Beginner guides, explanations, and everything about Bitcoin

Bitcoin is for everyone

Unlike traditional forms of money, bitcoin isn’t backed by physical assets or government policies, instead, it’s backed by a novel system that uses decentralization, incentives, energy, and cryptography.

![](https://www.datocms-assets.com/99305/1734386385-learn-what-is-backing-bitcoin-state-hero.png)

To properly answer “What is backing bitcoin?,” we first need to establish what “backing” means.

In the context of money, “backing” historically meant a currency that was directly linked to a specific quantity of a commodity, like gold. This system, known as the “gold standard,” provided tangible assurances of the currency’s value as it could be exchanged for set quantities of a valuable metal.

In 1971, the US dollar’s gold-backing ended, along with that of all other major currencies. This marked the shift to “fiat” money (from the Latin word for “decree”), where the money’s value relies on government policies and public trust, rather than redeemability for gold. 

Neither gold nor fiat money are backed by redeemability for anything or by any ability to generate cash flows. They are “base-layer” monetary assets, meaning their value relies on their *inherent* properties and the assurances that those properties will persist into the future. People own gold or fiat because they’re useful for storing and/or exchanging value, made possible by their reliable [monetary properties](https://strike.me/learn/what-is-money):
* **Gold:** Gold’s value relies upon its resistance to corrosion, ease of verification, physical weight, measurable purity, and natural scarcity, which are established by the unchanging laws of physics. Additionally, gold’s superior scarcity is safeguarded by the economic barriers of production, since there is no other way to produce gold other than through energy-intensive work.
* **Fiat money:** Fiat’s value relies upon government-mandated acceptance for taxes, debts, and legal transactions, combined with public trust in the issuing authority’s ability to maintain its value. If policies change or the authorities print money excessively, the money’s value could drop and popular trust could be lost (see 1920’s Germany, 1990’s Yugoslavia, 2000’s Zimbabwe, or 2010’s Venezuela).

Base-layer monetary assets are backed by nothing other than themselves and the forces that assure their valuable properties will persist into the future. 

Bitcoin is the same. It’s a base-layer monetary asset, backed by the forces that assure its valuable properties will persist. 

## How is bitcoin backed?
[Bitcoin](https://strike.me/learn/what-is-bitcoin) is a peer-to-peer electronic cash system, letting people acquire, hold, and spend bitcoin in a similar way to traditional forms of money.

Bitcoin has valuable [monetary properties](https://strike.me/learn/what-is-money), including: 
* **Scarcity:** Bitcoin has a fixed supply limit of [21 million bitcoin](https://strike.me/learn/how-many-bitcoin-are-there)
* **Divisibility:** Each bitcoin can be effortlessly subdivided into [100 million satoshis](https://strike.me/learn/what-are-satoshis)
* **Portability:** Bitcoin can be moved digitally and securely transferred from one person to another without a 3rd party intermediary by authorizing the transaction using their unique [private key](https://strike.me/learn/what-are-private-keys-and-public-keys)

These valuable monetary properties are established through a novel system that combines decentralization, incentives, energy, and cryptography. 

Let’s examine.

![](https://www.datocms-assets.com/99305/1704930771-learn-better-ai-agents-state-default.png)

## Decentralization of rule-enforcing nodes
Bitcoin’s monetary properties are defined by its [rules](https://strike.me/learn/how-does-bitcoin-work), which are encoded in Bitcoin’s free and open-source software and run by a global network of independent computers, called “nodes.” The rules determine the operations of the Bitcoin network (uppercase “B”) and the characteristics of the bitcoin asset (lowercase “b”):
* **Network operation rules:** Transaction formatting, node connectivity processes, the block time interval, the mining difficulty adjustment, etc…
* **Asset characteristic rules:** The supply limit, the supply schedule, the divisibility of each bitcoin, the authorization requirements for initiating a transaction, etc…

When you operate a node, it connects to every other node in the network to share valid transaction information. Any transaction that violates the rules is easily detected and automatically rejected by each and every node. Although any node can change their *own* copy of the software, thereby altering *their* version of Bitcoin’s rules, no one can force *other* nodes to adopt those changes. The unchanging nature of the rules is what establishes the reliability of Bitcoin’s monetary properties. 

