The Ultimate Guide to Bitcoin Trading, Investing & Mining [2020]

It’s a safe bet that Bitcoin is only going to become a bigger and bigger part of the consciousness of the mainstream, as more Bitcoin ATMs are installed, more news reports cover Bitcoin’s volatile price movements, and more and more people decide to try their hand at Bitcoin trading.

While there are many thousands of different cryptocurrencies available today, Bitcoin has remained the top dog throughout its decade-long lifetime, both from the point of view of the value of an individual Bitcoin, the total value of all Bitcoin, and the total number of people trading Bitcoin every day.

So with this in mind, we’re breaking down exactly what Bitcoin, cryptocurrency and blockchain actually are, the best places online to buy and sell Bitcoin, a bit about what Bitcoin mining is, and a look at why selecting the right place to trade is so important in 2020 — let’s start!

What are Cryptocurrencies?

Cryptocurrencies were invented in 2008 when a mysterious and anonymous group of people or individual known only as “Satoshi Nakamoto” publicly released a research paper called the Bitcoin Whitepaper.

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In the paper the author outlines a blueprint for a new type of virtual currency that allows people from anywhere in the world to quickly, easily and cheaply transfer value between one another without the need for a bank or payment processing company.

Naturally, those who heard about cryptocurrency were excited by the potential for this new internet currency to allow them to make money from it and to be a part of a new revolution in the way the world would be able to handle their personal finances.

What is Bitcoin?

As the name of Satoshi Nakamoto’s research paper indicates, the first cryptocurrency to be created was called “Bitcoin”.

At the same time that the concept of cryptocurrency was introduced, Nakamoto announced their own initial incarnation of cryptocurrency called Bitcoin which would be launched within a few months after the release of the whitepaper.

For many years, Bitcoin was the only cryptocurrency that held any kind of value, although at the very beginning of its life Bitcoin itself was worth less than a cent.

As more and more people heard about Bitcoin, the number of people buying it increased, gradually and continually pushing its price upwards. In a feedback loop, the higher the price of Bitcoin moved, the more people made money, and consequently the more people heard about Bitcoin and wanted in.

Although today there are thousands of different cryptocurrencies, at the time of the launch of Bitcoin it was absolutely revolutionary and unique.

Many other projects spanning back to the 1990’s and earlier had tried to create virtual currencies, and almost all of those collapsed and failed for one reason or another.

One of the major issues that faced earlier digital currency designers was that the code for the network was often held on a single server or cluster of servers in the same building.

What this meant was that once a government body had declared the creation of a new currency illegal, tracking down the servers and then unplugging them was very easy for law enforcement agencies.

The mechanism designed by Nakamoto that particularly stands out as genius amongst a number of different clever inventions bundled together is its primary underlying technology called “Blockchain”.

What is Blockchain?

Blockchain is easily one of the greatest and most profound technological inventions so far in the 21st century.

Problems that presented themselves to Nakamoto, as they did to others before them, were overcome with the creation of a new system for decentralizing the governance of the system, the rewards and value that are received by participants, and the way the code that ran the network is stored.

The name blockchain describes exactly what the structure of these systems are like — a chain of blocks. Each block contains timestamped data, of which the main part is a list of all transactions that have been processed by the network.

The central component within blockchain systems is its consensus mechanism, or to put it another way, the way in which everyone involved forms a consensus on which transactions should be added to the blockchain next.

What is Consensus?

Proof of work (PoW) and proof of stake (PoS) are the two most common consensus mechanisms, with the creation of PoW being a core part of the Bitcoin whitepaper and the way that Bitcoin functions today.

PoW systems allow users to create nodes, or connections directly to the blockchain, which provide additional software that can be used to “mine” the cryptocurrency.

Mining is the process of using computers to try to solve extremely complex mathematical and computational problems, and, in a race against thousands of other computers doing the same, the winner is awarded with a free amount of the cryptocurrency.

