Bitcoin

When Bitcoin launched in early 2009, it was seen as a bit of a novelty in the tech world. A currency allowing anonymous transactions that had its value dictated entirely by the market? Coming on the heels of the GFC — and the attendant bank bailouts, which did little to alleviate the financial issues affecting everyday people in the process — it was easy to see the appeal that it offered to prospective buyers. Yet it was initially confined to a relatively small corner of the internet, largely attracting an audience of colourful characters who worked within related fields.

Of course, it wasn’t long until a wider audience picked up on the trend. And in 2021, Bitcoin and other cryptocurrencies are no longer the domain of tech-obsessed eccentrics — they've moved into the limelight, offering opportunities for those seeking a new frontier of investment.

Cryptocurrency — at least as we would recognise it today — was born with 

. Though the initial Bitcoins released to the public were sold for mere fractions of pennies, plenty of enthusiasts were soon hailing it as a replacement for traditional currency. Some went so far as to suggest it would radically overhaul the current financial system and bring greater equity to building wealth.

Not to say that this enthusiasm was universal. Sceptics were eager to paint it as a future Betamax — interesting technology that would never catch on with the general public. The risk of hacks, the inherent volatility in an unregulated currency and the absence of any physical product were all cited as significant problems.

A little over a decade on, both the early enthusiasts and the sceptics alike appear to have been slightly off the mark. While it’s unlikely to replace traditional currencies any time soon, Bitcoin is now daily front-page news. The market is watched closely by financial and tech experts alike; irrespective of how you feel about it as a phenomenon, it’s clear that it’s set a precedent.

Importantly, the presence of other large-scale cryptocurrencies has also suggested that it represents a potentially lucrative investment opportunity and an effective way to generate additional income within your portfolio. But for those who came in late, it’s entirely natural to be wondering “What is bitcoin all about?” or “How does cryptocurrency work?” At 

, we specialise in providing a variety of cryptocurrency-related services, including 

. That’s why we’ve put together this guide on what bitcoin is and how it works — so that if you’re new to the world of understanding bitcoin and cryptocurrency, you can easily get up to speed.

I want to know the Bitcoin basics — for example, what is bitcoin?

So, what are Bitcoins? In the simplest possible terms, they’re a form of digital money. You can use them to buy things or accept them as payment, just like any other form of currency. What is the purpose of Bitcoin then? After all, we already have money, not to mention a wide variety of ways to purchase items in-person and online.

Well, one of the big drivers behind the initial interest in Bitcoin was to do with its potential for privacy. Digital transactions tend to leave a pretty big (figurative) paper trail, which can potentially be traced back to the purchaser. Bitcoin, by contrast, doesn’t do this. While all transactions carried out with Bitcoin are publicly recorded on the Blockchain (more on that in a moment), the identities of those participating are not. To further obscure their identities, most Bitcoin users will automatically update their ISP after each transaction, to further reduce its traceability.

While these privacy considerations have grown less important since Bitcoin has become a more mainstream hit, there are still other appealing features for many investors. Bitcoin is unregulated by a central authority, such as a government or bank; its worth is purely what the market dictates at a given moment. This is attractive to many investors as it doesn’t cap the earning potential of investing in it, while also being appealing to people of certain ideological bents — people concerned about the influence banks have on public policy, small government advocates, Libertarianism and Anarcho-capitalists, to name a few.

Additionally, there are only a certain number of Bitcoins that will ever be produced — around 21 million. That might sound like a lot, but if you factor in the fact that many have already been bought up and the clock is ticking on future releases, it becomes a simple case of supply and demand. So while it’s not a traditional “collectible” in the same sense as, say, baseball cards, art or luxury cars, there is a desire among many investors to secure their own little piece of history along the way.

This is by no means a definitive list of the reasons that people purchase Bitcoin; for some people, it’s as simple as seeing a prospect to make money, without necessarily having much interest in the philosophical or technology that underpins the process. But at BTC markets, we’re staunch believers that having an understanding of the underpinnings of investment is a critical part of the process and helps you make more informed decisions.

Blockchain, peer-to-peer tech and Bitcoin mining

So if Bitcoin doesn’t have a physical presence and is purely digital, how can you be assured that you actually own some of it — or can spend it safely? How does Bitcoin work?

Everyone with Bitcoin has a digital wallet, access to which is via a special code known only to you. It’s not radically different to a payment system like PayPal or other forms of online banking; when you make a purchase, you input your code and confirm accordingly. But the secret of how Bitcoin works and is able to keep track of all of these transactions lies in the attendant Blockchain. Essentially a large-scale collection of data, Blockchain lodges every transaction with Bitcoin form that takes place in digital form. The Bitcoin or Bitcoins used are recorded, though not the details of the wallets involved, the purchased items or exchanged goods. All transactions that have taken place are viewable to the public and are updated in real-time to maintain integrity.

