Bitcoin for Beginners: The Definitive Guide [2020]
Although Bitcoin and cryptocurrencies have been around for over 10 years now, it’s really been the last few years that the popularity of these new financial assets have taken off.
Traders from every country in the world today are joining the cryptocurrency market and learning about how to profitably buy and sell bitcoin, with all of the nuances relating to that that need to be learned.
And while there is a large amount of information online relating to bitcoin trading for beginners, there is also a lot of misinformation which is more relevant to years ago when it was written, and is now largely outdated.
It’s because of this that we’ve created this guide which is breaking down Bitcoin for beginners, starting off by taking a look at exactly what Bitcoin actually is, before moving on to looking at a number of different ways to generate an income with Bitcoin, strategies for Bitcoin trading, and also a list of some of the best trading platforms online for Bitcoin trading and investment.
What is Bitcoin?
Who Created Bitcoin?
Bitcoin was created in 2008 following the global financial crisis, and many suspect as a result of that catastrophe taking place.
The creator of Bitcoin, and the entire concept of cryptocurrencies, is a mysterious and anonymous group or individual known as “Satoshi Nakamoto”.
Nakamoto created the concept of what Bitcoin would become, as well as explaining the fundamental technology that allowed it to function, known as “blockchain”.
As well as penning the document that would explain to the world what Bitcoin was, known as the Bitcoin Whitepaper, Nakamoto also set up a number of communities dedicated to this new financial asset class, as well as finding the early adopters of Bitcoin and its initial core developers.
At some point in 2010, Nakamoto decided to cease contact with those that were involved in the development and management of Bitcoin, as well as cutting connections with the Bitcoin community that they had founded, and since then until now no one has heard anything from Nakamoto.
Although there have been suspicions about who Nakamoto actually is, as well as there being some dubious claims from individuals suggesting that they are in fact the creator of Bitcoin, to date nothing has been verifiable in relation to discovering who Satoshi Nakamoto actually is.
How Does Bitcoin Work?
As we touched on before, Bitcoin runs on a technology known as blockchain which was created by Nakamoto and introduced to the world in their revolutionary research paper in 2008.
Although there have been a number of critics of cryptocurrency in general, as well as the ability for people to use cryptocurrency for nefarious purposes, there has been overwhelming support and adoption of blockchain as being a truly revolutionary new way to store and share data securely.
Although Bitcoin is by far the most famous example of a digital currency, there have in fact been dozens of previous attempts at creating digital currencies that go back as far as the 1990’s.
Unlike bitcoin however, almost all of these attempts failed catastrophically, with one issue being predominantly responsible for the majority of these failures.
The problem with all previous attempts at creating digital currencies was that they were centralized in nature, being that the entire network was stored on either a single server or within a single location, and this allowed regulators and governments to be able to dismantle the network easily.
In stark contrast to this, Bitcoin was created to be a decentralized payments network, being that there is no one single computer or location where all of the code that runs Bitcoin is stored.
Instead, the Bitcoin blockchain, or record of all transactions and ownership of Bitcoin around the world, is stored concurrently on thousands of different computers, and is updated across the network as new additions to the blockchain are made.
This ensures that it is near impossible for any government or other institution to shut down Bitcoin or other cryptocurrencies.
How Do Most People Interact with Bitcoin?
Most common way for people to use Bitcoin is by trading on cryptocurrency trading platforms and exchanges, where the volatile and speculative nature of Bitcoin and other cryptocurrency may be exploited in order to generate profit.
Although a large number of payments made around the world are using Bitcoin, and that Bitcoin can function very well as a payment system, undoubtedly there are a much higher amount of transactions made each day that relate to the purchase and sale of bitcoin with the intention to generate profit than any other method.
This has been consistent throughout the life of Bitcoin, with trading platforms providing the main way for Bitcoin holders and investors to interact since as far back as 2010.
In a number of market research studies conducted on Bitcoin users, results have shown reliably that almost 100% of participants that have some experience with the use of Bitcoin have at some point traded the cryptocurrency as well.
Why Do People Use Bitcoin?
What are the Use Cases of Bitcoin?
Although trading Bitcoin is the most common way to interact with it, there are actually a wide range of use cases and reasons that people use Bitcoin, as well as ways that they interact with it.
One of the more common ways that people have used bitcoin throughout its lifetime is as a way of making private transactions based upon Bitcoin’s pseudo-anonymous nature.
While a large percentage of this is surely in relation to criminal activity, people underestimate the size of the demand for Bitcoin within legal use cases where individuals simply would like to keep their transactions private.
As a good example of this, there are many organizations that operate in countries with authoritarian governments where the censorship of information and the control of financial transactions limits their ability to receive funding from others, with Bitcoin having provided a simple and reliable way of getting around this.
Another major use case of Bitcoin globally is as a form of international remittance, particularly where people are working away from their home country and are sending funds back to their family.
The fact that Bitcoin is substantially cheaper than other options, often faster, and permissionless (i.e. anybody can use it without requiring to provide legal documents), means that this has been an attractive choice for many who’ve been using other methods for International remittance.