Winning Bitcoin miners were originally awarded 50BTC, which has halved every 4 years to now be at a rate of 12.5BTC.

The winning miner also is allowed to select transactions from a pool of waiting transactions to process in their winning block, and this allows for the governance of transaction processing to be decentralized and shared by a range of participants.

Unlike previous digital currency attempts, Bitcoin’s use of blockchain also meant that now the record of all transactions and ledger of all currency account balances is no longer stored on a single server, but a copy of this is stored in thousands of computers globally and updated continually to put all systems in-sync.

This protective measure means that an attempt to shut down Bitcoin by unplugging the computers running it would require many thousands of computers in every part of the globe to be seized and unplugged simultaneously, which is close to impossible for any government body to execute.

What is Bitcoin Trading?

Bitcoin trading is the process of purchasing and selling Bitcoin in a repetitive fashion with the aim of generating profit from differences in price when each purchase and sale is made.

Since the creation of the world’s number one cryptocurrency, trading Bitcoin has been the main way people have interacted with it and generated profit.

Although the most obvious way to trade Bitcoin is to aim to buy at a low price and then sell again at a higher price, there are many variations of this way of thinking and a wide range of different strategies.

These include arbitrage, which is finding situations where a trade can be made which has a guaranteed outcome of profitability based on the difference in price at two exchanges, and shorting, which is creating profitable trades from dropping prices instead of price increases.

Where are the Best Places to Buy and Sell Bitcoin?

PrimeXBT

PrimeXBT is the largest multi-asset margin trading platform in the world, seeing daily average trade volumes of up to $550 million and growing exponentially throughout 2019.

This platform rode the wave of demand for high leverage crypto margin trading over the past few years, and while other older platforms have lost market share, PrimeXBT has been one of the true winners of the renewed boom in interest in Bitcoin trading.

PrimeXBT has done well largely as a result of the combination of the lowest fees in the industry, advanced features and services and a wide range of ways for users to profit including PrimeXBT’s unique 4-tier referral program.

Unlike a few other platforms that are focused on crypto margin trading, PrimeXBT has a reliable trading engine that can execute up to 12,000 trades per second, virtually removing all slippage.

The user interface on PrimeXBT is really one of the better ones that we’ve seen as well, being suitable for newer users who are learning about how to trade and the kinds of tools and charts that can be used.

PrimeXBT’s provision of up to 100x leverage on crypto-assets and up to 500x on traditional assets is also the highest in the industry and allows traders to access comparable leverage to that seen in traditional markets.

All up PrimeXBT is a great platform and one where it’s easy to understand how it’s become the crypto industry mainstay that it is today in such a relatively short period of time.

eToro

eToro is an older platform, mainly focusing on traditional assets, but that provides a good service for traders wanting to buy and sell cryptocurrencies as well.

Launched in 2006 in Tel Aviv, Israel, eToro has grown progressively and now lists cryptocurrencies alongside forex and stocks.

eToro has an easy to use interface, although it definitely could be friendlier for newer users who are just learning the ropes.

Saying this eToro’s support is generally good and response times to inquiries can often be quite fast.

For much of the life of eToro, it has excelled in the way that it has marketed itself to traders, and because of this has become more prevalent and well known than many other traditional marketplaces.

It remains to be seen if eToro will have the same kind of penetration into the cryptocurrency market however.

Binance

Binance is a crypto-only trading platform that has incorporated its own native token into its site called the Binance Coin.

After launching in 2017, Binance grew quite rapidly because of an ICO for its token, as well as it being the first platform to restrict users not to be able to trade with fiat as a way of getting around regulations that are typically applied to trading platforms.

Binance does list a wide range of token and has worked to create a smooth interface for users, while ensuring that trades can be executed quite quickly.

One problem with the platform are its fees, which are up to 10x more expensive than other platforms on this list.

Also the security capacity of the site was in question following a large $40 hack of user funds in early 2019, although there are hopes that Binance has sufficiently improved its security now to prevent future hacks.

Are Bitcoin Trading Platforms Safe?

