Definitive Guide to Bitcoin (for beginners)
New Bitcoins are mined by miners by solving cryptographic tasks. In the process, more blocks are added to the blockchain. (Hence the name blockchain technology). The first miner to accomplish this receives Bitcoin as a reward. However, the production of blocks is very costly and takes longer and longer. Also, to make the system more secure. In addition, the energy consumption is high. It is estimated that mining and financial transactions will soon consume more energy than Italy.
How does bitcoin work?
The amount of bitcoin is limited to 21 million. The technology provides for fewer and fewer bitcoins to be produced per computational task. Also, the reward for mining bitcoins halves about every 4 years. The last bitcoins will be mined around the year 2140.
The Bitcoin payment system was invented by -appearing under a pseudonym- Satoshi Nakamoto. In January 2009, an open-source reference software was released for it. So you could always look at the code and decide for yourself whether you trust the technology. Of course, this is only possible with the knowledge of IT experts.
What should I look out for when buying Bitcoin?
Open also a digital wallet at your place – without internet connection – to store the private key of your Bitcoins (cold storage). Only one account alone is too insecure, as it could be attacked by hackers. Your wallet does not hold the digital coins themselves, they are in the blockchain. You can, however, use the private key in your wallet to authorize transactions to other people.
Why is Bitcoin worth anything?
The value of Bitcoin is based solely on the confidence of market participants. Stocks and companies provide dividends, and an investment property generates rental income. Bitcoins do not generate cash flow and are intangible. Supporters argue that Bitcoin is the only limited asset.
It is not surprising that the Bitcoin price is very volatile. In some cases, price losses in excess of 90% are conceivable. At the same time, Bitcoin enjoys a high level of media attention. As soon as Elon Musk tweets that he accepts Bitcoin as currency for Tesla, the prices go through the roof. When he tweets a few weeks later that the digital currency is unsustainable due to its high power consumption, the prices drop again.
There are few Bitcoin in free trade. Players seem to hold bitcoin for a very long time after acquisition. As of March 2019, 1,900 addresses owned just under 41% of all Bitcoins. This limits natural price discovery.
So Bitcoins are a highly speculative investment. Only if you can do without your invested money well, the purchase is worth considering.
Bitcoin is alright
Bitcoins are not unserious. They are based on innovative blockchain technology. This enables decentralized management and person-to-person transaction.
It is almost impossible to ascribe a value to Bitcoin, as it is based on the trust of market participants. No government or financial institution vouches for the cryptocurrency. And the monetary investment does not generate cash flow like stocks or real estate. This makes Bitcoins even more unsuitable as a means of payment and speculative as an investment of value. Bitcoin exchanges are also frequently attacked by hackers.
Of course, only you can decide whether to invest in Bitcoin. You should only invest money that you can well do without. A total loss is always conceivable.
How did you decide: Do you invest in bitcoin or in another digital currency? Drop me a line in the comments!
Bitcoin mining is a process of providing computing power to process transactions, secure and synchronize all users on the network. Mining is a type of decentralized Bitcoin data center with miners all over the world. This process is called mining in analogy to gold mining. Unlike gold mining, there is a reward for useful services in Bitcoin mining. The payout of the respective Bitcoin shares is based on the computing capacity provided.
In traditional fiat currency systems, governments or central banks print more money when there is a need. With Bitcoin, on the other hand, no money is printed. Rather, Bitcoin is mined itself or in the cloud (cloud mining). Around the globe, computers mine (calculate) Bitcoins, competing with each other.
How does bitcoin mining work?
Around the clock, people transfer bitcoins through the Bitcoin network. The Bitcoin network handles these transactions by collecting all the transactions in a given time period and putting them together in a list – called a block. It is the miner’s or prospector’s job to confirm these transactions and enter them into an account book. He is paid for this in bitcoin (the bitcoin transaction fee).
Creating a hash
The ledger of accounts is a long list of all the blocks. It is appropriately called the blockchain. The blockchain is used in bitcoin mining to keep track of all transactions at any given time. Whenever a new block is created, it is added to the blockchain. This results in a seemingly endless list of all transactions ever made. The blockchain can be viewed by anyone. Accordingly, every user can see which transaction is being carried out. What is not visible, however, is who is carrying out this transaction. Thus Bitcoin is transparent and pseudo-anonymous at the same time.
