essential role throughout the crypto industry.
Brief Summary of Blockchain and Artificial Intelligence
Artificial intelligence (AI) was introduced in 1955 by John McCarthy
AI is the ability of a computer program to think, learn and mimic human thought.
AI encompasses several different fields of study.
AI has increased its presence in cryptocurrency trading.
High-frequency trading uses AI to analyze technical indicators across many exchanges.
AI-based cybersecurity systems are designed to detect a hack in real-time.
Bitcoin miners use AI to reduce energy consumption and computing power.
A few of the largest mining companies have created AI-based ecosystems.
AI algorithms have made crypto mining faster, more profitable, and more efficient.
Blockchain technology has many different moving parts. Hence, to operate smoothly, the architecture must be properly designed. An important piece of Nakamoto’s architectural design is the use of a consensus algorithm.
Blockchain Consensus Algorithm in a Nutshell
In its simplest format, a blockchain consensus algorithm is a decision-making process. It is designed to assist in reaching a common decision by a group of people. Of course, in this particular scenario, the consensus algorithm involves blockchain-related solutions.
How Does it Work?
Let’s assume that 20 co-workers are asked to collaborate and offer a recommendation on a specific project. Each participant in the group will reach a decision that will provide the greatest individual benefit. The group must listen to each recommendation and decide which of them will provide the greatest overall benefit. The final recommendation must be accepted by all group members regardless of whether it offers the best solution for each individual.
Let’s assume that 20 co-workers are asked to collaborate and offer a recommendation on a specific project. Each participant in the group will reach a decision that will provide the greatest individual benefit. The group must listen to each recommendation and decide which of them will provide the greatest overall benefit. The final recommendation must be accepted by all group members regardless of whether it offers the best solution for each individual.
The Lightning Network is a solution designed to solve the problem of transaction speed on the Bitcoin blockchain. It was introduced in a white paper by Joseph Poon and Thaddeus Dryja in February 2015.
Problems With Bitcoin
When Bitcoin was launched in January 2009, transaction speed was not a major concern. In fact, for the first eight years of its existence, it operated quite well. As Bitcoin entered a raging bull market in 2017, it became abundantly clear that transaction speed was becoming a major detriment to the long-term sustainability of the crypto network.
Some experts believe that Nakamoto poorly designed the process for validating transactions on the blockchain network.
As we discussed in previous sections of Blockademy, a consensus algorithm known as proof of work (PoW) is used to validate Bitcoin transactions. Unfortunately, PoW can be a slow and cumbersome process. The transaction processing capacity is limited in terms of size and frequency.
The average block creation time is 10 minutes, and the block size is limited to 1 megabyte. Therefore, the average time to process a transaction on the network is three to seven seconds.
Lightning Network Solution
Lightning Network was never intended to replace PoW. It is used to reduce the burden on the Bitcoin blockchain. The key ingredient of the Lightning Network is the fact that all transactions occur off-chain.
It operates on top of the Bitcoin blockchain known as a ‘layer 2’ protocol. By adding another layer to the blockchain, it enables users to create payment channels between any two parties. These payment channels have no expiry, allowing both parties to conduct multiple transactions.
When all activity between the two parties completes, the information is transferred to the main network. All transactions between the two parties are recorded as a single transaction on the Bitcoin blockchain for efficiency.
A large portion of the Bitcoin community has never endorsed the Lightning Network because transactions occur outside of the main blockchain. They argue that decentralization is being compromised each time a transaction is conducted off-chain.
Even though the Lightning Network has not been well received by the entire Bitcoin community, it holds a great deal of promise in terms of solving Bitcoin’s scalability problem. Therefore, the network will continue to play an important role in managing Bitcoin’s ever-increasing volume of transactions.
Brief Summary of Lightning Network
Lightning Network is designed to solve the problem of Bitcoin transaction speed.
It was introduced by Joseph Poon and Thaddeus Dryja in February 2015.
In 2017, transaction speed became detrimental to the long-term viability of BTC.
Lightning Network removed some of the burden from the Bitcoin blockchain.
All transactions on the Lightning Network occur off-chain.
The transactions occur outside of the Bitcoin blockchain network.
The Lightning Network is known as a ‘layer 2’ protocol.
Many Bitcoiners believe that the Lightning Network reduces decentralization.
They argue that off-chain transactions compromise decentralization.
Overall, the Lightning Network is still very popular within the Bitcoin community.
Bitcoin was launched on January 3, 2009, when Satoshi Nakamoto mined 50 Bitcoin. Over the course of the past decade, several use cases have emerged for this now-famous cryptocurrency.
Before we examine some of the most common uses for Bitcoin, let’s review the actual meaning of a use case. How does it apply to Bitcoin and why is it such an important topic in the technology universe?
What is a Use Case?
Without use cases, there would be absolutely no reason to continue discussing Bitcoin or the entire cryptocurrency ecosystem. This is because the main purpose of discovery or technological innovation is to add value to our daily lives. Discoveries are created to enhance the well-being of society. Without some type of societal benefit, a discovery will lose its appeal very quickly. Even cryptocurrencies.
The official definition of a use case is an engineering term that describes how an individual uses a system to accomplish a goal. In simple terms, a use case is a measuring stick for determining the true value of a new product or service. So, what can Bitcoin be used for?
Elimination of Intermediaries
Arguably, Bitcoin is the most revolutionary discovery in the history of money. It can completely alter the way consumers and businesses interact with financial institutions.
BTC allows you to send and receive money without the use of a bank, credit union, or credit card company. It eliminates the role of a bank in a financial transaction.
Technically speaking, a bank is nothing more than an intermediary. It serves as the middleman between customers and their money. While not true for Bitcoin, cryptocurrency overall can remove all intermediaries.
The elimination of intermediaries would extend well beyond the financial services industry. The global economy is filled with intermediaries across all industries. Removing intermediaries would lead to savings as well as create a surge in productivity.