This network of countless independent nodes forms a globally decentralized system that collectively ensures the integrity of Bitcoin’s rules and operations. Each node operates equally and redundantly, meaning no single node holds unique authority or is critical to the network’s operation. This decentralization ensures that no individual or group can unilaterally change Bitcoin’s rules while safeguarding it from censorship or shutdown.

➔ **Assurance:** The rules that establish Bitcoin’s monetary properties can’t be changed, blocked, or banned by any individual or group.

## Incentives
Although nodes are free to adopt new rules, such as increasing the supply limit, any transactions they process under incompatible rules would conflict with all other nodes’ rules and be instantly rejected. This makes the effort pointless, as their time and resources would be wasted. The same principle applies to [Bitcoin mining:](https://strike.me/learn/what-is-bitcoin-mining) producing a valid block is resource-intensive, and if any transaction within that block violates Bitcoin’s rules, the block will be rejected, the miner’s energy wasted, and no rewards issued.

Nodes and miners are not only incentivized to avoid rule changes, they’re incentivized to strictly enforce established rules. The unchanging nature of Bitcoin’s rules assures its monetary properties are reliable and its operations are stable, giving rise to Bitcoin’s value. Node operators want their own valuable transactions accepted, while miners want to earn valuable bitcoin rewards. This incentive alignment creates a system where:
* **Adopting incompatible rules is costly:** Breaking consensus leads to rejected transactions and wasted resources.
* **Enforcing existing rules is profitable:** Stability in Bitcoin’s rules secures its value, protecting nodes’ transactions and miners’ rewards.

➔ **Assurance:** All network participants are financially incentivized to uphold the existing rules and avoid any rule changes, ensuring the reliability of Bitcoin’s monetary properties and continued operations.

## Energy and computational power (aka “hashpower”)
[Bitcoin mining](https://strike.me/learn/what-is-bitcoin-mining) involves computers performing computational work, called “hashing”, to earn a set reward paid in bitcoin for each block of transactions they add. This is how new bitcoin are issued, new transactions are added, all previous transactions are re-asserted, and the entire network is secured against attack.

The only known way to produce a [valid hash](https://strike.me/learn/what-is-a-hash-function) is by using energy in a computationally-intensive process of trial and error. However, once a valid hash has been found, it’s trivially quick and easy for each node to mathematically verify that it’s correct. This asymmetry between the difficulty of mining and the ease of verification means only miners who have mathematically proven to have expended real world resources can add blocks, while verifying validity remains simple, efficient, and widespread.

A key rule in Bitcoin is the **mining difficulty adjustment**, which ensures blocks are mined roughly every 10 minutes, regardless of the total computational power (hashpower) of all miners. Every 2,016 blocks (roughly 2 weeks), mining difficulty automatically adjusts to maintain this pace, making mining harder if hashpower increases and easier if hashpower decreases. This dynamic scaling keeps block times and the supply schedule consistent, while ensuring mining remains efficient and profitable, incentivizing ongoing participation.

The combination of mining with the difficulty adjustment creates a global, decentralized, scalable, and open competition that ties real-world resources (energy and compute hardware) to the supply and operations of Bitcoin. This system ensures:
* **Predictable supply schedule:** Block intervals and the [supply schedule](https://strike.me/learn/what-is-the-bitcoin-supply-schedule) are maintained by the difficulty adjustment, regardless of the total hashpower deployed by miners. 
* **Transaction processing:** Transactions can’t be blocked by mining bans or miners colluding to produce empty blocks, as mining is an open, global competition where miners can join or relocate freely and empty blocks miss out on [transaction fees](https://strike.me/learn/what-are-bitcoin-fees).
* **Miner incentives:** The difficulty adjustment ensures global mining remains profitable for the most efficient miners by dynamically scaling with network hashpower, keeping revenues above expenses and sustaining or increasing miner participation.
* **Transaction permanence:** Reversing a transaction requires re-mining all subsequent blocks and exceeding the network’s total computational power.