How can we ensure that the blockchain remains intact and is never manipulated?
This is where the miners come in. Once a block of transactions has been generated, miners run that block through a process. They take the information and apply a mathematical formula that converts the transaction into something much shorter, really just a string of letters and numbers. This is also called a hash. This hash is kept in the block at the end of the blockchain.
Hashes have some interesting properties. It is quite easy to create a hash from the Bitcoin block’s information, but nearly impossible to see what the hash was before. Furthermore, it should be noted that each hash is unique: if even one character in the block is changed, the entire hash will change.
To create a hash, miners use not only the transaction data in the block, but also other additional data. Part of that data is the hash in the last block of the blockchain.
As each hash of a block uses the hash of the previous block, a kind of wax seal is created. It confirms that the current block and the one before it are valid. If someone tried to tamper with a transaction by changing the block that is already in the blockchain, they would have to change the hash as well. If someone checked the authenticity of the block using the hashing function, they would immediately notice that the hash did not match the one in the blockchain. The block would immediately be exposed as a fake.
The competition for bitcoins
Miners compete with each other to find new blocks. Each time someone successfully generates a hash, they currently receive another 12.5 bitcoins. The blockchain gets an update from the hash and everyone learns about it. This incentive system rewards the mining that keeps the transaction processing going.
The problem is that it is very easy to generate a hash from a collection of data. So the Bitcoin network has to make it harder, because otherwise everyone would be hashing hundreds of blocks a second and all the Bitcoins would be mined in a few hours. The Bitcoin protocol accordingly makes it harder for miners on purpose by introducing a so-called proof of work – the mining difficulty increases over time.
The Bitcoin network would not accept just any old hash in the process. Rather, the block hash must have a certain appearance, such as a certain number of zeros at the beginning. There is no way to know what a hash will look like until it is produced, since it completely changes its appearance with each piece of record that is added.
Most of the time, it takes many tries to find the right nonce. Therefore, miners usually work on the same network at the same time. Once the nonce is found, the bitcoins are divided among all the miners according to their performance. This is how miners eventually earn Bitcoins.
What does it take to mine bitcoin?
There are several ways to mine bitcoins. For one, you can mine Bitcoins from home using so-called ASIC miners
Mine Bitcoins yourself
Popular Bitcoin miners include antminers. The miners are simply connected to a router via LAN cable. Then, they can be configured via the web browser. No other device or software is needed, as they are standalone miners. The latest miners now also have an integrated power supply.
The most efficient Bitcoin miner at the moment is the Antminer S19 with up to 110 TH/s. The miners are simply connected to a router via LAN cable. Then, they can be configured via the web browser. No other device or software is needed, as they are standalone miners. The latest miners now also have an integrated power supply.
Of course, mining can also be done on a larger scale and professionally. Miners.de, for example, offers a complete package. Here, the miners are securely hosted and managed and optimized by experts. In addition, customers benefit from lower electricity costs and space as well as noise savings compared to self-management.
What is a mining pool?
Mining pools operate on the idea of collective mining. After all, if you mine alone, it takes you much longer to find new blocks. It is almost hopeless, as the computing capacity required would be far too large. The so-called mining pools provide a remedy here. Here, the required computing capacity of all users is bundled. Thus, new blocks can be found much faster. The payment in Bitcoin is divided among the individual users according to the computing capacity provided.
Bitcoin mining with your own computer
Of course, the rest of your PC has to be able to keep up with the power of the graphics card, which further drives up the price of deployment. And you’ll need to install a tool that you then use to log into the pool, which then performs the bitcoin calculation.
Awesome Miner and Co: Mining with Windows and Linux
After installation, you can add new PCs to your own mining pool. A wizard is available for this purpose. Up to two miners can be used free of charge. The miners can also be managed via the cloud. However, you need to take out a subscription for this.
Summary: What you need
Suitable hardware including a powerful graphics card that is optimized for mining. On the Internet, some manufacturers now even offer their own motherboards that are suitable for calculating cryptocurrency. Optionally, use a cloud service such as Genesis Mining or BitDeer.
