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Should You Invest In Bitcoin?
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Bitcoin (BTC), often called the pioneer of cryptocurrencies, was created by Satoshi Nakamoto, an anonymous individual or group, in 2009. It operates using a decentralised ledger, called the blockchain, which records all transactions transparently and securely.
Unlike traditional fiat currencies, the Bitcoin network is decentralised, meaning that it is not controlled by any central authority, such as a government or bank. Instead, it relies on a distributed network of computers, known as nodes, to validate and record transactions.
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What is Bitcoin?
Bitcoin offers several key features. It utilises blockchain technology, which facilitates peer-to-peer global transactions, eliminating the need for third-party intermediaries. Bitcoin's limited supply, which is capped at 21 million coins, makes it a unique store of value, often compared to precious metals. Its decentralised nature provides resistance to censorship and offers users increased financial autonomy. To learn more about Bitcoin, take a look at our "What is Bitcoin?" article.
How does Bitcoin work?
Bitcoin's operation can be divided into two key components: blockchain technology and bitcoin transactions.
Blockchain
- Decentralised ledger: Bitcoin operates on a decentralised ledger called the blockchain: a chain of blocks containing data relating to bitcoin transactions.
- Mining: Miners, using specialised software, validate and add new transactions to the blockchain through a consensus mechanism called “Proof of Work”.
- Security: The blockchain's decentralised nature ensures security and immutability. Once a transaction is added to a block, it is secured using cryptography and becomes almost impossible to alter.
Transactions
- Digital wallets: Users need a digital wallet to send, receive and store Bitcoin. Each wallet has a public address, similar to an account number, and a private key, like a password.
- Initiating transactions: To send bitcoin, a user initiates a transaction by signing it with their private key. This digitally signed transaction is then broadcast to the network.
- Verification: Miners on the network verify the transaction's validity by confirming that the sender has the necessary bitcoin to send, and that the private key is legitimate.
- Inclusion in blocks: Valid transactions are included in a block by miners. These blocks are then linked to the previous block in the chain.
- Confirmation: Several subsequent blocks are added to the blockchain to confirm the transaction's permanence. The more confirmations, the more secure the transaction.
How can I buy bitcoin?
Bitcoin has also attracted investors interested in diversifying their portfolios and hedging against inflation. Bitcoin’s price history has seen significant fluctuations, including rapid gains and sharp corrections.
To purchase bitcoin:
- Create an eToro account: Sign up for an eToro account and verify your identity.
- Deposit funds: Deposit funds into your eToro account using your preferred payment method.
- Search and purchase: Use eToro's search feature to find the Bitcoin (BTC) page and place an order to buy it.
Bitcoin’s value proposition lies in its scarcity and security, as well as its potential to serve as a store of value. While Bitcoin's future is uncertain, it has undeniably paved the way for the broader adoption of cryptocurrencies and blockchain technology across a variety of industries.
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