Tokenization of Assets
Tokenization involves fixing an asset to a token. These assets include such things as stocks, bonds, commodities, real estate, fine art, antiques, precious metals, etc. In fact, any type of asset involving a buyer and seller could be tokenized.
You may be wondering how does Bitcoin become part of the tokenization process? Removing financial assets from the legacy financial system would involve the elimination of the US Dollar as the payment mechanism between the buyer and seller. Therefore, a new payment system is needed to settle all transactions. Bitcoin is a perfect replacement because it is linked to a public blockchain, which is one of the necessary ingredients for successful tokenization.
Financial assets are a multi-trillion-dollar business for the financial services industry. Therefore, using Bitcoin as the payment mechanism in the tokenization process would save an incredible amount of money for investors. Tokenizing all asset classes will allow more people to invest in these products because it will lower the cost and remove barriers to entry.
Store of Value
Store of value is arguably the most important function of an asset. As you know, there are many assets within the global financial system. However, very few of these assets can serve as a store of value.
Many people believe the US Dollar is an excellent store of value because it has remained relatively stable over the past few hundred years. On the surface, this is a true statement. The US Dollar is a stable currency in terms of volatility. The Dollar rarely fluctuates more than 10% per year against a basket of foreign currencies.
However, over an extended time, the Dollar has proven to be a poor store of value. In fact, the Dollar has declined in value 43.3% since 1985.
If we measure the Dollar against the rate of inflation (purchasing power), it fails miserably as a store of value. Because the loss of purchasing power occurs so slowly people simply don’t realize it is happening. Purchasing power is a difficult concept for many people to understand as well which means that this downside to the US Dollar often goes unnoticed.
Concerning fiat money, the major concern among currency experts and professional economists is the fact that governments (through the use of central banks) can create an unlimited amount of money. Basic economics teaches us that increasing the supply of any good or service will ultimately decrease the underlying value of the good or service. The same economic laws apply to money.
This explains why the US Dollar has lost a tremendous amount of purchasing power over the past several decades.
Inflation is inherently built into all fiat money systems because (as mentioned) governments have the ability to print unlimited quantities of money. As the supply of money increases, its underlying value decreases. As long as the US Dollar is based on a fiat money system, the value of the currency will continue to erode. In other words, the dollar bills in your wallet or bank account will continuously purchase a smaller amount of goods and services over time.
There have been over 3,000 fiat currencies throughout recorded history. The first fiat paper currency was used in 960 AD by the Chinese. The average lifespan of each currency is less than 30 years. The currencies in existence today will eventually fail. This includes the US Dollar.
In fact, the US Dollar (in its current fiat format) has lasted much longer than 30 years. Officially, the US Dollar became 100% fiat in August 1971, when Richard Nixon eliminated the Gold Standard. Therefore, the US Dollar has survived for 50 years, 20 years longer than the average currency.
Don’t panic though the US Dollar could easily maintain its current format for another few decades. But eventually, it will be replaced by another currency system. This explains why so many currency experts, economists, and investment professionals are fascinated by Bitcoin. Many people believe that Bitcoin will ultimately replace the entire global fiat currency system. This would include the Australian Dollar, British Pound, Canadian Dollar, Euro, Japanese Yen, Mexican Peso, Swiss Franc, US Dollar, and all other global currencies.
Role of Bitcoin (and Cryptocurrency)
As you can see, fiat currencies are a terrible store of value because they are constantly printed into circulation. All G20 nations create an unlimited supply of currency units through their central banks. Bitcoin is completely different because the supply is limited. When Satoshi Nakamoto unveiled Bitcoin in the 2008 white paper, it was revealed that Nakamoto limited the supply of Bitcoin to 21 million. Arguably, this is the most important feature of Bitcoin.
Unlike fiat money, it’s impossible to increase the circulating supply above 21 million.
Cross Border Remittance
As we discussed in a previous section of Blockademy, approximately 1.7 billion people are unable to obtain basic financial services. These services include transferring funds across borders to friends and family members. Unfortunately, the legacy financial services industry has done little to change the basic structure of its own industry because there is no financial incentive to make these changes. This is particularly true with cross-border remittance.
Cross-border remittances involve payments where the payee and the recipient are located in different countries. These types of transactions are generally very expensive because the payments involve foreign currency fees. It’s not uncommon for fees to exceed 10% of the transfer amount.
The vast majority of cross-border transactions occur within the unbanked population. Based on the fact that the unbanked have very little access to basic financial services, the vast majority of cross-border remittances occur outside of the banking industry. Instead, these transactions are conducted through money transfer agents (MTA) such as Western Union, MoneyGram, and TransferWise.
The majority of the unbanked population resides in Africa. Mobile phone usage is quite common throughout the African continent. As a result, an increasing number of workers are using Bitcoin wallets to transfer funds to friends and family members. The fees are much less expensive compared to money transfer agents. This is another example of how a decentralized payment network is adding value to the lives of people across the globe.
Brief Summary of Bitcoin Use Cases
A use case is a measuring stick for determining the value of a new product or service.
Without legitimate use cases, new products and services are basically worthless.
The number of use cases for Bitcoin continues to expand.
Bitcoin can eliminate intermediaries, tokenize assets, and be used as a store of value and for cross-border remittance.
Unbanked consumers are big users of Bitcoin when sending money across borders.
Today there is no doubt that cryptocurrency is the future of modern society. Digital assets have made a revolution in the financial industry, providing people with faster and more secure ways to transfer their funds.
Hundreds of unique cryptocurrencies exist nowadays. But still, there is a leader that defines the future of the whole crypto industry – Bitcoin. So, why is it so popular and expensive? How can you use Bitcoin, and what benefits does it offer? Let’s find out in this course.
Although many people believe that Bitcoin is the first cryptocurrency, the truth is that the idea of a new financial system appeared way earlier. In the 1980s, the owners of a gas station in the Netherlands made an attempt to create digital money to protect their funds from annoying thieves. They hired developers who made an attempt to link money to smartcards. The drivers used those cards instead of cash.