While theoretically not impossible to hack or edit, it would be extremely difficult for any bad actor (or even a substantial collective of bad actors for that matter) to garner enough computing power to be able to modify the Blockchain. This has helped ensure the integrity of the Blockchain for more than a decade. In fact, since being introduced as part of Bitcoin, Blockchain technology has actually been adopted for a wide range of other purposes. It’s proven an effective means of signing and lodging contracts, as well as protecting cloud storage backups for business data. Its usage will likely continue to grow in the coming years as it’s adopted across new industries.

There’s no centralised storage point for all this Blockchain data, either; that would be counter to the stated ethos of Bitcoin, while also potentially rendering it more vulnerable to hacking or other data breaches. Rather, it’s maintained via a peer to peer collective of computers — and this is where Bitcoin mining comes in.

Blockchain relies on power from computers all over the world, loosely networked together to both process its data and store transactions as they occur so that there’s a single source of truth. While in theory, this is a simple process for any modern computer, Blockchain artificially increases the difficulty in order to deter fraud, via a technique called “hashing”.

This is quite a resource-intensive process for computers and accordingly, there needs to be an incentive to encourage participation — the internet is rarely altruistic merely for the sake of it — so when these users contribute the processing power of their computers, there’s a chance of being rewarded with Bitcoins. Thus, Bitcoin mining was born.

The simpler explanation runs something like this:

Provide your computing power to solve algorithms that help back up the Blockchain data

Be rewarded with bitcoins for your efforts

The more computing power you can provide, the more bitcoins you’ll be provided with as a reward

People who lend their computing power to the process unsurprisingly known as “miners”. As you might expect, this has created all manner of professional miners, looking to make their fortune with their spare PC hardware. But it’s not so simple — the rate of reward for contributing shifts over time. As more bitcoins are released into the marketplace, more transactions take place and the amount of processing power continues to increase, Bitcoin undergoes “halving” — essentially, the reward that miners receive is halved. At present, this takes place around every 4 years; theoretically, it could speed up or decrease depending on the number of transactions taking place, but it has remained relatively constant for Bitcoin’s lifespan so far.

So as you might expect, most people who invest in Bitcoin are not miners; while discussion continues about its value within the crypto community, it’s certainly not the quickest or most efficient way to get involved. The bulk of investors have either purchased or traded for their Bitcoin.

Bitcoin explained — the history of Bitcoin

Understanding the current state of Bitcoin also requires an understanding of its history; it didn’t emerge out of a vacuum, but rather arrived at a time when tech had caught up to existing ideas.

Though Bitcoin has garnered the lion’s share of the press since it launched, it actually wasn’t the first cryptocurrency. Attempts to create a digital, untraceable currency date back to at least the 1980s; the increasing rise of EFTPOS transactions or electronic bank transfers for large amounts of money also brought attendant privacy concerns. These ideas were further developed during the 1990s, but an effective way of executing them still proved elusive; a combination of insufficient tech and internet speed rendered it an unlikely prospect.

Though not forgotten, the idea of electronic currency stayed relatively dormant for a number of years. It would not be until 2008 when it re-emerged in the popular consciousness, with the publication of a whitepaper by an individual or collective identifying themselves as “Satoshi Nakamoto”. This 

 outlined the key principles behind Blockchain, as well as providing Bitcoin’s definition. But it wasn’t till January 2009 that Bitcoins actually began to see release to the general public, as the first batch began to trickle out.

Many of the early details of Bitcoin’s history still have a shroud of mystery over them. Satoshi Nakamoto has never been definitively identified, despite considerable journalistic energy devoted to the question. It’s speculated that Nakamoto’s true identity (or identities) may be connected to some of the earlier cryptocurrency pioneers due to points raised and referenced in their initial whitepaper, though it’s entirely possible that this is merely the result of Nakamoto expanding on this previous work. A number of claimants have also come forward to identify themselves as the holder of this nom de plume since 2009, though their legitimacy has always been contested.

But whether an individual or group of people, Nakamoto likely has a wide range of reasons for keeping their identity secret. First and foremost, there’s the lure of good storytelling — mystery builds intrigue and this has undoubtedly helped build and maintain interest in Bitcoin over its history. And in addition to its obvious tech potential, it’s hard not to see an element of social commentary mixed in. Given its birth relatively soon after the GFC, it’s also possible that the creation of bitcoin was also a piece of sly political commentary. To some degree, bitcoin highlights the transient nature of currency itself. It only has value because as a collective, we’ve agreed that this is the case — but of course, this can also be applied to any sort of transactional relationship.

