Bitcoin was the first fully-established cryptocurrency out of the hundreds available today, back in 2009. This peer-to-peer digital currency is decentralised from monetary authorities and underpinned by blockchain, allowing for anonymous, nontaxable transactions. It did not take long for the tax regulations to come rolling in for BTC though, and most countries have now introduced tax regulations for not only bitcoin, but all cryptocurrency.
Today, bitcoin is traded both as a currency and as a commodity, due to its sharp rise in value since 2017. In 2011, you could buy one BTC for as little as ten cents. Now, you’re looking at thousands of dollars per bitcoin.
We have sourced and tested the best and most reliable cryptocurrency exchanges where you can invest in bitcoin today to help you make the best choice for your needs
What is Bitcoin?
Back in 2009, a Japanese programmer that goes by the alias Satoshi Nakamoto developed the world’s first cryptocurrency, bitcoin. Today, bitcoin can be used to purchase and sell items and services. An increasing number of companies are accepting bitcoin as a payment method. As with all other cryptocurrencies, bitcoin doesn’t exist as a physical currency. If you choose to invest in bitcoin, you won’t physically own any bitcoin coins or notes. Bitcoins merely exist in digital format.
Unlike national or “fiat” currencies such as the Great British pound or the U.S. dollar, which are overseen by a central bank such as the Bank of England or the US Federal Reserve, bitcoin is decentralised and not regulated by any country or state. Monetary policy controls such as quantitative easing aren’t in play. This means that any fluctuations in the value of bitcoin and price, are mainly due to supply and demand and trust.
Bitcoin has proven to be particularly popular with individuals that don’t like the level of control governments and banks have over their finances. With an open bitcoin network maintained only by volunteer coders, the legitimacy and transparency of each bitcoin transaction is maintained by the public ledger underpinned by blockchain technology.
Why was Bitcoin Invented?
It is believed that the 2008 financial crisis inspired the creation of Bitcoin. Feeling that the centralised banking institutions had repeatedly betrayed the trust of the people, someone writing under the pseudonym, Satoshi Nakamoto released a whitepaper, entitled “Bitcoin: A Peer-to-Peer Electronic Cash System”. The now infamous Satoshi proposed a solution to our dependency on outdated legacy systems by creating a ‘decentralised’ immutable ledger that would simultaneously offer full transparency and anonymity. Many believe that the original vision of bitcoin was to take financial power away from the select few and place it back into the hands of the people.
How does Bitcoin Work?
The owners of each bitcoin within the network are more or less, anonymous. There are no account names, numbers or National Insurance numbers to identify the owner of each bitcoin. Its anonymity was one of the initial attractions to cryptocurrency investors. Bitcoin utilises blockchain technology and cryptography to link buyers and sellers. Each transaction made is a transfer of value between e-wallets and is recorded on the blockchain. E-wallets hold a private key used to digitally sign each transaction, providing unmistakable proof that they have been received by the e-wallet’s owner.
At the time of writing the total number of Bitcoins in existence is roughly 18,210,000. The developers of bitcoin capped the number of bitcoins allowed to be in use at 21 million, leaving under 3 million available to be mined. However, these will still take some time to be created as the process gets more difficult as the rewards continue to be halved. Bitcoin mining is the process of creating each new bitcoin for circulation. The process of mining depends on high-powered computers being able to resolve difficult mathematical problems which become progressively harder. Each time a problem is cracked, one block of the blockchain is processed and the successful miner receives a brand-new bitcoin.
Is Bitcoin Real Money?
Whether bitcoin is real money has been a topic of debate for many years now. Some economists argue that BTC is more of an asset of value, but bitcoin was always designed to be a borderless, decentralised payment system. In truth, bitcoin is a currency in every sense that matters. The trust it has gained over the years has had a huge impact on its value, and its very design enables holders to pay for goods and services.
The taxation of bitcoin has evolved over the years, and differs slightly from country to country. But as a typical approach which has been emulated by many governments, we can use the IRS (Inland Revenue Service) of the United States as an example. The IRS tax the use of BTC under a classification of assets and capital gains. Depending on whether you mined or bought the bitcoins that you are transacting with will determine the amount of tax you now have to pay. Any transaction paid for using bitcoin is taxable, but if you mined the coin yourself, you can claim back the expenses of the endeavor (i.e electricity used or the cost of mining equipment). If you bought the tokens, you are taxed on the increased value at the time you use them for purchase as a capital gain. So, if you bought 1 BTC for $200 and paid for goods when the coin was valued at $300, you would be taxed on the $100 difference.
What are the Pros and Cons of Bitcoin?
In the eyes of some cryptocurrency investors, bitcoin is a digital currency that can do no wrong. However, bitcoin does have a few flaws and limitations, which we will explore below.
Pros of bitcoin
- It is one of the most free and flexible forms of payment. You can send and receive bitcoin anywhere in the world 24/7.