➔ **Assurance:** Bitcoin’s monetary properties and operations are secured by energy, as new bitcoin can only be issued through energy-intensive work, while attacks on its supply consistency and transaction security are deterred by a globally distributed network of incentivized energy resources.

## Cryptography and mathematical principles
Bitcoin relies on cryptographic hash functions and the use of immense numerical spaces to create computational barriers against attacks. [Hash functions](https://strike.me/learn/what-is-a-hash-function), like the industry-standard SHA-256 used in Bitcoin, generate unique outputs from input data. Even the slightest change to the input completely alters the output, and there’s no known way to reverse the process. 

Alongside hash functions, Bitcoin’s use of extremely large numbers ensures the security of private keys, transaction authorization, and mining rewards.
* **Private keys:** Bitcoin [private keys](https://strike.me/learn/what-are-private-keys-and-public-keys/) come from a numerical space with approximately 115 quattuorvigintillion possible combinations (a number with 78 digits). This immense scale ensures it’s computationally impossible for anyone to guess your private key, even with all the computing power on earth.
* **Transaction authorization:** To authorize a transaction, your private key generates a unique [digital signature](https://strike.me/learn/what-is-a-digital-signature/). The strong reliability of hash functions means there is no known method to reverse engineer your private key from the signature or the hash output of a transaction.
* **Bitcoin mining:** To add a block and be rewarded, miners must produce a [valid hash](https://strike.me/learn/what-is-a-hash-function/) that meets the network’s required output and difficulty. There is no known way to produce valid hashes other than completing the energy-intensive proof-of-work. 

➔ **Assurance:** The security of bitcoin ownership and mining operations is assured by industry-standard cryptography and mathematical principles.

## Summary
Bitcoin is a base-layer monetary asset, designed to store and exchange value–a fundamental human need.

Its value relies on its robust monetary properties, which are assured through a novel combination of decentralization, financial incentives, energy resources, and cryptography. 

This assurance isn’t abstract, it’s tangible. Real nodes enforce Bitcoin’s rules globally, real miners use computational resources and energy to secure the network, and industry-standard cryptography underpins its security – the same cryptography that secures global financial and communications networks. The entire system is self-sustaining as *all* participants are aligned through transparent financial incentives to promote Bitcoin’s continuation and defend against attacks.

Dismissing Bitcoin as “unbacked” because it lacks physical presence or government oversight is to miss its revolutionary innovation. Bitcoin is the first successful peer-to-peer electronic cash system – something entirely new – and its innovative design to link real-world resources and established cryptography to let people hold and exchange value is worth your attention.

Decentralization, incentives, energy, and cryptography

What is backing bitcoin?

## Protocols are standardized rules
Bitcoin works as a set of standardized rules. 

In computer terms, standardized rules are known as "protocols", and they enable devices and apps worldwide to communicate with each other. These rules govern how Bitcoin functions as a peer-to-peer electronic cash system. The rules are encoded within the Bitcoin software, so when someone downloads and runs the software on their computer (aka node), they become an enforcer of the rules and an active participant in Bitcoin’s operations. 

![](https://www.datocms-assets.com/99305/1704930859-learn-what-is-a-protocol-state-hero.png)

What this means is that Bitcoin operates as a worldwide network of independent nodes, each running the software containing the standardized rules for adding valid transactions to their own copy of the transaction database (called the blockchain). 

