Bitcoin is credited as the original and most well-known cryptocurrency. It was created by a person or group of people under the name Satoshi Nakamoto in 2009 and was intended to be used as a method of payment free from government supervision, transfer delays or transactions fees. However, bitcoin is not yet widely accepted for all transactions as some consider them too volatile to be a suitable method of payment.
Bitcoin relies on two underlying mechanisms in order to function – the blockchain and the mining process.
What is the blockchain?
The blockchain is a shared digital ledger which holds a record of all bitcoin transactions. Each cryptocurrency transactions are grouped together into ‘blocks’ by miners. The transactions are then cryptographically secured before they are added to the existing blockchain. Each ‘node’ or computer connected to the network automatically downloads a copy of the blockchain which allows everyone to track transactions without the need for central record keeping.
The blockchain is accessible to everybody at any time. The shared record can’t be changed without the agreement of the rest of the network.
What is mining?
Mining is the process of attaching new transaction records as blocks to the existing blockchain. Once a block is secured, new units of cryptocurrency known as ‘block rewards’ get credited to the miner. Miners can inject these units directly back into the market. Due to their crucial role in the process, miners can exert ownership of their bitcoin within the blockchain.
When you buy bitcoin on an exchange, the price of one bitcoin is usually quoted against the US dollar (USD). In other words, you are selling USD in order to buy bitcoin. If the price of bitcoin rises you will be able to sell for a profit, because bitcoin is now worth more USD than when you bought it. If the price falls and you decide to sell, then you would make a loss.
With CMC Markets, you can trade bitcoin via a CFD account. This allows you to speculate on bitcoin price movements without owning the actual cryptocurrency. You aren’t taking ownership of bitcoin. Instead, you’re opening a position which will increase or decrease in value depending on bitcoin’s price movement against the dollar.
Open a long or short position
CFDs allow you to trade on both rising and falling prices.
Efficient use of capital
Leveraged trading means you only deposit a small percentage of the full value of a trade in order to open a position. Remember that both profits and losses will be magnified, and you could lose more than your deposit.
No exchange account or bitcoin wallet
Unlike trading the underlying bitcoin, there is no need to open an exchange account or bitcoin wallet to hold the bitcoin you have bought. This means no waiting for approval from the exchange, no concerns about keeping your wallet secure, and no fees if you want to withdraw funds later.
Trade with an established provider
CMC Markets is a regulated provider. We have over 28 years of experience in the industry and also offer support for all our clients whenever the markets are open.
Bitcoin’s volatility is driven by many factors, including: