What Traders Need to Know About Bitcoin and Blockchain

We have been seeing Bitcoin as a featured topic of discussion in the trading community quite a lot over the last few months, with astounding price runups in alt-Coins and particularly Bitcoin.  We could produce another story on how much money you would have if only you had invested five or six years ago, but what we really want to talk about is the trading related information.  

Here is what you really need to know about Bitcoin and how to trade on exchanges. First, let’s review what it is and how it works.

Bitcoin, Bitcoin Mining and Blockchain

Bitcoin is just a way to keep track of transactional records without the middleman such as a central authority like a bank or federally regulated office.  Each transaction that has ever been done in Bitcoin is available to anyone that downloads the Blockchain.

The blockchain is a way of keeping track of transactions, sort of a public ledger that is continuously growing with each and every transaction building off of the other.  The chain is segmented into approximately 1 MB blocks of information with protocol for validating new blocks.  Since all the blocks are linked together with secure communication, links to past blocks and time stamps, it is quite resistant to tampering.  By design, the Blockchain cannot be retroactively altered without joint collusion of a wide network.

Bitcoin mining is how bitcoins are created and verified.  People that solve extremely difficult calculations that take about 10 minutes to verify each transaction in a block are Bitcoin miners.  The first miner to solve the problem correctly is rewarded with a new Bitcoin.  Over time, the rewards decrease and eventually no new Bitcoins will be created.  

There are currently approximately 16.8 million Bitcoins in circulation with the supply limited to about 21 million.  

Runup in Price

We don’t want to spread the fever of FOMO (fear of missing out), as no one likes to hear about what they missed, so we will give a brief explanation for the recent hype over the cryptocurrency.  

One of the early developers of Bitcoin wanted to order some pizza with his Bitcoins in May of 2010.  He offered 10,000 Bitcoins to anyone that was willing to bring him a pizza.  Someone decided to accept the payment and delivered those pizzas.  That was the first transaction in the real world of someone accepting Bitcoins.  Some retailers are now taking the coins as form of payment, but this is rare and was unheard of in 2010.  

Early in 2011, Bitcoin was valued at $1, by July of 2011 it had run up to $31 but crashed back down to $2 by December.  It passed the $1,000 mark in November of 2013, dropped back down to $200 by March of 2015, and then set off on the recent historic run to almost $20,000.  There has been several corrections of 30%+ along the way,

So, all these articles that like to tell you how much your $100 investment in Bitcoin from 2011 would be worth today, they neglect to tell you that it felt like you would lose it several times over.

Find out which exchanges trade Bitcoin, learn about the real risks of hacking, and more in our post What You Really Need to Know About Trading Bitcoin.

Contact the trading experts at Great Point Capital to learn more.  We have been serving the trading community since 2001, with more than 100+ prop traders trading the firm’s capital.  We offer access to Takion Software and a network of experienced traders with proven strategies to enhance your trading performance.