Once you have set up the necessary hardware and software, you can start mining. You can, of course, switch providers at any time. You can also transfer the contents of your digital wallet to other providers. You can also install apps on smartphones to have mobile access to your Bitcoins.
Making Ether may also be something for you. The Ethereum platform works with the cryptocurrency Ether. As with Bitcoin, efficient graphics cards from AMD and Nvidia are used to generate Ether in order to calculate the currency. Ether is the second most popular cryptocurrency after Bitcoin. The underlying blockchain “Ethereum” is also used a lot by companies, for example, for smart contracts in supply chains.
Tip: Those who want to mine Ethereum should rely on graphics cards from AMD, as they are better suited for Ehereum. Examples of this are AMD Radeon RX 580, AMD Radeon RX 480 and AMD Radeon RX 5700 XT. However, the graphics cards can also be used for Bitcoin. Other graphics cards in this range include RX 460, RX 470, RX 560, RX 570, RX Vega 56, RX Vega 64, Radeon VII, RX 590 Vega Frontier Edition, RX 5600, RX 5600 XT, and RX 590 GME.
Mining Pools Explained
People who mine cryptocurrencies call themselves miners. They join together in networks to compute difficult and complicated algorithms that are used to create new units. These networks are called pools and are also responsible for the fair distribution of profits between miners. But what are the pools and how do they differ?
How mining works depends on the algorithm. Example: a miner works on the Ethereum network (algorithm: Ethash), where the graphics cards solve puzzles to prove their work output – once this is done, a consensus (agreement) is formed, called “Proof of Work” (PoW). The process described is used to validate and create new blocks that are integrated into the blockchain. For solving these puzzles, the miner receives pay. How high it turns out depends on the hashrate.What are pools anyway?
- “PPS” (Pay per share)Here miners get paid a fixed amount per “share”. Shares are the units they calculate with their hashrate. In this system, miners get paid for the shares they provide, even if the pool does not generate a block. This is a risk for the pool, which is why the fees are usually higher for PPS pools: between 1 to 3 percent.
- “PPLNS” (Pay Per Last N Shares)These pools are different from PPS pools: Miners are only paid when the pool actually generates a block. How much the miner gets depends on provided shares that helped to calculate the block. As a result, the variance is higher. This means that with a bit of luck, miners get a bit more money here, but it can also go the other way. In return, the pool fees are usually lower. Usually, the end is at 1 percent.
- “PPS+” (Pay per share plus)This is a hybrid of the two previously mentioned methods. Miners get money for each valid share and they are also partially compensated for each block found, but not to the same extent as in the PPLNS variant. The combination of the two systems promises miners the greatest stability. In return, the fees are usually slightly higher.
What are the most popular Ethereum pools?
These are the most popular Ethereum pools according to poolwatch.io. The portal also lists pools of other cryptocurrencies such as Bitcoin.
- Ethermine comes in at 92.5 TH/s with 205,234 active miners providing 576,867 worker PCs. According to its own data, Ethermine thus manages 55.58 blocks per hour. In addition, the pool lists every block found on its homepage, which creates trust – something that is close to the heart of the pool’s users, because Ethermine charges according to “PPLNS” procedures. When Ethermine pays the miner depends on the user’s own settings. Miners cannot register here, mining is done anonymously.
- While the F2Pool (see chart above) is larger than Hiveon, it charges high fees. PPS costs 3 percent and PPS+ 2.5 percent of the profits, moreover, only registered users are allowed to mine there. Therefore, Hiveon seems much more attractive, because the pool (currently) does not charge any fees and it is allowed to mine anonymously. Settlement is done via PPS+. 43,313 miners trust the pool and provide about 115,492 workers. Hiveon thus comes to 22.9 TH/s. Top: Hiveon also provides its own operating system for miners, the so-called HiveOS. However, this costs miners up to 3 percent of profits. Other operating systems are available for fixed amounts.Trading with Bitcoin – how does it work and where does it work?
The main task of the software is to connect the mining hardware to the Bitcoin network, for example, and forward its processing power to the network, but also to feed the power of other pool miners into the network. The bitcoin mining software monitors this constant input and output of the entire miners, providing statistics, miner speed, hashrate, temperature, and ventilation speed.