To better understand how this works, it’s helpful to define some terms:
* **The Bitcoin protocol:** The set of standardized rules within the Bitcoin software that determines how Bitcoin works
* **The Bitcoin software:** The software program (aka Bitcoin Core), which can be downloaded and run on computers, thereby making them a node in Bitcoin’s network
* **The Bitcoin network:** The global web of connections between nodes that are running the Bitcoin software, through which transaction information can be shared
* **The bitcoin asset** (lowercase “b”): The amounts that are specified within each transaction
* **The Bitcoin blockchain:** The entire history of all bitcoin transactions, structured as a sequential “chain” of blocks of transactions and which is held and maintained by each node independently 

You can think of it like this: bitcoin is an *asset*, that's transacted through a *network*, which is built on a *protocol*. 

Each node can start or stop running the software (join or leave the network), without any problem since they’re each redundant to the system as a whole. Whenever a node joins or rejoins the network, they simply follow the rules to check the validity of the transactions that took place in their absence.

Alongside the nodes are the Bitcoin miners – the computers that confirm bitcoin transactions by grouping them into blocks and adding them to the blockchain. Miners perform computational work in a lottery-style competition to win the right to add the next block and earn a reward for doing so – a system known as “proof-of-work.” Miners also follow the rules of the Bitcoin protocol, because if they don’t, any block they *attempt* to add risks being rejected as invalid by the nodes, which means their time and efforts will be wasted.

Bitcoin works because nodes and miners follow the same set of rules.

## What are the rules of Bitcoin?
The standardized rules of Bitcoin’s that are encoded within the Bitcoin software define the different aspects of Bitcoin’s operations:

### Supply rules:
* The total possible [supply of bitcoin](https://strike.me/learn/how-many-bitcoin-are-there/) is capped at 21 million. 
* New bitcoin are to be issued with each block, according to a strict [supply schedule](https://strike.me/learn/what-is-the-bitcoin-supply-schedule/) that decreases the issuance amount by half (aka a "[halving](https://strike.me/learn/what-is-the-bitcoin-halving/)") every 210,000 blocks (roughly 4 years) until the 21 million limit is reached.
### Mining rules:
* New blocks are to be created on average every 10 minutes.
* Miners must perform computational work to win the cryptographic “lottery” to add a new block of transactions to the blockchain, thereby confirming that block’s transactions and re-confirming all preceding blocks upon which it is built.
* The difficulty of winning the lottery automatically adjusts every 2,016 blocks (roughly 2 weeks), to maintain the 10 minute block time regardless of the total mining power (aka hashpower) being deployed.
### Transaction rules:
* Transactions require the digital signature that corresponds to the sender’s address, ensuring that only the owner of the bitcoin can send it.
* All transactions must have inputs and outputs to specify the sender, recipient, and amount of bitcoin being sent, except for “coinbase” transactions (the newly issued bitcoin in each block), which lack input details.
* The amount of bitcoin in the inputs must equal the amount in the outputs, less the fee amount to be paid to the miner for the service of confirming the transaction.
* Invalid transactions (e.g., invalid signature, invalid bitcoin amount, or double-spending of the same bitcoin) are to be automatically rejected.
### Consensus rules:
* Nodes accept the longest valid chain with the most cumulative proof-of-work as the correct version of the blockchain (aka the “heaviest chain”) and discard any other version of the blockchain
* To undo a transaction that has been added to the blockchain requires performing a greater amount of proof-of-work than the total accumulated work since the transaction was made, an effort which exponentially increases with time and makes bitcoin transactions effectively unchangeable after a few blocks.
### Scripting language rules:
* Any scripts included in a transaction, which can define bitcoin transaction conditions, must  follow certain rules regarding their size and complexity.
### Connectivity rules:
* Nodes must follow specific rules for how to communicate with each other, such as how data is to be formatted and transmitted.
### Blocksize rules:
* Blocks of transactions have a maximum size of 1 megabyte (with some additional space allowed for other data), which indirectly limits the number of transactions that can be included in a block.

