Bitcoin vs. Litecoin: What’s the Difference in 2019?
What is Bitcoin?
Bitcoin was created in 2009 by a mysterious developer, Satoshi Nakamoto, who had a vision to take away some of the control from governments and large financial organisations. Part of the blockchain technology, Bitcoin in the original cryptocurrency. In recent years, the Bitcoin price has exploded because it allows people to trade funds with little cost, and without having to reveal your identity.
There is nothing tangible to own when purchasing a Bitcoin. This might feel strange, as you will be paying thousands of pounds when buying your currency. You are purchasing digital code that represents the value you agreed to pay. This is no different to the agreement you make with the seller to the value of your paper money in your actual wallet.
Bitcoin is one of the few cryptocurrencies that can be exchanged for goods and services, though its popularity is making this increasingly challenging. The peer-to-peer transactions are reliant on miners, who process and verify the details. They work to organise the ledger that is blockchain into blocks. The blocks are small, which means it takes a time to complete this task and so move the bitcoin value from one person to another. It also takes powerful hardware and a lot of electricity; therefore, the cost of this service is also rising.
Bitcoin remains the largest crypto-coin in the sector and along with Ethereum makes up more than 50% of the market, despite there being over 800 altcoins available.
It may seem an odd concept, buying computer code and calling it money, but in reality, it is built on the same principals as all trade. Bitcoin value is determined by supply and demand. It has been designed with a limit of 21 million coins, meaning there is a point when supply will stop. At present there are 16 million in use and more coins are released as a rate of 25 coins every 10 minutes. This maintains a steady supply, which keeps the level of demand relatively high.
Bitcoin value is therefore based on an agreement between two people. What is one person prepared to pay and the other willing to receive. This binary choice is at the heart of the technology behind blockchain. People’s opinion on Bitcoin value will change if there is a sudden rise in supply. So, if a single seller releases a huge number of coins for sale, then the price will drop. If there is a limit of supply, then the price will rise. This makes it similar to commodity trading in such products as oil.
Bitcoin value can also be impacted by confidence in the technology and the attitude to the technology. Therefore, any issues about security, regulation and electricity costs can also impact on value.
What is the difference between Bitcoin value and Bitcoin price? Well, the value is judged by the overall usefulness of the cryptocurrency and the technology behind it. The Bitcoin price is its value in relation to other currencies – usually fiat currency. Fiat currency are those currencies regulated by a government or a central bank such as the dollar, the pound or the euro.
The Bitcoin value will be managed by the gradual release of coins over 100 years. With the decline in supply it is perceived there will be a gradual rise in value. In contrast, the day to day Bitcoin price will fluctuate for many reasons. There is the Bitcoin Payment Network, where the coin is used as a currency. There is Bitcoin Storage and Transfer where people store their wealth. There is the Bitcoin Exchange Rate, which sees Bitcoin as a commodity. Each of these different financial mechanisms can have an impact on the day to day price of a Bitcoin.
If you want to know simply what impacts on Bitcoin price, then know that if someone hoards their Bitcoin and stifles supply – the price will rise – up to a point. If people start to not trust the reliability or liquidity of the service, then the price may fall.
How do you buy Bitcoin?
You can make money with Bitcoin in two ways. You can buy, sell and store Bitcoin or you can mine for Bitcoin and charge a transaction fee.
When buying and storing Bitcoin you will need a wallet to store the code you have purchased. It is possible to write this code onto a piece of paper – and some people do this for security. For more practical storage, you can open a digital wallet where the coins are kept secure by the site. Bitcoin is one of the only cryptocurrencies where you can withdraw money from your wallet from an ATM.
To purchase Bitcoin, you need to go to exchange sites that accept payment by fiat currency or by debit and credit card. Not all exchanges enable you to do this, as some merely accept the exchange of different cryptocurrencies. These exchanges are places you go to agree the price you are willing to pay.
Alternatively, you can become a Bitcoin miner. A miner is anyone with the appropriate skill and hardware to process the complex problems that in turn manage the transactions. The miner then charges users a transaction fee to cover this service, and the cost of electricity it takes to run the hardware. Around the world there is new phenomena of Bitcoin farms shooting up. These “farms” are data processing centres that manage the blockchain ledger for a fee.
The rise in the popularity of Bitcoin has made mining a highly profitable means of making money. The size of the blockchain means that it is possible for miners to make a lot of money for each block created in the ledger. The profitability of mining will be impacted by any attempt to increase the size of the block. This would make the process quicker – but it would also mean miners would need to do more work for the same amount of money.
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