What is Bitcoin? Explained simply
Bitcoin is the oldest and best-known cryptocurrency. Here are the basics: how Bitcoin works technically, how to buy and store it, and what to consider for taxes in Switzerland.
What is Bitcoin?
Bitcoin is a digital currency that works without banks or central banks. Transactions run directly between users over a worldwide network of computers and are recorded in a public, tamper-resistant ledger, the blockchain. Bitcoin has existed since 2009, created by a still-unknown person or group under the name Satoshi Nakamoto.
How does Bitcoin work?
Bitcoin rests on three core ideas that together ensure no one can control the system alone or create money at will.
What is the blockchain?
The blockchain is a public ledger stored simultaneously on thousands of computers worldwide. Every transaction is grouped into a "block", and blocks are chained together chronologically and immutably. Because anyone can view and verify this chain, but no one can alter it alone after the fact, it's considered practically tamper-proof.
What is mining?
Mining is the process that verifies new transactions and adds them to the blockchain. Specialized computers solve demanding calculations for this; whoever finds a solution first gets to add the next block and receives newly created bitcoin as a reward. This competition makes it extremely costly to falsify the blockchain after the fact.
Why are there only 21 million bitcoin?
Bitcoin's code specifies from the start that no more than 21 million bitcoin can ever exist. This fixed cap, similar to a precious metal, is deliberately built in. It's meant to prevent bitcoin from being diluted in value the way ordinary money can be through a central bank printing more of it.
How do you buy Bitcoin?
The easiest way is through a crypto exchange: you open an account, deposit francs or euros, and exchange the amount you want for bitcoin. You don't need to buy a whole bitcoin, small fractions are possible too. Which platforms suit Swiss investors is shown in the crypto platform comparison.
Where is Bitcoin stored?
Exchange vs. your own wallet
Leaving your bitcoin on the trading platform is convenient, but it makes you dependent on the provider: if the platform fails or is hacked, your balance can be affected. Alternatively you can transfer your bitcoin to your own wallet, ideally a hardware wallet. That gives you full control, but also full responsibility: if you lose access to your wallet, the bitcoin is gone for good.
What risks are involved?
- Price swings: Bitcoin's value can rise or fall sharply within days.
- Risk of total loss: A total loss isn't ruled out for bitcoin, as with any investment without a guarantee.
- Lost access: With your own wallet, there's no help desk if you forget your password.
- Fraud and phishing: Fake platforms and messages specifically try to get hold of your login details.
- No deposit insurance: Unlike bank balances, crypto assets aren't protected by state deposit insurance.
Bitcoin and taxes in Switzerland
The holding on 31 December counts towards wealth tax, capital gains are tax-free for private investors. Full details, including staking and what belongs in the tax return, are explained on the page Crypto and taxes in Switzerland.
Buying Bitcoin
An overview of fees, supervision and offering of the common platforms is in the crypto platform comparison.
Simulate Bitcoin in your own portfolio
Enter your Bitcoin holding in the Depotly financial cockpit and see how it could develop together with the rest of your wealth.
Keep an eye on your wealth Enter your Bitcoin in the financial cockpit and see how your portfolio could develop.Further reading: What is crypto?, Crypto and taxes in Switzerland and Crypto platform comparison.