One of the most important things to take care of when mining, apart from the best hardware, is the right wallet. The virtual wallets, just like in real life, are essential if you want to conduct the daily transactions – so in our case.
The wallet must be actively set up as soon as one wants to use the Bitcoin mining software. Why this is a priority is explained by the predefined processes of the pools as well as wallets. After successful installation and the first mining successes, the software automatically asks for a Bitcoin address to transfer the mined profits. As soon as a wallet has been set up, one immediately receives a bitcoin address.
A secure wallet is always a wise decision. After all, one may be depositing lots of various cryptocurrencies with possibly not inconsiderable values.
What software is available?
Another point is the functionality of mining software on different operating systems. How they work – we explain here.
Commonly used on Windows 10 and Windows 8, they have a simple and intuitive user interface, can share content quickly, support mining pools, and work in power-saving mode when needed. As a useful feature, the profit overview function always provides an instant overview of whether mining is currently profitable or not.
This open source mining software for ZTEX USB-FPGA 1.15 modules runs on Linux and Windows operational systems. However, Windows users need to install the libusb drivers first.
Furthermore, it includes a ready-to-use bitstream that does not require a separate license or Xilinx software. Actually a crucial advantage, but its dynamic frequency scaling is based on a mismeasurement. The BTC Miner automatically searches for the frequency with the highest rate of a valid hash. It is available for download on the official website.
This miner software for GPU, FPGA and ASIC is currently the most demanded. CG Miner is an open source GPU miner, written in C+ and programmed for the most popular platforms such as Linux, Windows and OS X. It has become so popular partly because of this fact, and partly because it is based on the original code of CPU miners.
The BFG Miner is a very versatile program that leaves out almost no requirements. It is always available for download on the official website
Easy Miner is GUI based and works as a handy wrapper for BFG Miner and CG Miner software. It supports both Getwork mining protocol and Stratum mining protocol and can be used for solo and pool mining. The main function includes proper configuration of the miner and easy visualization of performance graphs of one’s mining activities.
This software uses the OpenCL framework and is a Java GPU miner. Its programming allows users to perform faster hash computation. The program itself works with the latest Nvidia drivers and ATI streams.
In case you are logged in to multiple pools, Diablo Miner supports an unlimited number of pools. In case of any connection errors, the software automatically switches to the next pool and checks for the establishment of the previous connection every 60 seconds in succession. At github.com the latest version of Diablo Miner is available for download.
This mining software is not one of the most popular, however, due to its structure, it is certainly one of the most efficient. BitMinter is constantly working on improvements and doing everything it can to make mining lucrative with high payouts
That’s another reason why BitMinter is a bit different, because it belongs directly to a mining pool. After registering, you can get started right away. For installation, the download is available on the website. BitMinter is available for Windows, as well as Linux and Mac OS, and ensures long polling to reduce working time and optimized mining speed. In addition, the software allows mining on OpenCL-compatible GPUs, ASICs, and FPGAs.
Poclbm uses the OpenCL framework and is thus able to perform hash calculations even faster. When a modern GPU is used, this framework realizes its full potential and hash speeds of maximum size are generated. In addition, the software allows programming and writing versatile codes for the hardware. An option that is especially beneficial for IT experts.
The Python GPU software works perfectly with newer AMD and Nvidia GPUs and seems ideal for experimentation as well as multi-machine mining. On github.com the software can be downloaded directly.
Bitcoin Mining Software for Mac OS X
RPC Miner: Can be used on Mac OS and provides perfect integration of Mac OS APIs. But this software also works for Linux and Windows.
Buy out coins
With Buy-Bitcoin-Worldwide, one can search for bitcoin exchanges in any country worldwide. Once you have done the setup, already successfully mined and received first transactions, the question of the best payout arises. Last but not least, there are expenses in mining that sometimes need to be paid from the income, such as the electricity bill.
