Where Does My Money Go When I Buy Bitcoin?

Over the past ten years, Bitcoin and cryptocurrencies have become hot topics widely debated in investment circles. Known by some as an alternative asset and hailed by others as the next step in the evolution of money, Bitcoin offers different features to the way we handle traditional money. 

It’s decentralized, meaning one party does not own nor control it. A person, country, bank or company isn’t in charge. Rather, it’s runs on a democratic system of consensus to work. So if you had to buy Bitcoin, where would it actually go?

How does a cryptocurrency work?

Cryptocurrencies are software-based virtual currencies. When you buy a cryptocurrency, you’re buying an algorithm-based digital asset. The cryptocurrency industry is made up of different projects that use “tokens” or “coins” and have different features. Based on the current market value, your token represents how much of that specific cryptocurrency that you possess. That token can be exchanged for cash or sold for its current market value. 

Because cryptocurrencies are decentralized (in contrast to centralized currency, which is managed by the government), the network regulates its value depending on supply and demand.

Blockchain technology is the driving power of the majority of cryptocurrencies. The technology is the spine for the cryptocurrencies and without all of the components, such as the miners to verify transactions, cryptocurrencies like Bitcoin and others would not exist.

What happens when you buy a cryptocurrency?

The first thing that happens when you purchase Bitcoin or transfer a cryptocurrency is that your funds are deposited into your wallet and used to buy virtual currency or tokens through an exchange like Bitcoin Smarter, CoinBase or Gemini. Your funds are stored as cryptocurrencies in your crypto wallet until you choose to transact or move them.

From there, a peer-to-peer network of participating computers in the mining, or transaction verification process, is used to validate all transactions. This step is vital to allow transactions (whether trading, buying or sending Bitcoin, or buying something with Bitcoin) to take place. In this, miners use networks of extremely powerful computers (they used to be normal personal computers but are now specialised equipment with a focus on mining) to check for fraudulent transactions and to solve the difficult mathematical puzzles that guarantee the validity of transactions.

The block that is produced when 1 megabyte of data is confirmed contains a permanent timestamp of each successful transaction. The miners are compensated with cryptocurrency tokens for each block that is finished. This allows for the creation of new tokens and adds to the supply and circulation of fresh tokens.  The blockchain is linked (and created) by connecting the finished block to the one before it. Each block is a component of the public ledger that serves as an everlasting record – an important part of cryptocurrencies. The data on the blockchain is interlocked, making changes impossible without also changing all of the blocks that came before them. This means any transaction you make with cryptocurrency is irreversible, unchangeable, and permanently recorded, making it impossible to have fraudulent activity recorded once a block has been mined.

So when you buy Bitcoin, your coins go into your wallet and the process behind it takes place to verify that you have indeed bought Bitcoin.

Where you keep your Bitcoin

Unlike traditional currency, cryptocurrency is not held in bank accounts. It is held and stored in specialized cryptocurrency wallets, which are safe software applications made for managing digital money. 

Each wallet has one or more private keys, which are encoded secret numbers used to store and spend Bitcoin. You are able to transfer money out of your account using private keys. To receive money, you share your public key and others can send money into your crypto account with that key address.

Buying cryptocurrency isn’t a complicated process and using your tokens from there can be seamless. Using the right platform is important to buy your Bitcoin, and hold it for storage, trade it for profit, or use it as a means of exchange. Finding the right platform isn’t difficult. Funnel offers a great way to invest in Bitcoin and trade it with ease, for beginners and experts alike.

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