Whatever their reasons, Nakamoto appears to have dissociated themselves from the project in 2010 — perhaps not coincidentally, the year when the first known commercial purchase with Bitcoin took place. Their exact reasons for departing are as mysterious as their appearance in the first place — until someone is definitively identified as Nakamoto, it’s something of a D.B. Cooper situation.

Oh, and what was that purchase for? Not gold, stocks or bonds or anything similar. It was for two Papa John’s pizzas at a price of 10,000 Bitcoins and it attracted considerable media attention at the time. Just think how many more pizzas those 10,000 Bitcoins could purchase today!

Subsequently, Bitcoin would initially gain popularity on the dark web; black market websites such as Silk Road used it as a primary form of currency to protect the privacy of those involved in the transaction and the privacy of the vending website itself. This gave Bitcoin something of a seamy reputation at the time, though subsequent years have seen it move away from these origins. As more reputable customers began to get involved, it would rapidly emerge as a legitimate investment opportunity.

So what seemingly began as a mix of tech experiment and social commentary has grown into a substantial investment opportunity — and industry — within the last few years. Perhaps unsurprisingly, competing cryptocurrencies have launched in its wake. While some have been markedly successful, few have captured the public’s imagination in quite the same way.

From an investor standpoint, Bitcoin and other cryptocurrencies represent a number of advantages. It’s not beleaguered with the legacy issues that pervade some of the more traditional forms of investment, while also presenting a genuinely new product to the market. Some of the other main advantages include:

Cryptocurrency represents an alternative way to park your savings and potentially earn a much larger return in the process. While shares and high-interest accounts can both be effective ways to park your savings, neither dividends nor interest rates are likely to offer the same level of returns that cryptocurrencies can under the right circumstances.

Bitcoin and other cryptocurrencies have attracted worldwide interest; it’s not solely constrained to one country. This naturally means there’s a wider range of interest in the field, and a bigger market to stimulate interest.

You’re in control. If you like to take a direct hand in your investment portfolio, cryptocurrency can be an excellent option, letting you move with the market without needing to burden yourself with onerous paperwork.


Any investment inherently contains risk and you should be sure never to invest more than you can afford to lose. Bitcoin is an interesting mix of factors; it contains some of the risks that you would find in any investment, as well as a number of new factors due to its comparative youth. Unlike gold, for example, we don’t have an extensive history of how it performs over time.

Perhaps the most obvious risk associated with Bitcoin (or any other form of cryptocurrency, for that matter) is the potential for wildly fluctuating values. Almost everyone associated with cryptocurrency has a story about the time they “bought too late” or “sold too early” and missed out on a huge amount of money as a result. Sometimes these stories are even true!

Bitcoin is relatively new territory as an investment and that brings an attendant level of risk. Keen observers will have noticed the influence that social media can exercise over cryptocurrency prices — though to be fair this is hardly the only investment that can be affected in this manner.

Theft, while not as common as it was in the early days of cryptocurrency, is also still a risk. Cryptocurrency is more akin to cash than property or shares; once it’s lost, it’s gone. Wallets can be hacked, so make sure that your ISP is regularly changed and that you never give out your code to anyone, to minimise the risk.

The quantity of Bitcoin is also inherently limited, which is a double-edged sword. While these restrictions can obviously increase the potential long-term value of Bitcoin, it’s also reliant on sustained consumer and investor interest beyond the final release of Bitcoin.

So, what is Bitcoin in 2021? While it seems unlikely that cryptocurrency will entirely replace more conventional currency around the world, there’s no question that it has attracted considerable interest both as an investment opportunity and as a potentially viable way of conducting transactions into the future. Though it’s difficult to say what Bitcoin’s meaning will be a decade from now, given its rapid ascent it does seem likely that cryptocurrencies are here to stay for the foreseeable future.

Regulation of some sort also seems likely. What form this will take is difficult to say, as cryptocurrencies aren’t traditionally “owned” by any central authority in a manner similar to banks or governments. However, regulations are starting to pop up around the world (particularly in the USA), though they’re currently inconsistent and will likely continue to evolve as the cryptocurrency market itself evolves.

The results of this will likely be twofold; while the same extreme profits may no longer be possible once cryptocurrencies become more tightly regulated, it’s also likely that there will be fewer instances of outright busts. Despite all the buzz around cryptocurrency, not all have been successful and the need for some greater form of consumer protection will likely develop.