In 1989 David Chaum created DigiCash, a system that ensured safe and anonymous transactions based on the Blind Signature Technology. Nonetheless, the project was closed in 1998 due to the growing popularity of credit cards. Ten years after the release of DigiCash, Wie Dai published his paper on “B-money.” Although the offered virtual currency was never released, the concept of the decentralized network made a significant impact on the whole financial industry.
There were other important attempts to develop cryptocurrencies such as Bit Gold, HashCash, and Flooz. All of the mentioned projects inspired Satoshi Nakamoto to come up with the idea of Bitcoin.
Bitcoin was introduced during a challenging period for the global economy – the financial crisis of 2008. It showed the significant drawbacks of traditional financial institutions such as banks. Thus, their clients started looking for a better financial system able to solve the problems of fiat currencies.
And in 2008, Satoshi Nakamoto published a white paper, which included the concept of Bitcoin. He also expressed his dissatisfaction with the banks as well as admitted the unreliability of fiat currencies.
Nakamoto launched Bitcoin on the 3rd of January, 2009. On this day, the first block – the genesis block – was mined. During the first months after the launch of Bitcoin, the cryptocurrency was obtainable only by the miners, who were validating its blockchain.
Almost 1.5 years after that, on the 22nd of May, 2010, the first “real world” BTC transaction took place. A man from Florida ordered two Papa John’s pizzas for 10,000 bitcoins. The value of those pizzas was only $25. Thus, the first transaction established the initial BTC price, which was 4 bitcoins per penny. Even now, many cryptocurrency enthusiasts celebrate May 22, calling it Pizza Day.
The following transactions with Bitcoin took place on different online forums. Internet users were exchanging various products or services for bitcoins. But the situation significantly changed in 2011, when such networks as Ethereum and Litecoin appeared. The coders started improving Bitcoin’s blockchain, adapting it to the needs of the modern community.
At the same time, Bitcoin became available on some exchanges, which made it easier to trade and store. Due to the increased liquidity, Bitcoin managed to start its way from a few cents in 2010 and arrive at an all-time high of $64,888 in 2021. Moreover, according to Bitcoin price prediction, one BTC unit will be equal to almost $100,000 by the end of 2023.
Who Is Satoshi Nakamoto?
Satoshi Nakamoto is a pseudonym of a person or a group of people who published the original Bitcoin whitepaper. Although many people, such as Hal Finney and Adam Back, have claimed to be the inventors of BTC, the true identity of Satoshi has never been revealed and verified.
The interesting fact is that it’s estimated that nearly 1 million bitcoins are under Nakamoto’s control. Considering that the maximum number of BTC coins is 21 million, it means that Satoshi’s stake is 5% of the overall Bitcoin holdings. Nonetheless, people claim that Satoshi Nakamoto doesn’t use his digital coins. Another interesting fact is that the smallest unit of the BTC coin is named after its creator – satoshi.
Others Involved With Bitcoin
While many have heard about Satoshi Nakamoto, most know nothing about other people who have significantly contributed to the development and popularization of Bitcoin. Here are the most prominent participants in the development process:
Hal Finney. This man was a cryptographer and one of the first developers and users of Bitcoin. In 2008, Finney was among the defenders of Satoshi’s ideas. Hal downloaded the Bitcoin software on the day it was released. Soon after that, Satoshi Nakamoto sent him 10 BTC coins as a test. Unfortunately, Hal died in 2014.
Martti Malmi a.k.a. Sirius. Martti is the second BTC developer after Satoshi Nakamoto. Besides, he founded the Bitcoin Forum. Around 2012, Malmi stepped back from the Bitcoin project, but he is still devoted to cryptocurrency and is working on his own projects.
How Bitcoin Works
Before you decide to start investing in Bitcoin, you should understand the way it works. In this part of our article, you will get acquainted with the definitions of blockchain, hash rate, and mining. Consider that any crypto investor should be familiar with these terms to continue their journey in the crypto industry.
What Is the Bitcoin Blockchain?
Satoshi Nakamoto described both Bitcoin and blockchain in 2008. Although some people believe that these terms are synonymous, it’s a big misconception. Simply put, a blockchain is a type of database – a collection of data kept on a particular device. Usually, the stored information is structured in table format. It significantly simplifies its filtering and searching.
Besides, each block of information stored in a blockchain is encrypted. The blocks are arranged chronologically and chained together, which makes them almost impossible to change or hack.
The blocks are added to the blockchain through mining. When a BTC transaction is requested and authenticated, a block that represents this transaction appears. It’s sent to every node (computer) in the network. Nodes validate the transaction and receive the reward for Proof of Work. Only after the validation, the new block is added to the blockchain, and the information about it is distributed across the whole network.
The described process is impossible without nodes, which can be different devices, including computers, servers, and laptops. The nodes connect and regularly exchange information with each other. The main duties of nodes include:
Validation of the blocks. Nodes accept or reject transactions.
Storing blockchain transaction history. Nodes save and keep each transaction block.
Spread of transaction history. Nodes ensure that each participant of the blockchain has up-to-date data about the latest transactions.
Since the first introduction of the original concept, thousands of blockchains have been created. They power such popular cryptocurrencies as Ethereum, Cardano, Tether, and, of course, Bitcoin.
Hash rate shows the speed at which a device can process the information and turn it into a hash, which consists of letters and numbers of a certain length. It’s calculated at hashes per second.
The faster the hash rate a computer has, the more profit a crypto miner can make. The miners compete to verify ~1MB worth of a particular transaction faster than others. Only the miner who solves the puzzle first gets a reward.
Bitcoin mining is an integral part of the blockchain. Through the solution of complex math problems, new coins are added to the Bitcoin network. In addition, miners ensure the trustworthiness and security of the payment network by checking each transaction.