- As a decentralised cryptocurrency, bitcoin owners are in complete control of their finances.
- Due to the anonymity and protection of bitcoin user data, bitcoin guards against the threat of identity theft.
- Each completed bitcoin transaction is recorded on the blockchain for 100% transparency, without disclosing personal data regarding the buyer or seller.
- Bitcoin payment fees are relatively faster and much cheaper than other payment systems, such as credit and debit cards, benefiting merchants as well as holders.
Cons of bitcoin
- Although more merchants now accept BTC as payment, there are still many who do not.
- Global awareness of bitcoin is rising but is still not fully adopted.
- The value of bitcoin is volatile, making it a high-risk investment for any portfolio.
- Some governments have taken a dim view of bitcoin in the past, and opted to ban its use in any shape or form within their nation’s borders – notably China.
Did you know? Just 12 months after Satoshi Nakamoto developed bitcoin, someone bought two takeaway pizzas for BTC 10,000 to test the system. Had that individual held on to those 10,000 bitcoins, they would be worth almost $80 million at the start of 2020!
Should you invest in Bitcoin?
As we’ve already noted, BTC is currently a highly volatile currency to trade on cryptocurrency exchanges. Anyone considering buying bitcoin must accept that they could potentially lose their initial investment. Cryptocurrency experts and financial economists disagree on bitcoin’s long-term future. The former believes the value of bitcoin will continue to soar as more governments and businesses adopt the currency as legal tender. However, some economists have moved to label bitcoin a ‘bubble’. A bubble is a commodity whose true value is entirely unknown to investors, leading to the threat of its collapse in the market.
It’s difficult to say whether bitcoin’s price is going to rise in the coming months, but it’s certainly an investment that could pay huge dividends if the market continues to mature. We have also seen more and more interest in bitcoin over the past few years and with the May 2020 halvening approaching fast, we feel quite optimistic.
Transaction Fees and Charges
After so many altcoins have emerged onto the market, bitcoin has come under some criticism for the higher cost of its transactions and exchanges. The fact is, bitcoin is based on a deflationary model, with its maximum supply ever to exist already declared. As each new block is secured on the chain, the task becomes more difficult and therefore, more energy consuming. More to the point, as time progresses, the token reward for mining BTC reduces by half until eventually reaching zero. This means that miners have to charge higher fees in order to reimburse them for the energy, time and effort spent on bringing new tokens into circulation.
If you take the fees associated with credit card payments and international bank transfers, bitcoin transaction charges are still very minimal. However, with the development of new consensus protocols and block sizes, there are now competitors on the field who offer fees so low, they are almost none existent.
Are There any Similar Crypto Coins?
Although bitcoin remains the flagship cryptocurrency on the crypto exchanges, there are a number of similar crypto coins that investors may want to consider as an alternative, due to their cheaper values:
A fall-out in the community of bitcoin miners led to a small percentage of members leaving the network and forming a new cryptocurrency called Bitcoin Cash.
Created as a fork from bitcoin, Litecoin’s unique selling point is its ability to complete transactions in less than two-and-a-half minutes, compared with ten minutes for bitcoin. Litecoin is already available to trade on mainstream cryptocurrency exchanges.
Like bitcoin, Dash was created as a secure digital payment method for goods and services. Dash is cheaper than bitcoin in terms of fees, and has much faster transaction speeds.
Can Bitcoin be used Anonymously?
When it was first created, a great incentive for using bitcoin was that it could facilitate anonymous transactions. This is still true if you transfer your BTC directly on its network. However, going through intermediaries such as exchanges and brokers removes much of your anonymity.
Since these companies require KYC information (Know Your Customer) and adhere to AML (Anti Money Laundering) regulations, you are required to provide your personal details in order to open an account. If you wish to exchange your bitcoin for fiat currency and have it transferred directly into your bank account, your transactions will certainly be traceable back to you.
How Safe is Bitcoin?
Bitcoin is recognised the world over and is used by many large financial institutions and professional investors. The legitimacy of this digital currency has been well-established. It is the blockchain technology that bitcoin is built upon that determines its high level of safety and security.
Information recorded to the blockchain is distributed across a vast network of ‘nodes’. If the information is altered on one or even a hundred nodes, there would still be a majority that contained the original record. These would ‘overrule’ the manipulations. And so, bitcoin presents the most secure payments system ever to be created.
What we do
At Best Bitcoin Exchange, we’ve tested and reviewed bitcoin brokers, e-wallets and more and recommend the best providers on this website, so you can start trading bitcoin quickly and in a safe, reputable environment.
We have selected the top 40+ sites available to buy bitcoin and placed them in a neat table at the top of this page. The platforms ranked at the top of the table will have the best user ratings. After our in-depth reviews, they’ve proven themselves the most trustworthy exchanges to trade bitcoin using fiat currencies.
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