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What Is Bitcoin & How Does It Work?

The popularity of cryptocurrency hit the mainstream in 2021, and with Bitcoin’s explosive price ascension came unprecedented demand from both new and seasoned investors to get in on the crypto train. But regardless of how new or experienced you are with investing, cryptocurrency trading works differently, in that once you purchase your Bitcoin, Ethereum or other cryptos, you then need to have a place to store it. The best way to store your Bitcoin is to weigh up the pros and cons of the various wallet storage options, before implementing some cybersecurity best practices to ensure you have done as much as possible to store your Bitcoins safely.

To begin with, there are three main wallet types to consider when storing bitcoin and other cryptocurrencies.

A hot wallet is a digital wallet that is hosted online. This can include your crypto exchange of choice (such as BTC Markets), a mobile app, or a dedicated online platform that will hold and store your various cryptocurrencies. The advantages of a hot wallet are that you can access them anytime, anywhere, so long as you have an internet connection. The disadvantages are that because they require an internet connection, it means they can, in theory, be hacked (just like any other account you have online, such as email, social media, or eCommerce platforms).

Often, people trading cryptocurrency will transfer their holdings from a hot wallet to a cold wallet if they plan on holding onto their coins for a long period of time. Conversely, many people choose to keep their holdings in a hot wallet if they’re trading daily, weekly, or even monthly, since it gives them quick and easy access at the whim of a market bear or bull run.

The second type of wallet is called a cold wallet. A cold wallet is a piece of hardware (usually similar in size to a USB drive), that connects to an online wallet (such as an exchange or other platform) where your cryptocurrency is stored. All you have to do is connect the hardware to your computer and transfer your cryptocurrency onto it, unplug, and store it in a safe place! The advantages of a cold wallet are that they are more secure, in that in order for them to be hacked, somebody needs physical access to the hardware. The disadvantages are that if you misplace the cold wallet, then you’ve misplaced your cryptocurrency and cannot retrieve it!

If you’re planning on storing your Bitcoins or other cryptocurrencies, and you want to use a cold wallet, we recommend storing it in an actual safe to ensure that it always stays safe and free from damage.

The third and final type of wallet is known as a paper wallet. A paper wallet is a type of cold wallet in that it is stored offline, and as the name suggests, your key access is printed on a piece of paper by a certain website. The advantages of this method are the same as those for any other cold wallet, however, the disadvantages are that since your access code is printed on a piece of paper, if you lose that piece of paper or it becomes destroyed or accidentally thrown in the trash, then all of your cryptocurrency is lost along with it!

For this reason, BTC Markets recommends that you store your Bitcoins and other cryptocurrencies in either a secure hot wallet or a cold wallet that is stored somewhere safe. Once you have chosen your preferred storage method, the next course of action we recommend you take it to check up on your computer’s security health by running a deep and extensive virus scan, deleting any unused or unfamiliar apps and browser extensions, and avoiding websites that are usually known for having malware, spyware, or other virus risks (such as online casinos, adult websites, and peer-to-peer file-sharing networks).

Security precautions to undertake when storing your Bitcoins

There are several recommendations that BTC Markets makes for those wanting to safely store their Bitcoin and other cryptocurrencies. In addition to knowing where to store Bitcoin (such as cold wallet, hot wallet, or the old school paper wallet), there are cybersecurity procedures you can undertake to reinforce and protect your holdings from hackers. These procedures don’t just apply to cryptocurrency trading, of course—more broadly, they apply to anything you do online that requires an account that stores private information, such as your name, address, and debit or credit card details.

Run a check for data breaches linked to your email account

It is highly advisable that before entering a password for your account, that you run an email data breach check at ‘Have I Been Pwned’, to ensure that the password you are using has not turned up in a data breach elsewhere on the internet. Most people don’t realise that their email accounts have likely been compromised at some point, whether it be through online shopping, a mobile app, or through social media websites. Breaches often occur when in places that you least expect: it could be from a website where you made a one-off purchase, or even a much larger retailer (the results may surprise you).

Use ‘Have I Been Pwned’ to see if the email you are using for your account has previously been breached, and then make sure that you don’t use the same password that you did for the breached site in question—and of course, make sure you change all of your passwords regularly to help future-proof your accounts!

Whether it’s your Windows or Mac software that needs updating, your antivirus software, or browser, updates come out regularly that have everything from bug fixes to security updates. It’s important to always have the latest software updates as technology changes all the time, as do discoveries of inefficiencies, bugs, and even malware attacks. Malware, spyware, and viruses can enter your computer from a range of sources (such as file downloads or clicking unsuspecting links) and can install everything from keylogger programs that record your password entries to Remote Access Tool (RAT) programs that can give a hacker visibility and control over your computer.