Bitcoin Network and Bitcoin Foundation
The Bitcoin network operates on a cryptographic protocol. Its users can send and receive digital coins with the help of special crypto wallets. As has been mentioned above, each transaction is recorded in the blockchain. Right now, the Bitcoin network includes nearly 500,000 unique users who send and receive Bitcoins every day. And, according to the statistics, the overall number of BTC wallet owners worldwide is 76.62 million users.
The popularity of Bitcoin was ensured by the Bitcoin Foundation. This nonprofit organization was founded in 2012. Its main aim was to prove that Bitcoin isn’t a new kind of trickery. Plus, the organization was educating lawmakers on the Bitcoin ecosystem. Thus, the foundation was solving different regulatory and policy issues associated with this cryptocurrency. It was also supporting Bitcoin core developers such as Wladimir van der Laan, Gavin Andresen, and Cory Fields.
Unfortunately, the foundation went into bankruptcy in 2015. After that, some specialists supported by the organization were hired by the MIT Media Lab. It provides a working environment for the Bitcoin developers, allowing them to work on various BTC variations such as Bitcoin XT and Bitcoin Classic.
Bitcoin Learning Recap
So, the main facts about Bitcoin you should remember after reading this part include:
The first attempts to create cryptocurrency were made in the 1980s. The well-known Bitcoin predecessors are DigiCash, BitGold, HashCash, and Flooz.
The financial crisis of 2008 was among the main reasons for the creation of the new financial system.
The Bitcoin concept was published in 2008, and the cryptocurrency itself appeared in 2009.
Bitcoin’s creator is Satoshi Namkomoto. Nonetheless, no one knows his true identity.
Bitcoin uses blockchain technology for storing information about transactions.
Miners ensure the trustworthiness and safety of the Bitcoin blockchain. In addition, they are responsible for discovering new blocks.
The performance of Bitcoin mining devices directly depends on their hash rate.
Currently, the Bitcoin network includes 76.62 million users. Every day nearly 500,000 people conduct Bitcoin transactions.
Right now, we offer you to plunge into the short history of the most popular cryptocurrency and discuss its major milestones:
What Are Bitcoin Halving Dates?
Bitcoin halving dates are the events that cut the rewards for mining Bitcoin in half. They are necessary to prevent Bitcoin inflation and regulate the rate at which new units enter circulation.
The Bitcoin halving dates happen every 210,000 blocks mined. As a rule, it takes nearly four years. It’s expected that Bitcoin halving will stop happening in 2140 when all 21 million coins will be mined. The halvings ensure the decrease of BTC amount with each new block. It makes this cryptocurrency scarcer and more valuable. You may get acquainted with all Bitcoin halvings and short information about them in the table below.
It’s also possible to check out the information about the upcoming halving date on special services. They show how many blocks are left and use this information to predict when a halving will happen.
What Is a Bitcoin Fork and Bitcoin Cash?
Bitcoin forks are new versions of the Bitcoin currency, which introduce new rules for BTC users to follow. Due to this split, the users choose which rules to follow, which is similar to a fork in the road.
Bitcoin forks may be divided into two types:
Soft Forks. These forks are backward-compatible and offer insignificant changes only to the Bitcoin protocol. For example, it may be a change of the block size from 1MB to 800KB.
Hard Forks. These are entirely new versions of Bitcoin. No transactions are possible between the previous and new versions of Bitcoin. They are separate from each other, and the changes set by the fork are permanent.
Currently, there are 105 Bitcoin forks. Nonetheless, 31 of them are no longer relevant. The most successful Bitcoin fork became known as Bitcoin Cash — it was created in 2017.
The new cryptocurrency appeared when the developers of the Bitcoin community couldn’t come to an agreement related to the implementation of new changes. Thus, a small group of BTC developers forked to create their own version of Bitcoin with some changes:
Bitcoin Cash offers cheaper transaction fees – nearly $0.008 per transaction. At the same time, Bitcoin’s average transaction fee is $2.46.
Bitcoin Cash offers faster transaction time. Usually, it takes less than 10 minutes to verify a Bitcoin Cash transaction.
More people can use BCH because it can deal with more transactions per second (116 transactions on average).
Now it’s time to get to the most exciting part of our guide! Here you’ll discover everything you need to know about trading, owning, and storing BTC coins. This information will be helpful for anyone who wants to start investing in this cryptocurrency.
Where to Buy Bitcoin and Bitcoin ATMs
Nowadays, there are many ways to buy Bitcoin or other cryptocurrencies. The simplest way to do it is to visit different exchanges. They allow any person to use their favorite payment method to purchase Bitcoin online. However, not all of these services are worth your attention. If you want to avoid fraudsters, you should consider three key points:
Available payment methods. It’s great if a service accepts such banking options as credit cards, payment apps, and popular e-wallets.
User reviews. It’s essential to do your own research and discover the information about a service you want to use. There are numerous resources on the Internet that may provide you with up-to-date ratings of all popular BTC exchanges.
Fees and currency pairs. Make sure that you can buy Bitcoin on the chosen service. Also, pay attention to the fees set by your BTC exchange. Usually, they are based on the size of your transaction. However, there are also fixed fees.
In addition, it’s important to consider that some BTC exchanges will ask you to pass the verification process according to KYC standards. It usually includes providing your phone number, address, and photo ID. At the same time, some exchanges do not require verification, which means you can conduct transactions without revealing your identity.
There are also P2P platforms that match BTC buyers and sellers. Their users can trade their cryptocurrencies with other individuals. In this case, each seller can set their own price and accept particular payments. For example, they may accept not only PayPal or bank transfers but also hard cash. If you want to buy Bitcoin using such a service, you should make sure that the trader you’ve chosen has a good reputation.
Finally, there are Bitcoin ATMs, which you can visit to purchase Bitcoins or other digital coins by depositing cash. They produce blockchain-based transactions, which send cryptocurrency to the person’s crypto wallet. Usually, a Bitcoin ATM uses QR codes to simplify the conduction of the transactions.
