What is Bitcoin?
Bitcoin is a cryptocurrency. It’s a digital currency that’s created and stored electronically and is based around a complex and revolutionary new data sharing technology called blockchain. It was created by an unknown person in 2009, who went under the alias Satoshi Nakamoto. In this guide, we’ll take a detailed look at what bitcoin is and how you can trade bitcoin CFDs with ADS Securities.
Bitcoin: What is it?
Bitcoin is used to create an electronic payment system. Nakamoto’s idea for bitcoin was to create a currency that could be independent of all centralised regulation. Instead, data could be shared in such a way that no middle men were required to authenticate and process transactions. Due to the fact that this process occurs independently of banks, bitcoin has the potential to be transferred without any transaction fees.
No single person controls the bitcoin network, and they’re not printed like dollars, euros or GBP. Instead, they’re produced (or ‘mined’) by people and businesses. This is done by computers using software to decode complex mathematical problems.
This means that bitcoins are not produced by a central bank, like paper money is. All bitcoins are ‘mined’ digitally by an online community. Anyone can join this network and can then ‘mine’ bitcoins using computer power, or simply buy bitcoin from an individual or broker at the current exchange rate. Whereas central banks can simply print more money (which devalues their currency), there are a finite number of bitcoins.
The bitcoin protocol states that only 21 million bitcoins can ever be ‘mined’. Each bitcoin can be divided into smaller parts, much like how dollars can be split into pennies, nickels, dimes and quarters. The smallest amount a bitcoin can be divided into is one hundred millionth of a bitcoin. This is known as a ‘Satoshi’, after the founder of the cryptocurrency.
Why do People Prefer Bitcoin to Paper Currencies?
- It’s anonymous – one person can hold multiple bitcoin addresses, and no personal information, such as real names, addresses or payment details are required, which provides anonymity.
Instead, details are held on the blockchain, which contains every transaction ever made on the bitcoin network. This states how many bitcoins are stored at bitcoin addresses, it just does not reveal who owns these bitcoins.
- There’s no central exchange – Each computer that ‘mines’ bitcoins and processes transactions becomes part of the bitcoin network, with all the connected machines working together. This means that, unlike paper money, there’s no central authority that can change the rate or impact on monetary policy, such as the Bank of England, which can influence the value of GBP through announcements and policies and interest rates. This also means that, should part of the network go down, money and bitcoins will still continue to flow between devices.
- Smaller costs with fast execution times – money can be sent anywhere in the world and normally settled in near to real-time. All you need to do is wait for the bitcoin network to process the payment. Whereas you may pay a large fee with your bank for an international money transfer, this isn’t the case with bitcoin. You’d only have to pay a transaction fee if you used a broker, and this would usually be much smaller than a bank transaction fee.
Trade CFDs on Bitcoin with ADS Securities
At ADS Securities, you can speculate on the price of bitcoin by trading CFDs. Bitcoin is particularly susceptible to macroeconomic indicators and current affairs, making it at times a volatile currency to trade with and providing many trading opportunities. Thanks to the current geo-political situation, we’ve seen huge fluctuations in the price of the cryptocurrency.
With CFD trading, you can go long or short on the price of bitcoin, speculating on upwards and downwards trends and benefitting from the leverage. When you open a CFD position, you trade on whether the price of the bitcoins will rise or fall in value in relation to the US dollar. This means that you never actually own the bitcoins. If you trade in line with the markets, you will profit; if not, you will make a loss.