Updating your software is one way to ensure you have taken that extra step when it comes to cybersecurity, and by extension, this also means that whenever you are trading crypto online, you have that extra layer of protection.

Two-Factor Authentication adds an extra layer of security when logging into your cryptocurrency exchange account. Also known as 2FA, this method of data protection strengthens the security of your account by requiring two forms of identification to gain access to your account, instead of just one (i.e. a password). Most commonly, aside from the password required to access your account, you can set up your security so that a code needs to be sent to your mobile phone as a second step to gain access. Another method for 2FA is to use a fingerprint (depending on whether or not your smartphone or computer has a biometric security setup).

2FA is a great way to protect your account, as it requires physical access to your smartphone so, in the unlikely event that someone gained access to your password, they still would not be able to gain access to your account.

Backup your public and private keys to an external hard drive

There are two types of keys that every cryptocurrency holder can generate: public keys and private keys. Both are strings of alphanumeric characters that are identifiable to the account holder in question, but the main difference between them is that a public key is strong of characters that are shared with others in order to receive cryptocurrency, while a private key is used to trade or spend cryptocurrency.

It’s advisable that you back up each of these keys to a file and then store them on an external hard drive or USB, to be kept somewhere safe. This way, you never have to worry about losing access since virtually nobody can memorise these complicated and long strings of characters.

When it comes to the question of how to store cryptocurrency (Bitcoin or otherwise), these are some of the most important factors to take into account. To recap, make sure that you really do your research and find a reputable exchange to start trading (such as BTC Markets), choose your method of wallet storage depending on how often you will be trading, and do a clean sweep of your computer to ensure it is clean and free from viruses, before checking your email account for data breaches (being conscious to avoid using a password for your account that may have previously been exposed).

Remember: you can never be too safe online, whether you’re doing online shopping, trading stocks and crypto, or even scrolling through social media. The safest way to store Bitcoin and other cryptocurrencies, and to have peace of mind, is to take the right precautions before executing a trade. If you are interested in learning more, you can download the 

How to Store Your Bitcoin

As the first cryptocurrency to hit the mainstream, Bitcoin has attracted a huge amount of media and investor attention since launching in 2009. But there are still many misconceptions around how Bitcoin is actually created and maintains its security. Mining is integral to this process, but unfortunately, it’s often poorly understood by the general public.


Today, we’ll look at how Bitcoin mining works and its implications for investing in Bitcoin. It’s worth noting up front that the process is fairly similar across cryptocurrencies in general. Though each has its quirks, this guide can be seen as a broad primer for those pondering questions like “How does cryptocurrency mining work?”

To understand mining for Bitcoins, you first need to understand Blockchain. Blockchain is essentially a large-scale logbook, which stores all of the information about all of the Bitcoin transactions which have ever taken place. It’s also what prevents fraudulent transactions from taking place; before a new transaction can occur, Blockchain must verify the authenticity of the Bitcoin.

These transactions are encrypted in complex equations, which must then be decrypted and recorded on the Blockchain for the transaction to be complete. The difficulty of these equations is also artificially heightened as a fraud deterrent via a technique called “hashing”.

So, how are bitcoins mined? Well, as the Blockchain for Bitcoin isn’t “stored” in any one central database, this is a very demanding task, both in terms of computing power and electricity required. So the Bitcoin mining process is relatively simple to understand, if not always a simple process to execute. This is where miners come in — essentially, they lend their computing power to the Blockchain so that these transactions can take place. How does mining work? You need a powerful computer and a knack for tech.

The reasons people mine are complex. Some do it out of the goodness of their hearts because they’re interested in new technology, or they subscribe to an ideological position that has grown out of the popularity of cryptocurrency. But most are simply Bitcoin harvesting. When a transaction’s hash is solved, Bitcoins are handed out as a reward — either as a tip from the person carrying out the transaction or from new Bitcoins effectively being “unlocked”. The process is similar across most other cryptocurrencies, so this also illustrates how cryptocurrency mining can be explained.

Ultimately, the purpose of Bitcoin mining is twofold:

1. Solving the complex equations involved in verifying transactions, which in turn ensures the integrity of the Blockchain.

2. “Unlocking” new Bitcoins, which are then passed into wider circulation.

But these rewards aren’t distributed evenly — rather, they’re sent to the individual miner or miner collective that was the first to solve the hash. As you might imagine, this breeds quite a bit of competition in the mining community.