Consider that currently, there are more than 14,000 BTC ATMs around the globe. You can find the nearest Bitcoin ATM using Google Maps or such websites as Coin ATM Radar.
A BTC wallet is a device or software used to send and receive bitcoins. Although they don’t store your actual BTC units, they keep the private keys necessary to sign any Bitcoin transaction. It’s important to remember that anyone who knows your private key will be able to control all bitcoins related to the particular address. Thus, you should never share this information with other users. It’s important to understand the following terms:
Private keys. They provide the users with access to their cryptocurrencies on the blockchain. As a rule, the owners of cryptocurrency use public addresses and private keys to deposit and receive digital assets. Consider that it’s impossible to withdraw bitcoins without knowing your unique private key, which consists of many numbers and letters. Crypto wallets use private keys to ensure that fraudsters won’t get access to your funds.
Public keys. They allow the user to receive bitcoins into their accounts. As well as private keys, they are stored in your crypto wallet. Public keys are paired with your private keys. In addition, consider that your private address is actually a shortened form of your public key. You can share it with other users without any worry.
Seed phrase. This is a string, which usually consists of up to 24 words, generated by your wallet. It’s possible to compare your seed phrase to the master password. Even if you delete or lose your wallet, you still will be able to get access to your cryptocurrencies with the help of the seed phrase.
Some crypto wallets may be used to store not only bitcoins but also other cryptocurrencies. They are called multi-currency wallets.
You can set up and use hot wallets without any difficulties. If you create an account on an exchange or download special desktop software, you actually create your hot wallet. Hot wallets are connected to the Internet and allow their users to make a crypto transaction with a few simple clicks on their mobile phones or laptops. Thus, they are perfect for people who often trade their crypto assets or make everyday purchases with bitcoins.
Nonetheless, you need to consider the major drawback of hot wallets – lack of security. All your funds may be stolen by cyber-criminals, so it’s not recommended to use these wallets to keep your long-term investments.
There are also cold wallets, which are considered the most secure solution for cryptocurrency storage. You connect your cold wallet to the Internet only to make a transaction. It means that criminals won’t be able to get control over your funds without getting physical access to your cold wallet.
The variety of modern crypto wallets is impressive. Nonetheless, we strongly recommend you choose the most reliable ones. Here you can get acquainted with our shortlist of such options:
This company offers various cold wallets such as Nano X and Nano S. The users can connect to these devices with Bluetooth or USB using a special Ledger app on their computer or mobile devices.
This online wallet has an excellent UI and allows its users to store, send, and receive both Bitcoin and Bitcoin Cash. It’s possible to manage BitPay on different devices because it has both desktop and mobile applications. BitPay is an HD wallet, which means that it features a series of key pairs generated from a random seed. With their help, the software provides great manageability and high security.
This hot wallet is popular with crypto users due to the possibility to store more than 100 different cryptocurrencies, including Bitcoin, Ethereum, Litecoin, and DOGE. It’s also possible to exchange your digital assets in Exodus. The simplicity and professional customer support make this wallet a perfect option for beginners.
4. Trezor Model T
Trezor offers devices with the best security features and a variety of supported cryptocurrencies – for example, Model T accepts 1,600 different coins. It is a luxury device with a color touchscreen. Plus, it’s very easy to set up and use. The only drawback of the Trezor Model T is its relatively high price.
This hot wallet is an ideal option for mobile users. It provides the perfect management of your cryptocurrencies and supports Bitcoin, Ethereum, and ERC-20 tokens such as Tether, Wrapped Bitcoin, and others. Mycelium also has a built-in exchange and hardware wallet support feature.
Cryptocurrency taxation directly depends on your country. Nowadays, counties like the US consider cryptocurrencies as property. All taxpayers who live in such countries must report their Bitcoin transactions. At the same time, governmental organizations also pay attention to exchange databases to keep an eye on the users who are making money on Bitcoin.
In some cases, your cryptocurrency tax rate may depend on the type of your investment. For example, short-term investments have higher taxes than long-term ones.
Bitcoin Learning Recap 2
So, now you know the most important events in BTC history and how to start investing in Bitcoin. Please, remember the following information to trade your cryptocurrencies without any trouble:
Bitcoin halvings happen every 4 years to avoid inflation and regulate the rate at which new BTC units enter circulation.
You can buy Bitcoin on an exchange, P2P platform, and Bitcoin ATM.
Opt for cold wallets if you want to make long-term investments.
Never share your private key with other users.
Never forget your wallet’s seed phrase.
Pay attention to your country’s attitude to cryptocurrencies to determine whether you should pay taxes for your digital assets.
Bitcoin Use Cases
Bitcoin opens different possibilities for modern users. With its help, the financial industry can deal with such serious problems as the total control of the central banks over fiat currency. This part of our guide will show you how Bitcoin can be used and all of its advantages compared to fiat currencies.
Fiat Currencies and Inflation
Fiat money isn’t linked to physical reserves. Thus, it may lose value due to inflation. Moreover, fiat currencies may become useless in case of hyperinflation. A similar situation happened in Hungary after WWII. Then the monthly inflation rate was 41.9 quadrillion percent. In addition, there is a risk that people will just stop using a nation’s currency, which will lead to its loss in value.
Fiat currencies are also largely controlled and easily manipulated by central banks. For instance, they control how much money is printed as well as set their daily reference rates.
A great example of such manipulation happened on August 5, 2019. The People’s Bank of China set the daily reference rate of yuan above ¥7 per dollar. It significantly depreciated the Chinese currency and made Chinese exports cheaper. The actions of People’s Bank led to global markets’ sell-off, which caused significant losses for many companies such as American Express, Intel, and IBM.
Bitcoin aims to solve the mentioned problems and risks. First of all, it’s designed to resist inflation due to limited supply and regular halvings. Also, Bitcoin is a decentralized cryptocurrency, which means that there is no central authority able to manipulate it.
