Broker to Trading

These brokers offer CFD trading of the cryptocurrency Bitcoin (BTC). When CFD trading the trader does not own the cryptocurrency.

CFDs allow the trader to speculate on the movement of the value of a market, without owning it. This means they do not need a wallet and can go long or short. CFDs also allow the use of leverage (however cryptocurrencies are extremely volatile and increasing leverage increases risk).

What is Bitcoin ?

Bitcoin is the original cryptocurrency. While it has had larger aims of being a rival to fiat currencies, it is focused on being a peer-to-peer payment network. This means that someone can make a Bitcoin transaction from their wallet to another wallet. This is easy to understand. But there is no central processing facility to process this or other transactions. So how does this payment occur, without a central processing facility. That happens because of the blockchain protocol utilised by Bitcoin and other cryptocurrencies. The blockchain is implemented as a distributed electronic ledger or database, with a number of Internet based processes operating it.

Why is the blockchain called the 'blockchain' ?

Because it consists of blocks of data cryptographically secured (or chained) together.

Why is the blockchain called an electronic ledger ?

Because it consists of processed transaction data, like any ledger, but processed by machines and software on the Internet and stored in electronic form on it.

Why is the blockchain called a distributed electronic ledger ?

Because it uses the distributed architecture of the Internet allowing multiple communicating processes to run working concurrently on different machines, to enable this data processing.

Does the blockchain consist only of transaction data ?

The blockchain consists of other data, which helps secure and create it. Some other blockchains also include different kinds of data, thus generalising the idea of a blockchain from being a ledger to being a database. But let's look into the blockchain more detail and examine the processes operating it.

Understanding the blockchain

The blockchain is key to understanding cryptocurrencies such as Bitcoin, but it is not so easy to grasp. This is because it is a formed from the Internet and hence from computer programming, using key structures from it. One way of understanding the blockchain is to think about a ledger as it is normally understood. Consider an old fashioned shop. Someone comes in buys something and pays the shopkeeper. The person leaves and the shopkeeper records it in their ledger, and puts the ledger back in its locked box. The blockchain is like this in some ways and in other important ways is not.

Firstly it is a ledger of transactions. It consists of connected blocks of data saved on the Internet, on computing devices (similar to a fundamental data structure called a linked list, used in the C programming language, in which the Internet was written). These blocks consist of data about transactions made in a cryptocurrency. Because it exists on computers, it also has a header file, which helps secure it.

The shopkeeper secures their ledger by putting it in the box and locking the box. The header file, which contains a hash (or digital signature) of the previous block, is like that (but different as well, as the digital and real world are different). But how do you know that the ledger is accurate. The shopkeeper might have a made a mistake or have made a wrong entry or might even alter it later. There are systems in place to ensure this does not happen. But it can. The blockchain aims to solve this fundamental problem with centrally stored read/write ledgers.

Firstly it is public, everyone can see some encrypted information about transactions. This information includes that a Bitcoin payment was sent from wallet A to wallet B, but it does not contain information about the transaction itself, for example it does not say that it was used to pay for a particular item, or the identity of the sender or receiver. In essence it contains information needed to manage a distributed electronic ledger of peer-to-peer payments wallet to wallet mediated by the Bitcoin network and miners. Nonetheless, some blockchains and other programs add layers of security to public blockchains masking information and private blockchains also exist which require permission to access their network, trading off the power and reach of the Internet for security.

Secondly, each block is cryptographically secured. But perhaps even more importantly the people involved in the transaction do not usually make the ledger. The Bitcoin ledger is made by miners who are expected to have no interest other than making more money from transactions fees and cryptocurrencies generated by the mining process than it costs them to add the data blocks. A feature of blockchain technology is that it combines generalised expectations of how to guide and motivate people and technology to operate it, without a command structure, with powerful techniques to secure its operation and guard against behaviour contrary to these expectations.

In fact the transaction process is in effect done by computer programs, by software on machines paid for by miners, which has a cost in power used and also equipment. They are also locked into a competitive process with other miners to solve a problem (or more properly search for a solution), to allow them to add a block to the chain and get their reward. The miners choose which transactions to process, but have to compete to actually add a block. Finally, there are nodes in the network which verify the work done by miners. Once it is done, the cryptographic security, like the lock on the box, ensures that the data cannot be changed.

A key part of this is confirmation, whereby a block and its transactions is secured by being part of a chain - each block added confirms the preceding blocks. Technically this is because any change in the data in one block would alter all succeeding blocks (as each block hashes the previous block) and would also be extremely difficult to do, becoming more difficult with each new block added to the chain. This helps prevents 'double spend' where a transaction could then be processed again after it has been processed into a block. Also, it makes Bitcoin payments effectively irreversible, with the caveat that with 0 confirmations (i.e when a block is added without any blocks added to it) it can be technically reversed, but after a certain number of confirmations, Bitcoin payments are effectively irreversible. So accuracy and continued accuracy is locked into the system as well as a systemic ireversibility to payment processing.

A blockchain is a type of distributed electronic ledger, but it can be seen that it consists, like a normal ledger, of a number of processes and participants. A key to all this, the action which initiates this process, like the purchase in the shop is someone making a transaction from their Bitcoin wallet, which is then processed by miners and added to the blockchain.

Unlike the paper ledger, multiple copies of the blockchain exist as well, on what are termed full nodes (these nodes validate transactions and blocks, checking them against a set of rules). The nodes are key to the distributed nature of the blockchain, as they reflect another fundamental programming and Internet structure, that is distributed processing, where problems can be solved and shared by computers working concurrently but which also need their own copy of the data. Even more fundamental is the idea of a network, which is the foundation of the Internet itself, with connected and communicating devices.

All these processes have a cost and various blockchains have been formed to try and alleviate specific problems, some forked from the Bitcoin blockchain. It can perhaps be seen that a way to potentially increase the speed at which transactions are verified, is to increase the size of the blocks of data, and this has been done. It can also be seen that adding layers to specialise some of the data processing performed on the blockchain could also be another approach, and this has and is being done as well. Another approach is to increase the rate at which blocks are processed, as this is not only a function of the size of the blocks, but is set in the processing system.

Solving the problem in Bitcoin and other networks is what is termed 'proof of work', as it enables a block to be time stamped (there are other ways to help prevent double spend). As mining power increases, then the mining difficulty (i.e. the problem) can be adjusted to be harder and vice versa, thus maintaining the rate of block creation. Bitcoin itself is set to create a block every 10 minutes or so. There are other blockchains which do not use proof of work, rather use methods such as proof of stake to establish what is termed consensus.

Blockhain use cases have greatly expanded in recent times, beyond payment or program processing. Some blockchains are used extensively in Web3 and NFTs and DeFi.

Bitcoin can have real time transaction settlement times from around 30 minutes upwards, depending on the congestion of the network, while this is not as fast as a credit card, which settles instantly, it is relatively fast. Because Bitcoin is also not as fast as some blockchain implementations it needs to be considered that this is not necessarily a drawback, depending on what it is used for. For some purposes settlement must be rapid, and other blockchains have been developed that can make use of technology to make this possible. Finally it can be noted that it is possible to have this kind of ledger and not use a format similar to a linked list.