Bitcoin mining hasn’t fundamentally changed in concept since 2009, but the scope of it has. Solving more complex problems at an increasingly rapid rate is the name of the game — and that means investment in increasingly powerful computers. The prevalence of Bitcoin mining has led to occasional shortages of common PC parts, like graphics cards worldwide, as miners seek to give themselves additional power.

The mining process isn’t carried out by people sitting at their computers, waiting for transactions to pop up for them to process, either. Though there were undoubtedly operators like this back in the early days of cryptocurrency, that would be far too time-consuming today. Rather, most miners use some kind of automated software or bots to process day-to-day transactions. Similarly, very few miners operate in isolation. Many belong to loose or formal co-operatives who pool their computing power and split the rewards.

It’s a demanding and expensive process for those involved — high-end computer parts and electricity bills both attract sky-high costs. But many feel the rewards can be worthwhile, particularly if you’re working with a team of people that you trust. Cryptocurrency is still a frontier environment in many ways — for keen-minded entrepreneurs, there’s always a way to make that work to their advantage.

Bitcoin mining has an interesting future ahead of it. There’s an intense pool of competitors already undertaking mining, competing for a limited pool of resources — and as the Blockchain grows, the processing power required to solve hashes will continue to grow too.

There’s also the added wrinkle of Bitcoin undergoing “halving” periodically. Around every four years, the amount of new Bitcoins unlocked (and in turn, the potential financial reward) has halved to stagger the release of new currency. Nonetheless, many remain committed to the cause, and as Bitcoin has arguably established the most media and investor-friendly reputation, there’s likely to be ongoing interest for years to come.

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Mining Bitcoin has nothing to do with real-world mining or equipment — rather, the term “mining” has been adopted to refer to the process of solving the complex algorithms attached to bitcoin transactions. As all Bitcoin transactions are stored in a single, decentralised ledger — known as the Blockchain — a great deal of computing power is required to maintain the integrity of transactions carried out via Bitcoin. Miners essentially provide their computing power to help solve these algorithms and maintain the Blockchain. Additionally, this process enables new Bitcoins to be unlocked and then circulated into the crypto community.

Though there’s a component of the mining community that’s driven by altruism and excitement about new technologies, it would be fair to say that the bulk of miners are looking to make a profit from Bitcoins. When you contribute to the mining process, there’s also the possibility that you’ll be rewarded with Bitcoins — either in the form of a tip from those carrying out Bitcoin transactions or from unlocking new coins. However, competition is very fierce.

From an investor’s perspective, buying cryptocurrencies directly has tended to prove more profitable than navigating the murkier waters of mining. But that’s not to say people haven’t had success with it — particularly in the early days of Bitcoin. It was easy enough then to carry out mining without a dedicated bank of computers. Today in crypto investor circles, it’s often viewed as rather akin to the Gold Rushes of the past; the initial investment tends to be steep and risky, but the payoff can be spectacular.

More Bitcoins are periodically unlocked at a decreasing rate as more transactions take place and miners solve the relevant hashes involved: once certain targets are hit, new Bitcoins are placed into circulation. Only a finite amount is ever planned to exist — around 21 million. At the time of writing, there are close to 19 million already in circulation.

How Does Bitcoin Mining Work?

To understand how Bitcoin functions with such agility, you must have an understanding of how the Bitcoin transaction process works. Considering it is one of the great tech developments of our lifetime there are plenty of layers of complexity when breaking down the how and why of the Bitcoin system. In order for a successful transaction of electronic funds from one party to another, there are a number of steps and levels of verification that must be completed.

So what is a Bitcoin transaction and how does it work? Before learning how to do a Bitcoin transaction, it’s important to recognise that Bitcoins don’t exist in the traditional way that we understand currencies to be possessive. You can’t hold a 

, you can’t print a Bitcoin and you won’t see a Bitcoin denoted as a dollar sign in your bank account.

So if Bitcoins don’t “exist”, how can you legitimately and safely use them to engage in a peer-to-peer cashless transaction? The way to maintain transparency and regulation is through a public ledger called Blockchain, which is effectively an all-encompassing data file where you can view Bitcoin transactions. This records the history of all Bitcoin Blockchain transactions that have taken place from one Bitcoin address to another Bitcoin address.

Once you’ve wrapped your head around Bitcoins not existing as a typical form of money, we can begin to understand the steps involved with Bitcoin transactions. Firstly, you’ll need to set up a wallet to store your Bitcoins 

, you can easily create an account to begin the process. You’ll then need to purchase Bitcoin so you have currency to 

 — you’ll be able to manage everything within your wallet. Your Bitcoins — or Bitcoin addresses — are actually made up of special keys and you’ll need to enter these to signify a transfer. When a bitcoin is transferred to you it will have a public key and when you are transferring it uses a private key. In order for successful Bitcoin transactions to be completed, there must be an input, an amount and an output of the Bitcoin addresses.

