How do I get Bitcoin?
There are a number of ways you can get Bitcoin:
Just like traditional money, you can earn it by providing goods or services, and asking for people to pay you in Bitcoin rather than in traditional money. This is often a cheaper and easier alternative to other payment methods and one of the easiest ways to get your hands on some Bitcoin.
Another way is how most people get their Bitcoin: buy it from a credible Bitcoin broker or exchange provider, like Luno. This is similar to how you would buy foreign currency at your bank or shares online. This is often the easiest way to get Bitcoin because you are virtually guaranteed that someone will be willing to sell their Bitcoin to you on such a platform.
You can also get Bitcoin by mining for it, but this has become very difficult to do for the average person. Most mining is now done by huge companies with very expensive and highly specialised equipment, which a typical person or computer cannot compete with. So unless you have a lot of expertise and a huge amount of money to spend on this, rather just buy or earn the Bitcoin.
Bitcoin as the internet
The internet has changed the way people live and do business, and is arguably one of the biggest advancements in human history. What many people don’t realise is that the internet we know today might never have happened at all because there were a number of ‘rival’ ‘internets’ being built at that time. These were specific companies that wanted to connect all the computers in the world and share information, but do it on their own system, so that people had to pay to access their own ‘information superhighway’.
The modern internet was different in that it was, by design, an open system that anyone could use as they please, and it wasn’t owned by anyone, so no gatekeepers. This lead to something called ‘permissionless innovation’ – people can try and test new things without needing access granted by some gatekeeper. This lead to an explosion of innovation and adoption of the ‘open’ internet, and is the reason the internet is so pervasive today. The design also means that most parts of the internet are ‘interoperable’ – this means that the internet or email I use can connect to the same internet or email a person in another country uses. This is similar to different countries speaking different languages – a German person and a Chinese person will struggle to communicate, but if they both speak English it’s much easier. The internet allowed everyone to essentially speak ‘one global language’.
In this sense, Bitcoin is similar to the internet. For one, it’s not owned by anyone, so anyone can use it as they please – no gatekeepers. This is often referred to as ‘decentralised’. It also allows for permissionless innovation, and this is the reason why so many people are building companies and applications on top of it and it is growing so fast. Lastly, Bitcoin is also interoperable. Like email or the internet, my Bitcoin and your Bitcoin work on the same system, one big global transaction ledger and, in some sense, the world’s first truly global currency.
How does a cryptocurrency exchange work?
A cryptocurrency exchange is simply a platform that matches buyers of cryptocurrency with sellers.
For the most part, it works just like a normal exchange for any other asset, such as stocks. But unlike traditional exchanges that have set trading hours, cryptocurrency exchanges are active 24 hours a day, 7 days a week.
To make a purchase on an exchange, a buyer first has to fund their exchange account, also known as a wallet. This can be done with local currency or another cryptocurrency.
The buyer then places a ‘buy’ order on the exchange. This is a request to buy Bitcoin or another cryptocurrency at a price of their choice. This and all other ‘buy’ and ‘sell’ orders are added to the ‘order book’.
The order book is a list of the amounts of cryptocurrency that all the traders want to ‘buy’ and ‘sell’, and the prices they’re looking for. The exchange essentially acts as a matchmaking service between the two.
It’s important to note that exchanges do not set the prices. The laws of supply and demand do. The exchange is just the intermediary connecting the buyers and sellers. This is the reason that you may see slight variations in the price across different exchanges.
There are lots of different exchanges, and they have varying degrees of security, and privacy, but they all charge a fee for their trading services. Make sure you do your research on the team and security level of an exchange before using it.
Bitcoin as digital gold
Over the centuries, gold has been considered as an object of value by many different groups of people all over the world. It’s important to note that gold in itself has no value – it’s just a piece of shiny metal. Its value comes from the (somewhat perplexing) fact that everyone just agreed that it has value, and therefore it becomes valuable. The reason they chose gold versus other objects is important – gold has certain characteristics that make it a better ‘store of value’ (as it is commonly known) than other objects:
For one, it is rare, which means it has limited supply(there is only a certain amount of gold in the world – if it was too abundant everyone would have it and then it would have no value). It is malleable (it can be melted and made into smaller units i.e. coins, and importantly the per unit value doesn’t change when you break it into smaller pieces, unlike things like diamonds). It is stable and doesn’t degrade, it’s easy to recognise and very importantly, difficult to counterfeit.
As it turns out, Bitcoin has all of these same characteristics, and more. It has limited supply (only a specific amount of Bitcoin exists and will ever be produced). It can be made into smaller units without losing unit value (1 Bitcoin = 100,000,000 Satoshis – the smallest unit into which a Bitcoin can be broken down to, similar to the cents in a Dollar or pennies in a pound; this is also why one can buy less than one Bitcoin at a time). Its technology makes it very stable, it won’t degrade, and it’s impossible to counterfeit. On top of this, and unlike gold, you can move Bitcoin to any place on earth within minutes, no matter how big or small the amount. That’s why many people say that Bitcoin is not just digital gold, but a better version of gold.
On top of that, Bitcoin has value as a payment system in itself, which gives it even more value. The more people use Bitcoin for payments, the more valuable this system becomes. It’s a bit like buying shares in Visa and then using those shares to buy a coke at your local 7-11. Because you used the Visa shares to pay, Visa (the payment system) becomes more valuable, and Visa shares become worth more. In this way, the value of Bitcoin comes from both its gold-like characteristics as well as its payment system abilities.
How do crypto projects get funded?
ICO
The most well-known form of crypto funding is the Initial Coin Offering (ICO). This is where a new project can raise funds by selling their own cryptocurrency tokens.
Each token is essentially the blockchain equivalent of a share in a stock that’s open to the general public – so you could make the comparison that an ICO is a variation on the Initial Public Offering (IPO).
Crypto projects can also raise funds through a Security Token Offering (STO), Initial Exchange Offering (IEO) or Initial Dex Offering (IDO).
STO
An STO is only slightly different from ICO. A security token represents an investment contract into an underlying investment asset, for example stocks, bonds, funds and real estate investment trusts (REIT). A security token has a lot of advantages since financial regulators consider them securities. The high level of security makes it highly popular among long-term investors.
IEO
An Initial Exchange Offering (IEO) is an alternative to ICOs in which a project’s tokens are sold directly through a cryptocurrency exchange. Unlike an ICO, IEOs are not open to the general public and any users who want to buy the project’s tokens must do so through the exchange’s accounts.
IDO
An Initial Decentralised Offering (IDO) is very similar to an IEO, except that it occurs on a decentralised exchange.