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What is bitcoin?

The world is crazy for crypto, but to many people, these digital coins can seem like a total mystery. Learn how to get bitcoins and be part of the cryptocurrency phenomenon with our guide below.

Bitcoin definition

First thing’s first – what is bitcoin? As you may know, it’s a digital currency, meaning it doesn’t have a physical counterpart. In this way, bitcoin – and all similar cryptocurrencies, like Ethereum – are very different to the traditional idea of currency. For one thing, there are only 21 million coins in the world, which makes supply and demand a huge feature of bitcoins value, which has exploded since its 2009 launch.

A bitcoin can be bought, sold, and exchanged without needing to go through a bank. Creator Satoshi Nakamoto saw bitcoin as a way to perform daily purchases without needing to involve traditional banks, having been inspired by the 2008 financial crash. As a decentralised currency, bitcoin isn’t backed by the government or a national bank. This means the only thing that is giving it value is the fact that people who trade in it decide that it holds worth, similar to gold. All bitcoin transactions are written into a publicly available ledger – the blockchain – making fraud almost impossible.

How much is bitcoin worth?

The bitcoin to GBP value has enjoyed huge growth since its inception. As of April 2021, one bitcoin is worth around £39,000. Compare that to the original price in 2009, which had a bitcoin to GBP value closer to £1, and the overall success of this innovative currency is clear to see.

Bitcoin is legal, but it isn’t considered legal tender. As such, you should consider things like tax when you build your bitcoin wallet. For example, if HMRC thinks you’re making money off bitcoin, you will be subject to the same corporate taxes that companies face.

How to get bitcoins

Bitcoins can be bought and traded by people who already hold them, but to generate new bitcoins, users need to ‘mine’ for them. This is far from simple.

Bitcoin mining involves solving computational puzzles. These puzzles involve the verification of transactions, which helps improve and consolidate bitcoin security. As each of these blocks of transactions are verified, they become a block in the blockchain. Miners are rewarded for their efforts with bitcoins. This system is expected to continue until 2140, by which time all bitcoins will have been mined, and miners will be rewarded with fees instead.

Mining requires a significant amount of time and sophisticated computer systems. Furthermore, the difficulty level of the problems miners must solve also shifts every 14 days or so, meaning a miner has to constantly shift their approach to solve the next problem.

How to invest in bitcoin

To invest in bitcoin, you will need to join a crypto exchange and get a dedicated bitcoin wallet, both of which can be done online. Much like bitcoin itself, these services are completely digital. To connect your payment option, you will need to provide documents that prove you are who you say you are, including a form of ID and precisely where your funds will be coming from. You can then add your funds. Be careful with the method you choose, as your bank may block a debit card purchase. Credit cards may also incur fees.

Once you are set up, you can buy bitcoins from other users around the world. You don’t have to buy a whole bitcoin, either. Instead, you can purchase a percentage. Once you have bitcoins to your name, you can start to trade them, much like stocks, or you can pay for goods and services just as you would with fiat currency, so long as your chosen retailer accepts them.

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GoCardless (company registration number 07495895) is authorised by the Financial Conduct Authority under the Payment Services Regulations 2017, registration number 597190, for the provision of payment services. GoCardless SAS (23-25 Avenue Mac-Mahon, Paris, 75017, France), an affiliate of GoCardless Ltd (company registration number 834 422 180, R.C.S. PARIS), is authorised by the ACPR (French Prudential Supervision and Resolution Authority), Bank Code (CIB) 17118, for the provision of payment services.