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As Bitcoin is in its third bull run, you may be seeing all the hype about it online and wondering what it is all about. Or perhaps you’ve already heard of Bitcoin and have a few questions, but are afraid they’re too silly or obvious to ask. That’s why we’ve created this article with all the questions you are too scared to ask about Bitcoin.
Well, first of all, there is no question too obvious when it comes to crypto. In fact, we have our Bitpanda Academy that goes back to the very basics of what Bitcoin is and where it comes from! Crypto is still young and we are all learning together, that’s why we’ve made this article with all the questions you might be too scared to ask about Bitcoin. So let’s jump right into it!
1. What makes the Bitcoin price go up or down?
What determines the Bitcoin price is not as complicated as you may think. Simply put, it is simply supply and demand. When people buy more Bitcoin on exchanges such as Bitpanda Pro, the price of Bitcoin will climb higher because people are wanting more Bitcoin and are therefore willing to pay more.
The price of Bitcoin goes down when the demand for Bitcoin decreases. This could be due to a range of things such as general uncertainty or bad news related to Bitcoin. If more people wanted to sell Bitcoin rather than buy it, there would be greater supply than demand and the price would fall.
2. What does a “volatile market” mean?
You may hear investors refer to the Bitcoin and the crypto market as very volatile. A volatile market means that the price of an asset fluctuates sharply and without warning signs in a short period of time. One minute it’s up, one minute it’s down - much like a roller coaster! While it can be scary when you bought higher and your assets suddenly went down a lot, it can also go up again as fast.
In fact, currently (December 2020) Bitcoin is hovering around the same price as it had during the last all-time-high in December 2017. Keep in mind that you should invest responsibly, even if you are fully aware of the volatile nature of Bitcoin.
A volatile market could mean that as volatility increases (the price suddenly sky rockets within days) the potential to earn money back on your investment also increases! On the other hand, it could go the other way (where the price suddenly crashes) so higher volatility means higher risk. Obviously, all of this only matters to you when you plan to sell and cash out. This is where the term “hodl” comes from, which originates back to a typo of the word “hold” and means nothing less than to sit out extreme volatility and relax.
3. What is Bitcoin actually? Is it like a stock?
Buying a stock basically means that you own a small share of a company. If you buy Bitcoin from Bitpanda, that doesn’t mean that you own a share of an actual company. Instead, you own a share of the bitcoins that are in existence. If you want to compare Bitcoin to a more traditional asset, then you should go with gold. In fact, more and more investors and industry insiders refer to Bitcoin as “digital gold” or “gold 2.0” because it shares quite a lot of characteristics with gold. But Bitcoin is also more than that, because it’s not only a store of value, but also a fully decentralised payment network and therefore something like digital cash.
4. Can you spend Bitcoin?
Yes, of course. While Bitcoin is more and more seen as “digital gold” you can also spend it on goods and services, or send it to friends and family. And of course, you could sell your Bitcoin holdings for fiat currency (like e.g. euro). Or you could also trade Bitcoin for BEST (Bitpanda’s Ecosystem Token) or any of the other 50 digital currencies on Bitpanda. The choice is entirely up to you as an investor.
5. Where do I keep Bitcoin?
Bitcoin is not a physical coin that you can safeguard under lock and key. Bitcoin is and always will be entirely online and stored in something called a wallet (a digital one of course). Similar to the way you keep cash or cards in your physical wallet, your broker or exchange will give you a digital wallet. Alternatively, you can also create your own Bitcoin wallet, where you know your private keys that you should not, under any circumstances, give to anyone. Learn more about a crypto wallet in our Bitpanda Academy lesson.
6. What is this blockchain thing?
“Blockchain” can be a difficult concept to comprehend. Basically, a blockchain is a decentralised tamper proof database that acts as a public ledger where all transactions are held for everyone to see. It is not controlled by a single company or government but runs on many computers around the world. This is where all the magic happens. Have a look at our Bitpanda academy lesson where we really take a deep dive into the basics of blockchain. As a regular investor, you don’t have to worry too much about it, but it’s still interesting to learn how it works.
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