In principle, a wallet can exist online and offline (for example, in the form of so-called “paper wallets”). To first acquire cryptocurrencies, you need to use a coin exchange, for your first transaction. Sites like Coinbase, Kraken or Binance are online platforms where you can convert Euros into Bitcoin and Co. To do this, you link your bank account to a wallet, which the respective provider generates for you. Of course, these providers are out to bind you, since they charge fees for trading with digital currency. To make sure this goes smoothly, each user gets a separate receiving address (an online wallet) for each cryptocurrency, which is linked to the account on the coin exchange. This makes it easy to execute trading orders, and sending, converting (e.g.: exchanging Ripple for Bitcoin) and exchanging the coins back into Euros is possible in no time at all.
However, security leaves much to be desired in some trading venues. News emerged several times that an exchange became the target of hackers. The South Korean exchange Youbit has been hit very sensitively.
The case of Youbit
The platform suffered two serious setbacks at the same time: The first occurred in April 2017, then a second in December. In the first attack, one bitcoin was worth about $1,000. Here, hackers procured an even 4,000 Bitcoin worth about four million euros. In December, hackers again captured 17% of the exchange’s total volume. Exact figures of which Bitcoin wallet lost how much were never disclosed. At the time, bitcoin had reached its highest price of nearly $20,000. The coins of customers who had deposited their wallets with the platform were then (estimated) reduced by a quarter. Exactly by a quarter, the Bitcoin price also collapsed afterwards, to about $16,000. Youbit then filed for bankruptcy.
So you see: if there are loopholes for hackers in a coin exchange, they can get to your wallet and thus to your coins. Therefore, you should only keep smaller amounts here for trading, if at all, and back up larger amounts on another wallet. Furthermore, you relinquish control of your Bitcoin wallet to the relevant exchange, which technically gives them full control over your wallet. This is because the wallets created are managed by the exchange and so they also have access to your private key.
The nice thing about online wallets deposited on exchanges like Coinbase is that it’s dead easy to trade Bitcoin. The really bad thing is that your private keys are also stored there. The fact that coin exchanges are not banks comes with advantages, but also disadvantages. One major disadvantage of the system is that there is no liability and no legal deposit insurance (which is usually €100,000 after all). Thus, you are dependent on the security measures of your coin exchange. Whether and how the wallet keeps track of all transactions at all times is usually not known to the user. A wallet is only as secure as its administrator – and you can simply be that yourself.
Hardware or software wallet?
It’s quite simple: for every transaction with Bitcoin, you need two Bitcoin wallets. One receiver and one sender. Only if you want to acquire Bitcoin for the first time or convert it into euros, you need a coin wallet. For storage, a hardware wallet is worthwhile, which can even consist of just a sheet of paper (more on this below). The crucial thing about a hardware wallet is that it ensures high security, as long as you also have a backup. With a paper wallet, for example, you can copy multiple pages and store them in different locations.
Web wallets are, as the name suggests, internet-based. As we have already seen, while coin exchanges offer wallets – which are irreplaceable for the initial purchase of Bitcoin or any other cryptocurrency – you cannot take care of their security yourself and are completely dependent on the care of the platform operator.
This is located as an app on your cell phone and is like a customer or Payback card at the checkout scannable via QR code and useful for quick payment. The app is usually an online banking account at the same time. Safe as long as no one hacks your password. And if the smartphone is lost, without a backup, good advice is expensive.
Seed and Public Key
Each public key is linked to a private key, which is what allows access to the blockchain and thus transactions in the first place. Since no banks are directly involved in cryptocurrency trading, the security must be anchored within the blockchain to make each transaction traceable. The private key is often also called seed. This seed can be found, for example, when installing a hardware wallet in the form of 24 words that must be written down. It is a very extensive PIN that cannot be calculated according to current knowledge. To create the private key, Bitcoin uses cryptological hash functions, including the algorithm SHA-256, which was co-developed by the NSA.
How secure are hardware wallets?
Software wallets always use an operating system. That’s vulnerable, of course, whenever it goes online. But you can also use a bitcoin wallet, which never needs to go online to receive bitcoin. Such a hardware wallet, if used properly and backed up, is unhackable. If you want to play it completely safe, store your private keys offline. There are numerous options here. Combining two of the following methods provides a level of protection that is more than sufficient for most cases.
Disadvantages: Accidental deletion and data loss in the event of hardware damage or malware attack are still possible. In addition, it can be infected by malicious software just like your computer.