Today for the most part, Bitcoin platforms are safe, however there are still a large number of platforms that provide substandard services to traders, and in some cases actively try to scam and steal from them.

In the earliest days of cryptocurrency this kind of behaviour was more prevalent because although today cryptocurrency markets are still unregulated for the most part, back then it truly was the wild west of the internet.

This has been an ongoing problem because of the pain it has caused countless thousands of traders and because of the damage it has done to the cryptocurrency industry.

The good news is that it is quite easy today to understand which platforms are potentially harmful, and which are safe.

All of the platforms we have listed above are safe, and this comes from them all being widely reputed throughout the cryptocurrency industry and numerous positive reports over the space of years of serving crypto traders.

Some of these platforms actually go further and provide advanced security systems and additional features that mean that they are not just safe but also provide a much greater level of value for traders.

What is Bitcoin Mining?

As briefly mentioned before, Bitcoin mining is a core part of the Bitcoin blockchain and how it operates.

Users can download the Bitcoin blockchain and the software required to be able to mine with their computer, and then convert their system into a “mining rig”.

This process of an individual user mining cryptocurrency on their own is called “solo mining” and is the most common way that people were originally mining Bitcoin.

To begin with, a simple computer consisting of only a normal CPU could be used to mine hundreds of Bitcoin per day.

A measurement of the total amount of computation power in the Bitcoin mining network called the “hash rate” is used to adjust the difficulty of the problems being solved by miners. What this means is that the more computation power being used in total to mine Bitcoin, the harder the blockchain makes the puzzles which are being solved.

Therefore as more and more people started to mine Bitcoin with CPUs, it took more and more computation power in order to generate the same number of Bitcoins and the same amount of profit.

This led to dozens of CPUs connected together being required to be able to mine profitably, then eventually the use of GPUs, and finally today the only way that profit can be made is using specialised computation chips called ASICs where it is impossible to profitably mine Bitcoin without doing one of two things.

What are the Alternatives to Solo Mining?

Mining Bitcoin is tougher today than it was many years back.

The two methods that may be used to profitably mine Bitcoin in 2020 are joining a Mining Pool, and setting up a Mining Farm.

What are Mining Pools?

Mining pools are large groups of solo miners that combine their hash rate in order to have a higher chance of mining each block.

Where a single computer mining Bitcoin might be able to solve a block by a complete fluke every few years, a large mining pool will have a high chance of solving each block in comparison, and once any block is solved then the reward is divided by all of the hash providers that took part.

This is a great option for anyone that has enough to invest into a few thousand dollars worth of mining equipment, and would like to earn something back to gain a profit on the money outlaid for electricity and equipment.

What are Mining Farms?

Mining farms are huge installation that contain hundreds of thousands or millions of dollars worth of mining equipment that generates a much larger total hash rate than is possible with a normal mining rig.

These installations are set up by computer engineers and are often found in places that very low electricity charges in order to increase profit margins as much as possible.

This is a great option if you have millions of dollars for equipment, electricity and property costs, as well as the money to hire the talent needed to set this up without burning down your remote warehouse.

In Conclusion: Bitcoin Trading, Investing & Mining in 2020

So there you have it — Bitcoin is a big deal in 2020, and it’s here to stay. There’s never been a time that so much hype and expectation have surrounded cryptocurrencies as they do today. People are expecting that 2020 and 2021 are going to be big.

When searching for places to trade and invest into Bitcoin, being selective is important.

Even if a platform isn’t an outright scam, why not take the time to find the best Bitcoin trading platform that you can and utilize the additional benefits that using them provides.

And while much of the focus is on areas like Bitcoin trading and the development of the price of Bitcoin throughout the coming years, there is also still a large amount of focus on what the future of Bitcoin mining will be, and how Bitcoin will gradually move to become a bigger and bigger part of the mainstream consciousness.

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The Ultimate Guide to Bitcoin Trading, Investing & Mining [2020] was originally published in Data Driven Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.