Collectively, these rules define how to form the network, make transactions, and establish the attributes of the bitcoin asset, namely its scarcity and peer-to-peer transactability. When nodes run the software, a network is formed through which bitcoin transactions can be sent.

![](https://www.datocms-assets.com/99305/1702580888-is-bitcoin-money-02.png)

## Incentive-alignment of Bitcoin
As more nodes run the software, the rules become more difficult to change. Changing the rules entails creating a new version of the Bitcoin software and getting nodes to download and run that new version. Unlike mandatory smartphone software updates, the Bitcoin software can’t be forced on nodes, as they’re free to download and run whatever version of software they want. Nodes will only download and run software if it’s in their best interest, and will avoid any software that doesn’t.

Additionally, since any block or transaction that violates the rules is automatically rejected by all other nodes, both miners and nodes are incentivized to avoid adopting incompatible rule changes, lest their time and efforts be wasted. Furthermore, bitcoin’s value as an asset is intrinsically linked to the unchanging nature of the rules, as they establish its scarcity, transactability, and reliability. Since miners are rewarded in bitcoin and nodes process bitcoin transactions that they want added to the blockchain, everybody has a vested interest in maintaining the rules that support the value of bitcoin and the network’s consistent operations.

In this way, Bitcoin benefits from network effects – people run nodes, mine bitcoin, or buy bitcoin because it offers them a way to acquire, transact, and secure an immutable digital asset with desirable and robust attributes. Through their activities, the bitcoin asset is made more robust, immutable, and scarce, further incentivizing others to do the same. It’s a self-reinforcing cycle of network strengthening, rule solidifying, and price appreciation. 

The openness of the Bitcoin protocol stands in contrast to legacy financial systems, which are closed and opaque. There aren’t clear and transparent rules governing the supply of dollars, or who is to receive newly issued dollars and in what quantities and for what reasons. Also, entrepreneurs can’t simply build their own dollar app, capable of holding or transacting dollars independently – that’s a privileged service performed by financial institutions within predetermined limits and jurisdictions. 

What this means is that Bitcoin is structurally different from legacy finance. It’s an open, transparent, and rules-based system, with specific built-in incentives that people can opt-into, rather than being forced into. It’s fair, radically transparent, and therefore opens new possibilities for building products and services, unconstrained by arbitrary rules, privileges, and limits. Those possibilities are set to transform how money can work.

Ultimately, Bitcoin works because well-aligned incentives lead all participants to follow Bitcoin’s rules.

Understanding how standardized rules lead to a global network for transactions

How does Bitcoin work?

## Getting started
The [Strike app](http://strike.me/download) is a fast and easy way to get into Bitcoin. 

Strike is one of the world’s most licensed Bitcoin-focused companies and the Strike app is available in [tons of countries](https://strike.me/faq/where-is-strike-available-wr/) globally. It supports a variety of different payment methods, so you can use your cash to buy bitcoin, starting as little as $0.01.

![](https://www.datocms-assets.com/99305/1704930819-learn-how-to-buy-bitcoin-on-strike-state-hero.png)

Buying bitcoin with Strike is as easy as three steps:
1. Create your free account
2. Connect your cash payment method
3. Buy bitcoin

Let’s get started!

## Create your account
To get started, visit the [App store](https://apps.apple.com/app/apple-store/id1488724463) or [Google Play store](https://play.google.com/store/apps/details?id=zapsolutions.strike) to download the Strike app and complete the signup process. 

Signup is free and can take less than a minute to verify your identity and create your account. Depending on your country, some features such as higher account limits and additional payment methods may only be available after completing the additional verification steps.

Once your signup is complete, you can explore the app and make transactions.

## Connect your cash payment method
Cash payment methods enable you to buy bitcoin, by letting you deposit cash to your Strike account or charge the payment method for your bitcoin purchase. Depending on your country, there are different methods available, such as bank accounts, debit cards, wire transfers, direct deposits, or mobile money accounts. 