2. Print out on paper: If the private keys are printed out and stored safely, the level of protection is automatically increased. To do this, create a paper wallet. Here, the keys and address are safe. The data is stored on a non-electronic medium and therefore cannot be stolen or destroyed by malware infestation. Creating multiple copies and storing them in suitable locations is recommended and increases fail-safety.
4. Use a hardware wallet: These are devices that store the private key, for example, and release it only when the user connects it to the PC and presses a button. The devices are available from around 80 euros.
There is, however, one small disadvantage to the whole offline existence: it may take longer for payments to actually be completed. This disadvantage, however, should be manageable in most cases, if the alternative is the possible loss of the entire wallet through a hack.
Create a crypto wallet (guide for newbies)
The brochure “Designing Blockchain Securely” from the German Federal Office for Information Security provides some useful tips for private users on wallet security. This is because the security of different wallets varies. Among other things, the type of wallet plays a role, as the BSI writes. In simple terms, there are hot wallets and cold wallets. Hot wallets have a connection to the Internet, while cold wallets do not. Without an Internet connection, the risk of a hacker attack naturally decreases. In addition, each wallet has an individual key that is used for identification on the blockchain. This key should be created via a strong random generator whose allocation model is unpredictable. This makes it harder for hackers to launch attacks on the secret key. The BSI provides more useful information on cryptocurrencies on this page.
Create a wallet: Here’s how
There are several ways to create a wallet for buying and trading cryptocurrencies. When deciding for or against a type of wallet, not only the security aspects mentioned above should play a role, but also the trustworthiness of a provider. After all, there are many black sheep in the unregulated crypto market. Therefore, you should take a close look at every provider before you create a wallet there. Rating platforms such as Trustpilot can help to discover possible scams or security gaps in advance.
Option 1: Don’t create a wallet and use an exchange
Crypto exchanges now abound. Among the best known are Coinbase, Binance or Crypto.com. For the purchase and trading of cryptocurrencies, no independent wallet is necessary on these exchanges. As a customer, you create an account that you load with euros or other fiat currencies to buy cryptocurrencies. The wallet is included in the account. The advantage of this solution is that it is quite simple and the purchased coins and tokens can be exchanged for real currencies at any time. However, with this method there is a risk that the wallet will be hacked and the cryptocurrencies will be stolen. In any case, you should use two-factor authentication for your account.
Option 2: Use soft wallets
Some cryptocurrencies offer their very own wallets that you can download and use to store your coins. Some examples are Daedalus for Cardano, NEON Wallet for NEO or the Avalanche Wallet for Avalanache. First, see if the coin you want to buy has its own wallet. This should be the case for many coins. Then you just need to install and set up the appropriate wallet software. A good antivirus program (buy antivirus program on Amazon / ADVERTISEMENT) can reduce the risk of malware and other attacks on the wallet. The disadvantage of these wallets is that they can only be used for one specific coin.
An online wallet such as MyEthereum, Metamask or Exodus allows access to one’s cryptocurrencies from anywhere and can be used to exchange, send and purchase various coins and tokens. With the help of these wallets, the blockchain can be accessed via various websites. The application only needs to be downloaded onto the PC or smartphone. A password for the personal wallet and a backup key are then created. The backup key can be used to restore the wallet, which is why the phrase should be written down and kept in a safe place.
Option 3: Set up hardware wallet
A hardware wallet is similar to a USB flash drive and is used to store coins without connecting to the Internet. It is considered the safest method to store the purchased Coins, as hackers cannot access it – not even when the wallet is connected to the PC. You can easily buy such a hardware wallet on Amazon (ADVERTISEMENT). Among the most popular models are the Ledger Nano X (DISPLAY) and the Ledger Nano S (DISPLAY). The device is simply connected to the PC and then gives you the necessary installation steps. Basically, all you have to do is assign a PIN, for which you are then assigned a recovery phrase of 12 to 24 words. This phrase should be noted down and kept safe. If a device is broken or lost, one can order a new wallet and restore one’s coins with the phrase.
For newcomers, using a hardware wallet can be a bit complicated. For those who want to understand how setting up a hardware wallet works, check out this video for a good tutorial on the Ledger Nano S.