Store of Value
A store of value is an asset that is able to retain its value over time. In case a person buys a reliable store of value, they may be sure that its value won’t depreciate in the future.
There are several reasons why Bitcoin is one of the best ways to store your wealth:
Scarcity. The limited number of bitcoins ensures that there won’t be more than 21 million units.
Fungibility. It means that all bitcoins are indistinguishable.
Divisibility. The ability to split into smaller units is important for a store of value. And each bitcoin consists of millibitcoins, microbitcoins, and satoshis.
Elimination of Intermediaries
Right now, such financial institutions as banks play the role of middlemen between the sellers and buyers. As well as the majority of other cryptocurrencies, Bitcoin aims to eliminate the intermediaries, which will lead to lower transaction fees. It also may reduce or even totally remove some governmental institutions responsible for financial administration.
Cross Border Remittance
The average percentage transaction fee for cross-border remittances is nearly 6.51%. Moreover, this number may reach even 11% if a transaction is conducted through banks. In addition, international payments may take 3 days. Meanwhile, we have Bitcoin, which operates globally and offers relatively fast transaction time with significantly lower fees.
Bitcoin as Legal Tender
Legal tender is the definition of money that is legally valid and may be used to pay debts or purchase different goods and services. Some countries are trying to turn Bitcoin into a legal currency. For instance, El Salvador has already become the first country to accept BTC as legal tender. Unfortunately, other countries haven’t given Bitcoin or any other cryptocurrency this official status.
At the same time, BTC trading is allowed in such countries as the US, India, the UK, and Canada. Furthermore, they are looking for possibilities to make Bitcoin a legal currency by creating special committees. However, there are several governments, which make a stand against cryptocurrencies. For example, China is one of these countries.
Bitcoin Learning Recap 3
As you can see, Bitcoin stands a strong chance to improve the whole financial industry due to the variety of benefits:
Bitcoin can resist inflation and avoid the manipulations caused by governments or financial institutions.
BTC is a reliable store of value due to such features as scarcity, fungibility, and divisibility.
Bitcoin can eliminate intermediaries like banks in financial transactions. It’ll lead to lower transaction fees.
BTC operates globally and offers international banking operations with relatively fast transaction times and low fees.
In 2021 El Salvador became the first country to accept BTC as legal tender. Other countries such as the US, Canada, and the UK also trying to make Bitcoin a legal currency.
Dangerous websites. There are many sites set up to resemble popular platforms. They encourage the visitors to make payments and steal their money or bitcoins. If you want to avoid shady websites, pay attention to their URLs. If they don’t use SSL encryption and there is no HTTPS, you should think twice before making a deposit.
Unreliable tweets and social media posts. On Twitter and Facebook, it’s possible to come across dangerous bots that promote links to tricky exchanges. Always check out the source that posts the link and never replies to it just because other users do it.
Trick emails. Cryptocurrency companies regularly send emails to various crypto enthusiasts. However, fraudsters may also use fake emails to steal your money. To avoid this, you should always pay attention to the logo of the email. Besides, you may get in touch with the company’s customer support to find out whether they’ve sent you a message.
In addition, crypto investors face high Bitcoin market volatility, which is used to calculate the Bitcoin fear and greed index. Nonetheless, it’s important to understand that such volatility is a usual component of any financial market in an early growth phase. Thus, with greater adoption of Bitcoin and the development of its derivatives, its volatility will decrease.
Summary of CryptoBite Bitcoin Guide
Bitcoin has come a long way from its release in 2009. Inspired by such projects as DigiCash, Bit Gold, HashCash, and Flooz, its creator, Satoshi Nakamoto, managed to form a new financial system. When Nakamoto left the project, its idea was supported by different enthusiasts, including Hal Finney and Marti Malmi.
Due to the secure blockchain technology, Bitcoin works perfectly. Its miners ensure the introduction of new blocks in the blockchain, and BTC halvings protect the cryptocurrency from inflation.
Also, it stands to note the importance of Bitcoin forks. Although none of them is as popular as the original Bitcoin, there are such interesting options as Bitcoin Cash. If you want to invest in other coins apart from BTC, it may be a wise decision to consider them.
And, of course, you’ll need to find a reliable exchange to start trading bitcoins. However, you may also pay attention to different P2P platforms and ATMs. But don’t forget to make sure that the website or trader you’ve chosen has a good reputation.
You’ll also need a crypto wallet to store your digital assets. Opt for hot wallets if you want to trade your cryptocurrencies regularly. At the same time, use cold wallets if you want to make long-term investments and ensure 100% protection of your funds.
By the way, if you don’t know which wallet to choose, you can select the options from our list. Finally, discover your country’s attitude to Bitcoin trading and taxation.
Satoshi Nakamoto developed a great concept. His Bitcoin can solve such financial issues as inflation and expensive international transactions. It can also become a great store of value as well as eliminate the intermediaries, which will lead to lower transaction fees. Plus, there is a possibility that not only El Salvador but other countries such as the US and the UK will accept BTC as legal tender.
Although there are problems caused by fraudsters, a careful crypto investor can easily avoid them by following simple tips. And if you are afraid of Bitcoin’s high volatility, remember that there is nothing extraordinary about it. Furthermore, according to Bitcoin price prediction, its value will continue rising.
We hope that this guide will stand you in good stead. If you want to discover more about other cryptocurrencies, please check out another guide prepared by CryptoBite. Plus, you can sign up for our mailing list to stay informed of the latest crypto news.
As with everything in life, there is always evolvement as the years go by, and the currency industry is certainly not excluded from that. You see, with the fantastic advancement in technology, the idea of having money in physical form seems like a constant tie to the 17th century.
Now, although physical money is still utilized heavily worldwide, and will probably continue to be, there has been an attempt to bring the use of currency into the modern era. It is known as Bitcoin, and although people generally picture glistening coins on a screen in their mind, it’s just a brilliant piece of software.