Will the Value of Bitcoin Always Increase?
Talking in absolutes is always a less desirable way of addressing questions like this, and therefore saying that Bitcoin will always increase in value is likely to be an incorrect way of tackling it.
Perhaps a better way of looking at this is from a probability point of view, with there being a high probability that at least over the short-to-medium term of 5 to 10 years that Bitcoin will continue to increase in value.
The reason for this is often overlooked by people that don’t have a deep enough understanding of the mechanics behind how Bitcoin works, however there is a simple process within the coin is self that has continually provided an upward pressure on price over time.
Every 4 years, the supply of Bitcoin is cut in half and a process known as the “Bitcoin halvening”, and what this means is that over time the supply of Bitcoin is continually being restricted.
As well as this, as Bitcoin grows and penetrates deeper into the mainstream, the number of users is continually increasing, and what this means is that at the same time demand is ever-increasing, supply is always being decreased, and the effect this has on the price of Bitcoin is for it to increase exponentially over time.
It doesn’t necessarily mean that Bitcoin’s value will always increase, and that there will never be periods of downturn, in fact throughout the whole of 2018 we saw the value of many cryptocurrencies drop by 90%, and Bitcoin’s value dropped by more than 70%.
However what this does mean is if there is an in built mechanism within Bitcoin that is likely to continually constrict the supply of the asset and this is likely to lead to a continual increase in price over time.
What is Special About Bitcoin?
What makes Bitcoin revolutionary is that it solves not just a single problem, but a cluster of highly complicated cryptographic, mathematical, and financial problems all simultaneously.
It’s this method of solving these problems that has allowed Bitcoin to grow over the last decade, and to become the financial asset that has outperformed every other asset substantially during this period of time.
When you look within the cryptocurrency market itself at what makes Bitcoin special in comparison to other cryptocurrencies, it’s important to understand that there has always been a significant element within the cryptocurrency industry of nefarious activity.
Perhaps more so than any other industry, and surely because of the fact that cryptocurrencies are unregulated, trust has been something which is highly valuable and much more important than in many other industries, in that being able to trust a cryptocurrency is akin to being able to rely on the fact that it will not turn out to be vaporware eventually.
Because of this, and because of Bitcoin’s long track record, substantial focus from industry leaders, and now it’s prominent recognition within the mainstream, Bitcoin is by far the most trusted cryptocurrency available online today.
So no matter what other cryptocurrencies do in the way of performance for their own use cases, there can never be another cryptocurrency that has the same level of trust as Bitcoin, and therefore logically it will secure the lion’s share of speculative investment over the short-to-medium term at least.
How Can Money Be Made with Bitcoin?
Bitcoin Investing
Bitcoin investing is the process of buying Bitcoin with the intention of selling it at some future point for a profit, with the typical duration of the length of an investor’s trade being at least one week and anywhere up to years.
Bitcoin investors typically pay a lot more attention to fundamental factors than traders, such as the overall strength of the cryptocurrency market, the strength of global mainstream financial markets, the sentiment for cryptocurrencies within the media, and developments that are external to the price movements of Bitcoin.
Investing in Bitcoin also typically holds position sizes that are larger than that of Bitcoin traders.
In general, Bitcoin investment is considered to be much less risky than Bitcoin trading, and to require a different set of skills, as well as a different temperament to that of Bitcoin traders, where the pressure that is present is often substantially higher.
Bitcoin Trading
Bitcoin trading is very similar to Bitcoin investment, however where Bitcoin investment is the creation of long-term buy positions, Bitcoin trading is the creation of relatively short-time long and short positions, which still have the aim of generating profit.
Where the position of a Bitcoin investor might last anywhere up to years, a Bitcoin trader’s position could last anywhere as little as milliseconds, and can number into the thousands of trades every day.
Bitcoin trading is typically a much more intense activity in Bitcoin investment, being that the cryptocurrency market runs 24/7 and that often manual traders watch charts for hours at a time.
Although cryptocurrency traders may trade in large amounts, in general, trading is a comparatively smaller activity with lesser quantities of Bitcoin being bought and sold, but with higher number of trades leading to cumulatively higher profits over a comparable period of time.
Bitcoin Mining
All blockchains require something known as a “consensus mechanism” in order to be able to maintain a decentralized network of participants, whilst also having all participants be in agreement as to who owns what and which transactions are legitimate, without having a central party to make that decision.
The two predominant consensus mechanisms are “proof of work” and “proof of stake”, with Bitcoin using the proof of work consensus mechanism also colloquially known as “Bitcoin mining”.
Bitcoin mining is the process of thousands of computers connecting to the Bitcoin network via the internet, downloading the Bitcoin blockchain and other software, and then all racing against each other to try to solve a complicated cryptographic puzzle, which is completed on average once every 10 minutes.
Once one of the computers complete the puzzle, they are rewarded with an amount of Bitcoin, and as well as this they are then able to select the transactions from the Bitcoin mempool which will then be added to the next block.