Option 4: Paper wallet for Bitcoin and Ethereum
For Bitcoin and Ethereum, so-called paper wallets can also be created. As the name suggests, this involves printing the private and public keys for the respective blockchain on a piece of paper. For Bitcoin, for example, wallets can be created via the sites bitaddress.org or walletgenerator.net and then printed out on paper. A paper wallet for Ethereum, on the other hand, can be created via the site myetherwallet.com. Although this method does not require an Internet connection and is therefore quite secure, there is still a risk of paper wallets being lost. In addition, the handling is quite complicated for newcomers.
In the meantime, it is no longer just daring private individuals who are buying coins; institutional investors have also discovered digital currencies for themselves. Many of them are putting their money into the two best-known cryptocurrencies, Bitcoin and Ethereum. Together, their market capitalization represents around 60 percent of all digital currencies. No wonder, then, that almost every trading center for cyber currencies has Bitcoin and Ethereum in its repertoire.
Even though they are actually available for purchase on every crypto platform, the differences between trading venues are enormous. Some offer real bitcoins, others ETPs of bitcoin on a securities exchange, and still others rely on bitcoin derivatives.
1. Real Bitcoins
On traditional exchanges and marketplaces, such as Binance, investors can purchase real Bitcoins. Exchanges sell the coins directly to the customer – the price is based on supply and demand. Marketplaces, on the other hand, are intermediaries; they only provide the platform for a transaction between buyer and seller. The price there also depends on the market, but the exact amount is determined by the seller.
Whoever buys real Bitcoins is also really in possession of the digital coins. It is up to him whether he leaves them on the respective crypto platform or transfers the cryptocurrency to an external wallet, for example, to use it as a means of payment in an online store.
Tip: Depending on the crypto exchange, the current rates for a Bitcoin differ. Websites such as cryptowat.ch help to compare offers from different exchanges and find the current best possible price.
So the Bitcoin is only suitable as a speculative asset with these brokers. For most investors, this is usually enough, since the possibilities to pay with Bitcoins are currently still limited. However, anyone who wants to keep this option open will have to look for another provider.
By the way, investors do not have to buy a whole Bitcoin – with a value of more than 50,000 US dollars, this should also be difficult for many. Those who want to invest less money can merely purchase fractions.
2. Bitcoin ETPs
Another so-called neo-broker, namely Scalable Capital, offers to trade Bitcoin in the form of ETPs. These securities are similar to stocks or ETFs. They are distributed via an exchange and can even be saved. They are therefore suitable for investors who want to invest smaller amounts on a regular basis.
3. Bitcoin derivatives
Bitcoin derivatives are available for purchase from various providers. For example, the CFD broker Plus500 and the online broker Etoro offer bitcoin CFDs. But also banks, such as the S-Broker of the Sparkasse or Comdirect, have warrants and futures on Bitcoin in their offer.
Caution: derivatives such as CFDs are suitable mainly for advanced traders. A large proportion of private CFD accounts are sliding into the red.
When it comes to the sheer number of coins, Binance is a good place to start – over 150 cryptocurrencies can be traded here. In addition to Bitcoin and Ethereum, the sought-after Dogecoin is also available there. The online broker Etoro has also included the popular coin with the dog meme in its range.
Exchanges such as Kraken or Coinbase also offer a wide range of cryptocurrencies, but charge higher fees than Binance. With German providers, it’s mostly the other way around. Here, there are only a handful of digital coins, but BSDEX, Bitcoin.de or Trade Republic are cheap. On the latter, investors can trade stocks and ETFs in addition to four cryptocurrencies. The same applies to the online brokers Justtrade and Scalable Capital.
A special feature is offered by Nuri (formerly Bitwala) – the platform combines crypto trading and banking. Here, a bank account and debit card are included. Bitcoin and Ethereum can be converted directly into euros by customers, allowing them to cash out at Visa-supported ATMs.
Many crypto platforms offer an app for buying and selling bitcoin in addition to their online version. This has the advantage that active investors can react flexibly to price fluctuations. Good apps for Bitcoin trading are available from Bison, Coinbase or Trade Republic. Here, users will find a simple structure and an intuitive interface.