Essentially, it’s a virtual form of currency consisting of a multitude of protocols, which allows you to make transactions on the web anonymously. Most people are entirely unaware of how it all works, which is why we’re going to explain it to you.
Bitcoin does not operate individually; it works in harmony with the renowned Blockchain technology. Despite Blockchain being incredibly versatile in the way it stores information and powers different software, it focuses solely on transactions when used for Bitcoin. The way transactions appear in the Blockchain is with numbers and letters, and it can almost be considered as a never-ending list.
How Bitcoin Works Examples
For instance, if you wanted to send some money to your mother safely, quickly, and anonymously, all you’d have to do is acquire her public key. Once you’ve got that, you’d verify your identity and then send her the desired amount of Bitcoin. Following that, Bitcoin could be accessed by using a wallet, which is basically a set of keys. Nowadays, most people use a Bitcoin exchange to host their wallets on a convenient platform.
But, even though you and your mother would know you’re sending the virtual currency, if someone was to look at the Blockchain, they might see something like – ’19Fir42eP8azO0sHH5tq8q91ia77sW2vG5 sent 1.10856330 to 15Jo3xz94Pd1Sb7rt01aW2qAa68m1h33Ez on December 5, 2017, at around 21:15′.
Moving on, a distinct feature of the way Blockchain works is that it is extremely secure, and as you’re not displaying your identity, it’s very hard for you to be targeted by a cyber-attack. Also, the Blockchain ledger that all transactions are directed to is completely accessible to the public, which means that it’s immensely difficult for someone to tamper with or alter it.
How Bitcoin Works Conclusion
All in all, Bitcoin works through superbly constructed software that stores transactions on Blockchain technology and can then be accessed through an encrypted virtual wallet. So, rather than sending money, you’ll be sending multiple lines of code in place of it.
Bitcoin can seem like a financial concept made in a parallel universe to most people. Yes, it’s a complex and complicated concept, but it doesn’t mean it’s impossible to learn.
Many people started investing in Bitcoin without any understanding of how the blockchain worked. If you were to track them down you would probably see they are trading in various other cryptocurrencies like pros. They may also be profiting very nicely now that they have a better understanding. In this article, I will try to simply explain the process using a betting analogy.
Bitcoin Explained In Simplicity
Let’s pretend that you want to play a betting game with some friends but no one has any money on hand. You decide that everyone will keep a ledger so that you can track winnings and losses. You don’t want to put your trust in one friend to record everything, so many of you decide to make a ledger simultaneously.
This way, at the end of each game, those who kept ledgers can compare their records to see if it all evens out. By multiple people keeping up with ledgers it would be virtually impossible to cheat the system. Each ledger contains its own record of the betting game with the wins and losses.
The ledger is not hidden or exclusive to the ledger keepers; you can view it anytime you want. To add your transactions to the ledger, all you have to do is broadcast your transactions to the ledger keepers, and you pay as little or as much as you want to make sure they put your name down on that ledger as soon as possible.
Your friends who keep the ledgers up to date will receive compensation for their hard work with a reward in the form of money. This money comes from an external source—say, a vault with a limited amount of money. The money in the vault wasn’t part of the money circulating in the betting pool, but it became so once it was acquired by your ledger-keeper friends.
This simple analogy is exactly how Bitcoin operates, albeit on a much more complicated level. Bitcoin runs on a global computer network, and each transaction is compiled into new blocks, which are then connected to the last block on the blockchain. And the bitcoin miners are the ledger-keepers who work hard to record transactions and mine those precious bitcoins.
How Bitcoin Works Conclusion
I hope that this post helps you to have a better understanding of how Bitcoin works and gets you started before the mass adoption.
As institutions, corporations, countries, and more buy into Bitcoin, the cryptocurrency is beginning to transition from a speculative asset to a macro financial asset much like gold, oil, and others. But before that happens, the top cryptocurrency by market cap is mimicking Jesse Livermore’s “speculative chart” with incredible accuracy and precision.
If this rare chart pattern referred to as a Livermore Accumulation Cylinder continues to play out, the Bitcoin bull cycle is about to come to a dramatic climax. We’re also taking a deep dive into the legendary life and untimely death of Jesse Livermore himself.
Bitcoin price action has been up and down – literally and figuratively. After setting a new all-time high, rather than blasting off to $100,000 or more where the bull market is projected to end, the cryptocurrency fell back to retest lows around $53,000.
The gyrating price action has put the king of cryptocurrencies into a wedge-like pattern with a broadening mouth. It also closely mimics that of a Livermore Accumulation Cylinder.
The chart above layers BTC price action since the April high was put in through today. If the pattern is valid, an enormous amount of speculative volume could suddenly appear, pushing Bitcoin and other cryptocurrencies to more dramatic highs, and likely the climax of the current market cycle.
Before you write off “Livermore’s Speculative Chart,” juxtaposing the 2017 bull run over the same cylindrical price action below follows the rest of the pattern – even going full parabolic the moment the eight phase of the chart takes place. At nine, the rally is nearly out of steam, and at ten, things begin to teeter bearish.
Who Was Jesse Livermore: Reminiscing Over A Legendary Stock Operator
But who was Jesse Lauriston Livermore and why should be believe his chart pattern might still work today – some 80 years after his death? According to Wikipedia, Livermore is a “pioneer of day trading.”
“In a time when accurate financial statements were rarely published, getting current stock quotes required a large operation, and market manipulation was rampant, Livermore used what is now known as technical analysis as the basis for his trades. His principles, including the effects of emotion on trading, continue to be studied.”
Livermore’s short position ahead of the Wall Street collapse of 1929 was legendary, earning him the title the “greatest trader to ever live.” His legend doesn’t end as a happy one, however. Nor does it begin that way.