To link a payment method, follow these steps:
1. Go to your <UserIcon> Account screen
2. Tap "Payment methods"
3. Tap "Add method"
4. Follow the instructions, which may include retrieving a verification code from your bank account

Wire transfers and direct deposits are available in select countries and can be accessed by going to your Account screen, then tapping on <TransferIcon> Wire transfer or <BankIcon> Direct deposit. Your transfer details will be generated, which can be used to initiate the deposit from either your or your employer’s bank.

![](https://www.datocms-assets.com/99305/1705011631-learn-how-to-buy-bitcoin-support.png)

## Buy bitcoin
With a payment method connected or cash deposited into your account, you can now buy bitcoin.

To buy bitcoin, visit your Bitcoin screen and follow these steps:
1. Tap “Buy”
2. Enter the cash amount to purchase
3. Tap “Next”
4. Confirm the purchase

When the purchase is complete, the bitcoin will be added to your bitcoin balance and you’re done!

You can buy as much bitcoin as you want from your cash balance or up to your payment method’s deposit limit. You can view your limits for adding cash and sending bitcoin by going to your <UserIcon> Account screen and tapping <LimitsIcon> Limits. The cash for your bitcoin purchase needs to settle before you can send your bitcoin, which can take a few business days depending on your bank or method.
	
Strike also lets you buy bitcoin via recurring purchase or target orders:
* **Recurring purchases:** Set up [automatic purchases](https://strike.me/learn/how-to-dollar-cost-average-into-bitcoin/) on an hourly, daily, weekly, or monthly basis to help smooth out price fluctuation. At Strike, recurring purchases incur no trading fees after the first week.
* **Target orders:** Set specific [target prices](https://strike.me/learn/what-is-a-bitcoin-target-order/) to buy or sell bitcoin, and your trade will only execute if your desired price is reached.
	
With bitcoin in your account, you can:
* Make borderless peer-to-peer transactions
* Pay for goods and services with bitcoin
* Send your bitcoin to your own custody
* Sell your bitcoin for cash
* Hold your bitcoin

Let’s go!

It has never been easier to buy bitcoin through Strike

How to buy bitcoin

## Lightning as a payments network
The Lightning Network was proposed in 2015 as a payments network for transacting bitcoin *outside* the Bitcoin blockchain.

Essentially, the Lightning Network is a way to transact bitcoin faster, cheaper, and more privately than on the Bitcoin blockchain. 

![](https://www.datocms-assets.com/99305/1702580934-what-is-the-lightning-network-01.png)

Unlike legacy networks for inter-bank cash transfers or credit and debit card payments, the Lightning Network offers instant settlement, no chargebacks, and uses bitcoin as the underlying asset. 

It helps solve a key obstacle for Bitcoin, mainly the ability to scale to lots of users making lots of payments. Whereas the Bitcoin blockchain is designed first and foremost for security and decentralization, the Lightning Network is designed for speed, cost, and volume of payments. 

Lightning is a new kind of payments network, one that’s borderless, open, low-cost, and instant.

## How does the Lightning Network work?
The Lightning Network is kinda like the Bitcoin Network, in that it’s made up of computers (nodes) all running the Lightning Network software. Unlike Bitcoin, Lightning transactions aren’t publicly broadcast on the blockchain; instead they’re made privately and directly between nodes. 

Also like Bitcoin, the Lightning software is a standardized set of rules (aka protocol) that’s open and free to use for anyone or any company who wants to join.

So how does it work?

It all starts with bitcoin. Every bitcoin on Lightning begins with a transaction on the Bitcoin blockchain. That on-chain transaction is shared between two parties and serves as the reference point to start transacting *outside* the blockchain. 