Let’s take a look at a Bitcoin transaction explained through an example of how a transfer might play out between two parties:

Amy is a 29-year-old receptionist from Melbourne and has travelled to Bologna, Italy to take part in a summer cooking school. While there she makes friends with a couple from San Francisco — David and Greg. They decide to take a trip to San Marino for a couple of days, so Greg arranges train tickets and accommodation. Amy wants to repay Greg without having to incur international transfer fees from her Australian bank account to his American bank account, so they agree to use Bitcoin transactions to simplify the exchange of funds.

Amy will input the private key that encrypts the source of the Bitcoins that had been sent to her

Amy will then add the amount of Bitcoin she’d like to transfer to Greg

The funds will then be unlocked using Greg’s public address

They will both then be able to check the BTC transaction via Blockchain

If you’re wondering how to confirm a Bitcoin transaction you can check the status via the Blockchain. Once you have hit send on your transaction it will go into the “mempool” or memory pool in order to be confirmed by Bitcoin miners. A few factors will determine how quickly your Bitcoin transactions are completed, like the type of wallets being used and how congested the Bitcoin network is at that time. If you are transferring Bitcoins from wallets on the same platform it will be instantaneous; other times you can wait for up to 20 minutes while miners sort through a backlog. You can head to the 

 and check the status by typing in the transaction ID into the search field. It’s always important to check for any typos when entering details into your transaction, as this may cause it to be denied by miners.

Bitcoin uses Blockchain to help regulate the transaction process by letting miners across a number of computers verify the addresses and keys. This is essential in making sure the process remains without a central authority while still continuing to be a safe and secure practice for all parties engaging in Bitcoin transactions. Blockchain becomes a decentralised ledger, containing all of the data from Bitcoin operations around the world.

How does the Bitcoin transaction verification process work?

In order for you to receive a Bitcoin verification on your transaction, miners will need to confirm details to ensure there isn’t anything amiss going on. Miners are a group of computers spread across the Bitcoin network that receives encrypted data broadcast to them from users. Using high-level algorithms, the miners will go about testing the validity of your BTC before confirming the transaction.

Once you have entered in the necessary information and hit send on your Bitcoin transaction, it is an irreversible action on your end. However, the receiver may choose to reverse the payment. It’s for this reason you should take care with the users and organisations you choose to transfer money to.

Will I incur fees for the Blockchain transaction of my Bitcoin?

The way fees are calculated will vary depending on your wallet, but generally speaking, you will need to include this fee during the input step — otherwise, the transaction may be denied when it hits the miners in Blockchain. As you cannot ‘half’ a portion of your Bitcoin, anything left over will go to the miners and is considered ‘gifting’ your change as an act of goodwill. If there is a lofty amount of change leftover this can often be seen as an incentive for the miners to prioritise your transaction. If you do not include a fee in your transaction, you may find it will be denied by miners. Users must remember that despite Bitcoin being a revolutionary form of technology it is still emerging and developing which can often lend itself to errors — be prepared for there to be a couple of kinks along the way.

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How Do Bitcoin Transactions Work?

Since its inception, one of the big drawcards of Bitcoin has been its theoretical ability to avoid regulation. Launched in 2009 — while the world was experiencing a financial crisis that had emerged from a blend of big bank greed and government ineptitude — Bitcoin seemed to be something of a magic bullet to the problems associated with more traditional currencies and government-backed finance.

Of course, this was all speculative territory — at the time, Bitcoin was an interesting tech curiosity, but not something that had proven itself in the marketplace. But that would change fairly quickly; once the first commercial transaction with Bitcoin took place in 2010, it immediately garnered attention outside of its original tech fandom.

Questions about the legality of Bitcoin began to emerge almost immediately. Getting consumers and retailers educated around a currency that didn’t “exist” in the traditional sense was an extensive process. Its much-touted anonymity also meant that it was viewed with suspicion by many, even as others embraced it — and its initial popularity on black markets like Silk Road didn’t assuage these concerns, either. “Is Bitcoin illegal?” was a question on many people’s lips at the time.

However, as Bitcoin grew in popularity — and more cryptocurrencies began to emerge and be seen as a viable mainstream investment — Bitcoin legal issues naturally began to be taken more seriously. While early enthusiasts were probably a bit over-enthusiastic in promoting it as the currency of the future, governments, banking institutions and private businesses all began to recognise the need for engaging with Bitcoin, whether or not they liked it.

