Get to grips with the basics of how to trade bitcoin with our step-by-step guide.
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Bitcoin works as a ‘crypto-currency’ (instead of existing in physical form) and is a decentralised payment network that allows the transfer of money via cryptography. Over the past couple of years bitcoin has gained increasing prominence amongst consumers, governments and financial traders.
Instead of being controlled by a central authority, bitcoin’s cash flow and transactions are instead taken care of by the network. People devote computing power to processing and securing bitcoin payments, and in return for doing so can be paid in the form of newly minted bitcoin. As such, no single person or institution can govern where bitcoins are transferred to, or how many bitcoins are in circulation. For more information, see how to trade bitcoin.
The lack of a need for a physical presence means that bitcoins do not actually exist in any individual form – except for a few instances where companies have made ‘physical’ bitcoins. Rather, bitcoin works as a public ‘ledger’, with physical currency being replaced by a constantly updated account of every transaction ever made. That public ledger is referred to as the block chain.
Bitcoin is often referred to as a ‘crypto-currency’, describing its basis in mathematics instead of traditional financial theory. The idea for a crypto-currency was first proposed by Wei Dai in 1998 on the cypherpunks mailing list, a discussion forum that believed in the use of cryptography to generate social change and increased privacy in communication. It took ten years for the idea of bitcoin to become realised however, this time by Satoshi Nakamoto in another cryptography mailing list.
Satoshi outlined the first specification and proof of concept for bitcoin, but left the project in 2010 while remaining anonymous (it isn’t even known whether Satoshi is a single person or a group of people). Their prominence in creating bitcoin but lasting anonymity has led to plenty of speculation on who Satoshi Nakamoto might be. It has also raised concerns about bitcoin’s legality and legitimacy, all of which have been rebuffed by the bitcoin community. It is estimated that Satoshi may have one million bitcoins in their possession, which at certain points in 2014 would have made them a billionaire.
Bitcoin’s development carried on without Satoshi’s input and by 2013 the currency had reached global prominence.
Alternatives to bitcoin
Bitcoin was the first crypto-currency, but since its inception hundreds of new competitors and uses for the technology have sprung up. These currencies are referred to as ‘altcoins’, and tend to vary from bitcoin in one or more key aspects:
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All trading involves risk and losses can exceed deposits. Trading CFDs may not be suitable for everyone so please ensure that you fully understand the risks involved. All trading involves risk and losses can exceed deposits.