He grew up in Massachusetts, forced out of school by his own father. With his mother’s support, he ran away. At age 14, he worked as a board boy posting quotes at a Boston-based brokerage. By age 20, he had made 1,000% ROI and was banned from nearly every Boston-area bucket shop due to his significant and regular winnings. Livermore was forced to wear disguises and take on fake names to continue to trade.
Livermore later was the basis for the main character of the best-selling book by Edwin Lefèvre, Reminiscences of a Stock Operator.
During the panic of 1907, his short positions earned him more than $1 million in a single-day. His mentor at the time, J. P. Morgan, plead with Livermore to stop short-selling – to which he agreed, and instead profited from the rebound. He earned the reputation as the “Great Bear of Wall Street” and was personally blamed for the crash – even receiving death threats and needing to hired armed bodyguards.
Back then, this sort of wealth was rare. Livermore owned a $200,000 yacht, for example. But following this 1929 stock market crash, Livermore’s mental health deteriorated. His wife had shot his son, but not fatally; he had an ongoing lawsuit from a Russian mistress; and several bankruptcies.
In 1934 the United States SEC imposed new rules that supposedly impacted Livermore’s trading and he lost his entire fortune. He died on November 28, 1940 from a self-inflicted fatal gunshot wound leaving a handwritten note to his wife apologizing. His son, Jesse Jr. also died by tragic suicide, as did his grandson.
Institutional investors had FOMO’d into bitcoin with the release of the first Bitcoin ETF. This enthusiasm quickly died down the week following the approval as trade volumes plummeted. The record opening was quickly replaced by lackluster momentum that saw institutional investors pull out of the market, likely owing to the asset touching a new all-time high and traders taking gains.
institutional Bitcoin open interest had skyrocketed with the price, signaling the entrance of big money into the market. The run-up had lasted until the very end of October. Open Interest saw its peak on October 29th. But since then, institutional bitcoin open interest has been on the decline, thanks to dying interest in the bitcoin ETFs. Now the market looks towards Spot Bitcoin ETFs as open interest dies down.
institutional Bitcoin Open Interest Declines
institutional bitcoin open interest had grown a whopping 185% in October alone. The approval of the ProShares Bitcoin Futures ETF had been the major push behind it. Traders had massively betted on the success of the ETF and their bets had paid off as the ETF saw more than $1 billion in trading volume in the first two days alone. Open Interest had climbed in this period.
Open Interest has however declined in November. Although bitcoin has done well at the beginning of the month, institutional interest has not followed this trend. Instead, the CME has seen declining volumes for the month of November.
Open Interest on the CME had hit $5.9 billion but quickly declined down to $4.8 billion. Subtracting the contribution of the ProShares ETF to this volume, the number drops significantly to $3.4 billion.
Open Contracts Drop On CME
Open contracts on CME have also recorded a decline in recent times. The number of open contracts on the CME has dropped significantly from its peak on October 25th. However, this decline has not been replicated across other markets.
BITO has seen a surge in open contracts. While open contracts on the CME have declined by 32% since October, the number of open contracts in BITO has hit a record high. Presently, there are 4,139 open contracts, representing a new all-time high.
Subtracting the BITO open contracts from the CME open contracts sees a 45% decline in open contracts since October. This suggests that institutional investors are reducing their activities in the market and are not as involved with open contracts.
Binance Open Interest On The Rise
Bitcoin Open Interest in Binance has been growing lately, a direct opposite of what has been witnessed with open interest on CME. Open Interest on the crypto exchange hit a new all-time high in November. Open Interest had peaked on Binance in April at $5.2 billion. Now, open interest has grown on the platform from to new high of $6.7 billion.
The clamor for more exposure to BTC on the part of institutional investors has now died down. It is apparent now that trades made in the Bitcoin Futures ETF were mostly short-term and now those traders have pulled out of the market after taking profits.
Featured image from CNBC, chart from TradingView.com
Although Bitcoin has been around for years, it’s only in recent times that it’s started to take the world by storm. The popular technology, which doubles up as a decentralized payment network and a type of cryptocurrency that has exponentially grown in usage, popularity, and price, but why?
Some may say it’s because everyone is jumping on the bandwagon. Others may point towards the increased exposure in the media, but there’s no denying that it’s spreading like wildfire. The value of Bitcoin is now well into the thousands, which demonstrates exactly how quickly it’s progressing.
Here are some of the biggest reasons behind the staggering rise in popularity.
Comprehensive Security Measures
When it comes to purchasing something online, you desire the peace of mind of knowing a hacker will not exploit you. With conventional forms of payment, such as credit and debit cards, you’re always going to be vulnerable to fraudulent activity due to inputting your details. That’s why more and more people love Bitcoin; it allows you to make transactions securely because of the strong encryption that the technology possesses. Also, since none of your personal financial information is connected to it, your identity can’t be stolen.
More Recognized Globally
Ironically, a vital component of the popularity incline is the fact that there is a popularity incline. You see, when something spreads to a broader audience, it is perceived to be more legitimate, and that’s when more people feel comfortable enough to get involved. Plus, a much larger number of stores and businesses accept Bitcoin now, which has also helped.
This one links back to the security factor, as the ability to avoid giving away your identity reduces the risk of being cyberattacked. As Bitcoin links with a public ledger, malicious individuals are less likely to tamper with anything. But, public information warrants anonymity in most people’s minds; this element has undoubtedly fueled the rise in popularity.
Quick and Efficient with Transactions
Modern society is extremely hectic, which is why people deeply appreciate something fast, simple, and seamless. So, as transactions that complete using Bitcoin are quick and efficient, people throughout the world have been more enticed to get on board with the digital currency.
Fantastic Investment Option
Lastly, so many people are investing in Bitcoin these days because the value is continuously rising. Even though there is a degree of risk to any investment, that still hasn’t prevented people from selecting the virtual currency as their preferred choice of investment. The more people that invest, the more the platform spreads and becomes common knowledge.