Bitcoin in the UK:
A Beginner’s Guide to Understanding the Basics
Bitcoin, often dubbed “digital gold,” has become a global phenomenon, capturing the attention of investors, tech enthusiasts, and financial experts alike. If you’re based in the UK and curious about the world of Bitcoin, this blog post will introduce you to the basics of this revolutionary digital currency.
Let’s explore what Bitcoin is, how it works, and how you might want to get started in the exciting world of cryptocurrency.
- What is Bitcoin? Bitcoin is a decentralised digital currency that operates on a technology called blockchain. Created in 2009 by an anonymous person or group known as Satoshi Nakamoto, Bitcoin is designed to enable secure, peer-to-peer transactions without the need for intermediaries like banks.
- Understanding Blockchain: Blockchain is the underlying technology that powers Bitcoin and other cryptocurrencies. It is a decentralised and allows all Bitcoin transactions across a network of computers (nodes) to be recorded. Each transaction is grouped into a “block,” linked to the previous one, forming a chain of blocks.
- How Does Bitcoin Work? Bitcoin transactions are recorded on the blockchain and verified by a process called mining. Miners use powerful computers to solve complex mathematical problems, and the first miner to solve the puzzle gets to add a new block of transactions to the blockchain. This process ensures the security and integrity of the network. You might have heard concerns over the electricity and “processing power” required to do mining, and often this is described as one of the set backs to the technology that it does rely on computers having to do calculations for some time to create the new transactions and records.
- Bitcoin Supply and Halving: Unlike traditional currencies, Bitcoin has a fixed supply of 21 million coins. New Bitcoins are created as a reward for miners during the mining process. Approximately every four years, a “halving” event occurs, reducing the rate of new Bitcoin creation in half. This scarcity contributes to its store-of-value characteristics, and why the value of a Bitcoin will go up over time as there is a fixed amount that can be created. Like anything supply and demand, we have a finite amount here and therefore the price is driven by demand for it.
- Bitcoin Wallets: To store and manage your Bitcoin, you’ll need a digital wallet. Wallets come in various forms, such as software wallets (mobile, desktop, or online), hardware wallets (physical devices), or paper wallets (physical paper with your private keys). Such companies as Etoro allow for you to purchase Bitcoin and store it.
- Buying Bitcoin in the UK: There are several ways to buy Bitcoin in the UK and you need to use a cryptocurrency exchange. Please be careful that you are using a well-respected and trusted site, and never buy any cryptocurrencies if you cannot find good honest reviews of the site before hand. Create an account, link your bank account, and follow the verification process to get started.
- Bitcoin Security: Bitcoin’s security relies on cryptographic technology and private keys. Protect your private keys and use two-factor authentication on your wallet for added security. Beware of phishing scams and only use reputable exchanges and wallets.
- Volatility and Risks: Bitcoin’s price can be highly volatile, experiencing significant fluctuations in short periods. Be prepared for price swings and only invest what you can afford to lose. Purchasing any form of Cryptocurrency at the moment is considered “high risk” as it can vary any time of the day in price, and consider diversifying your investment portfolio to manage risk. I would personally suggest only having up to 5% of your total assets in Cryptocurrencies and being very comfortable with the price dropping low if it does. Any money invested in Cryptocurrency should be seen as potential to be lost and not your main way of creating income/investment profits.
- Legal and Tax Implications: In the UK, Bitcoin is legal to buy, hold, and use for transactions. However, tax implications may apply, depending on how you use Bitcoin. Seek advice from a tax professional to ensure compliance. It is subject to Capital Gains tax in the UK, therefore when you sell your assets you must declare to HMRC each year now much profit you have made and then pay accordingly the right tax amount every year.
- Stay Informed and Engaged: The world of Bitcoin is continuously evolving. Stay informed by following reputable news sources, joining online communities, and exploring educational resources to deepen your understanding.
Bitcoin has revolutionised the world of finance and ignited the global interest in cryptocurrencies and is very much considered still the main cryptocurrency that most purchase and consider could be long term currency as more countries look to non-FIAT alternatives. I would recommend holding a few different cryptocurrencies if you are interested in them at all as an investment, to diversify, and only invest in the ones that you support and understand why the cryptocurrency exists/they intended use/who owns the cryptocurrency and making profit from it.
If you’re considering investing in Bitcoin, conduct thorough research, exercise caution, and make well-informed decisions. Embrace the journey of discovering the potential of Bitcoin, and remember to stay curious, engaged, and open to new opportunities in the ever-evolving world of cryptocurrency.
Other ways to invest in Cryptocurrency
There are also many options to invest in Index Funds and Trackers that track and mimic the most popular Cryptocurrency performance, allowing you to not have to pick one or a few cryptocurrencies yourself but still gain the profit performance of them. You can find some listed within Trading212 for example and these are league tables of the best performing Cryptocurrencies or new developments and offer you a value based on if they are collectively moving up or down in price.
If you are someone who would rather take advantage of price increases rather than hold the actual asset – this could be a great option for you.
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