Throughout its lifetime, Bitcoin mining has been popular as well as being highly profitable, however today it is a different situation to what it was years back where somebody with a laptop would be able to earn hundreds of Bitcoins every day.
Instead now the only two ways to actually be able to mine a Bitcoin are by either joining a large pool of Bitcoin miners that collectively work together, or by setting up a Bitcoin farm, which is typically a warehouse full of powerful and expensive computers working together to mine blocks.
Where are the Best Bitcoin Trading Platforms?
PrimeXBT
PrimeXBT is known for being one of the world’s most innovative cryptocurrency trading platforms, and today has grown in a very short period of time to go from launching, to now managing up to $2 billion worth of global financial trade each and every day.
Unlike many other cryptocurrency trading platforms however, PrimeXBT doesn’t only list cryptoassets but also lists a wide range of traditional financial assets that include stock indices, forex pairs, commodities, and metals.
PrimeXBT is a margin-trading-focused platform and provides some of the industries highest leverage on a wide range of crypto and traditional assets, with leverage of up to 100X being applied to all cryptoassets on the platform, and leverage of up to 1000X being applied to all traditional assets on the platform.
There are a number of other benefits for PrimeXBT users, that include bank-grade security, the lowest fees in the industry of just 0.05% across all trades, as well as a strong focus on privacy — with the platform being one if only a small handful that are fully KYC-free and require only an email in order to set up an account.
Binance
Binance is another of the more recognized major trading platforms online today, and similar to PrimeXBT, Binance has also grown quickly over the past few years.
Binance employs the use of a native cryptocurrency known as the Binance Coin in order to spread exposure for the platform, and to allow traders that hold enough of it to be able to reduce the trading fees by up to 25%.
While on the surface of it this seems like a dramatic reduction in cost for traders, it is important to mention here that Binance’s fees are at the higher end of the industry, and that even with the 25% discount that their fees are still up to 10X more expensive than that of other major platforms such as PrimeXBT.
Saying this, if you don’t mind using a platform that is more expensive, Binance also has a nice interface with an intuitive design, and lists a wide range of cryptocurrency assets.
What are Some Unique Ways of Making Money with Bitcoin?
Bitcoin Faucets
Bitcoin Faucets are websites that give away small amounts of Bitcoin to complete typically fairly simple tasks, with them being highly popular throughout the cryptocurrency industry as a large number of people are constantly searching for ways to get free Bitcoin.
The tasks that users complete on Bitcoin Faucets usually involve something similar to downloading an app, doing some kind of social media action, visiting a website and taking an action there, or other simple and easily repeatable tasks.
For each task users typically earn a very small amount, often less than one cent, however because of the easy repeatability of these tasks when users dedicate hours each day to completing Bitcoin faucet tasks, collectively they can earn a decent amount of money.
While there are many Bitcoin faucet users in developed countries, Bitcoin faucets are particularly attractive to users from developing countries where the typical weekly income rate is much lower, and therefore the value of earning the kinds of amounts you can on a Bitcoin faucet are substantially more desirable.
Bitcoin Referral Programs
Bitcoin referral programs are referral programs that involve payments in Bitcoin, and are extremely common throughout the internet in 2020.
Many different platforms that are involved in the cryptocurrency industry provide referral programs, with some of the more famous ones being PrimeXBT’s now world-renowned 4-tier referral program where users can earn Bitcoin for up to 4 levels of people that they refer to the program.
Bitcoin referral programs are ways for platforms to expand their exposure within the cryptocurrency industry by providing financial incentives to users that use referral codes and other things such as banners in order to publicly post information about a platform, and then provide ways that users can get advantages when signing up to the platform.
Unlike Bitcoin faucets, Bitcoin referral programs often deliver a substantial amount of income, being that payments can be made as percentages of the amount spent by all of their referrals, and if you are referring thousands of people, even if only a small amount per person is being earnt, across a wide number of referrals that can be significant.
Working for Bitcoin
The final way of uniquely earning money with Bitcoin is to complete normal work and ask for payment in Bitcoin.
Particularly within a number of roles that involve digital marketing and other remote work positions, employers will sometimes be open to the idea of making payments in cryptocurrency.
This could mean that instead of having to earn fiat currency, and then to transfer those funds to a cryptocurrency exchange where you can purchase Bitcoin, you can be paid in Bitcoin in the first place, cutting out the need for the transfer process.
Working for Bitcoin can be a great way to build a collection of the world’s #1 cryptocurrency, while being paid in a cryptoasset that overtime is holding or increasing in value.
In Conclusion
All traders in the cryptocurrency market, no matter how experienced they are today, have started out as beginners at one point or another.
The advantage that new traders have when entering the cryptocurrency market in 2020 is that there is a veritable buffet of information available about how to buy and sell Bitcoin, and the various different ways to profit from cryptocurrency.
One of the most important considerations for any new trader is to research and understand the kinds of trading platforms that are available, and to select one that provides the maximum likelihood of high profit generation with the most likely reduction of risk simultaneously.
The platforms that we have listed represent the top tier of Bitcoin trading platforms available in 2020, and should be your first port of call if you are searching for somewhere to trade online.