Legislation almost inevitably runs behind technology, and Bitcoin has been no exception. The first laws specifically making Bitcoin legal in Australia weren’t created until 2017 — 8 years after the technology launched — though people were undoubtedly buying Bitcoins anonymously in Australia in the years prior.

The current legislation is also primarily concerned with two key factors — taxation and the legality of what’s “purchased” with Bitcoins. Is Bitcoin legal? Yes. Is it a currency? Not really in Australia. It’s treated more akin to a stock or an asset. Accordingly, if you decide to sell your Bitcoins and make a profit, you may be required to pay Capital Gains Tax at the end of the next financial year. As might be expected, it’s also not legal to use it to trade for items that are already illegal — though this already applies to cash or other forms of barter transaction, anyway.

The question of “Should Bitcoin be regulated?” has been a thorny issue among the crypto community; some hardline purists posit that regulation is a betrayal of the core principles behind the original 

. Others are more pragmatic, accepting it as a cost of doing business and building more mainstream acceptance, if not necessarily being enthused about the involvement of a central authority like the government.

But though it’s probably fair to say that Libertarian-minded voices tend to shout the loudest in the crypto community, there are definitely investors who would like to see more regulation. Investor protections need to be considered, as do the possibilities of hacks or theft. Is Bitcoin safe and legal? Yes, to a point — and there are many who would like to see that risk further reduced. Though there are undoubtedly criticisms to be levelled at government-backed currencies, having the backing of a bank or government does provide a certain amount of consumer protection — particularly when it comes to electronic transactions.

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The short answer is no, not in Australia. Cryptocurrency regulations in Australia are relatively progressive and look likely to stay that way for the foreseeable future. However, just as with any other form of commerce, it’s not legal to use them to purchase items or substances that would otherwise be illegal anyway. So if you’ve been wondering, “Are Bitcoins legal?” now you know for sure.

As with Bitcoin itself, different countries have taken a wide variety of responses to cryptocurrency in general. Although it’s legal in Australia, it’s unlikely that we will see a unified world position on cryptocurrency anytime soon. However, government attitudes are likely to shift over the coming years as cryptocurrency continues to expand its mainstream presence.

It varies around the world. Tech usually runs at least a few years ahead of legislation, which means that while there are laws in many countries governing cryptocurrencies, there isn’t necessarily specific legislation for all of the varieties that currently exist. Combine this with the fact that some cryptocurrencies have been created as novelties rather than a tradeable commodity or outright flopped once they hit the marketplace, and it’s easy to see how some just fly beneath the radar. However, numerous governments have created laws around Bitcoin specifically, in no small part due to its prominence in the media.

Theoretically, yes. A number of governments around the world already have. However, it’s unlikely to become illegal in Australia. Since 2017, Bitcoin laws in Australia have been relatively lenient. They’re primarily concerned with issues around capital gains tax when they’re converted into cash or preventing Bitcoin from being used to purchase illegal materials.

What is Bitcoin’s legal status by country?

This is a complex question — made more so by the fact that the situation is constantly evolving. The only country currently accepting Bitcoin as legal tender at the time of writing is El Salvador. However, a number of countries have accepted its status as an asset rather than a full-blown currency in and of itself. The approach tends to be fairly laissez-faire. How that asset is utilised is largely up to the holder — if private companies and individuals wish to accept it as payment, that’s not really a problem, as it essentially acts as a form of barter. However, it can have capital gains tax implications when it’s converted to cash for profit — Australia is one country where this is the case.

Nonetheless, there are a number of countries where Bitcoin is illegal. China, Russia, Vietnam, Bolivia, Columbia and Ecuador have all taken varying stances against its use. The cases against it vary; in some cases, it can be seen as authoritarianism and government overreach. In other circumstances, it could be argued that it’s more to do with consumer protection. Russia, for example, does not regulate Bitcoin per se but its use for goods and services is banned.

China is the most interesting case from an investor’s perspective; though it’s a major hub for mining, cryptocurrency transactions are explicitly prohibited. There have also been numerous attempted crackdowns on the level of mining in the country, so it will be interesting to see how attitudes shift over the coming years.

BTC Markets Blog

What Is Bitcoin & How Does It Work?

How to Store Your Bitcoin

How Does Bitcoin Mining Work?

How Do Bitcoin Transactions Work?

Is Bitcoin Legal In Australia?

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How to Store Your Bitcoin

How Does Bitcoin Mining Work?

How Do Bitcoin Transactions Work?

Is Bitcoin Legal In Australia?

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What Is Bitcoin & How Does It Work?