With that on-chain bitcoin secured, the two nodes can then open a payment “channel” – a peer-to-peer connection through which bitcoin can be transacted. It’s like a direct link between two computers that update their own mini, private bitcoin ledger, with the start of their ledger being that first on-chain transaction. 

In their channel, they can transact as fast and often as they want by simply updating their private record, and when they’re done, they can close the channel by settling the original on-chain transaction. 

It’s like opening a tab at a bar, so that you don’t have to pay the bartender each time you buy a drink. Once you open the tab, you can order lots of drinks and just have the tab updated each time. At the end of the night, you make one single payment to settle up. 

It’s the same with Lightning. One on-chain transaction to start, countless off-chain transactions, and one on-chain transaction to close. 

What’s more, each node can open as many channels with as many nodes as they want, forming a global web of connections. Through this web, nodes can “route” payments to other nodes, even if they’re not directly connected. This means person A can send to person C, via their shared connections with person B. These *indirect* payments open a global network of payment possibilities, since each node can be indirectly connected with every other node in the network.

Lightning is a peer-to-peer payments network that helps scale the Bitcoin blockchain, without making tons of on-chain transactions.

![](https://www.datocms-assets.com/99305/1702580946-what-is-the-lightning-network-03.png)

## Lightning and global money transfers
Lightning helps deliver instant, low-cost, and interoperable payments for the world.

Payments routed via Lightning move at lightspeed. When they arrive, they’re final. Instant plus final is what legacy networks can’t do. Legacy cash payments sit in “pending” status for days, with the risk of failing or reversing, adding to merchants’ costs and headaches. 

On top of that is Lightning’s extreme low cost. Lightning payments are just information sent between computers, which costs little to nothing. When indirect payments are routed, a routing fee is paid to any in-between nodes, and those fees are typically a couple satoshis (a fraction of a penny). Payments themselves can be that small, unlocking new possibilities for micro-payments. Compare that to card payment processors, who take a couple percent per transaction in fees and can’t practically process penny transactions (let alone sub-penny amounts).

What’s more is Lightning’s interoperability. Like Bitcoin, Lightning is an open protocol, which means any person, any company, or any app can join and start making Lightning payments themselves. It’s the opposite of how bank or card networks operate, which are closed and don’t allow people to hold electronic money themselves.

With Lightning, you can make payments across apps, for less than a penny, and the payment will be instantly spendable. 

To really get it, you have to see a Lightning app in action. 

People send payments from Miami to Mumbai, via Manila, Mexico City, and Munich. Each person uses a different app, each transaction is sent for fractions of a penny, each payment is finalized and immediately spendable. No 1-5 business days, no bank holidays, no manual approvals, no opaque fees. Secure global payments that just work. 

And since bitcoin is traded 24/7/365 across all major currencies, you can use cash to buy bitcoin, send via Lightning, and sell back into cash. That’s exactly what the Strike app and Strike API do. 

The Lightning Network is a new standard for payments. 
It’s fair — nobody has privileged access.
It’s global — across the street as across the world.
It’s interoperable — across apps, across companies, across borders.
It’s secure — it all begins and ends with Bitcoin, verifiably secure and scarce.

The global bitcoin payments network that’s instant, private, and low-to-no cost 

What is the Lightning Network?

## Bitcoin ETFs
First of all, what’s an ETF?

ETF stands for Exchange Traded Fund, which is a type of investment product that can be traded on stock exchanges. ETFs hold assets, such as stocks, bonds, or commodities, and then issue shares, which investors can buy to get investment exposure to those underlying assets. 

![](https://www.datocms-assets.com/99305/1705929799-learn-what-is-a-bitcoin-etf-state-hero.png)

The idea is that the shares of the ETF *track* the price of the underlying assets, which means that as the assets go up or down in price, the shares in the ETF go up or down in a similar way. For example, if you buy shares in a Gold ETF, your investment would go up or down alongside the price of gold. It's a way of getting investment exposure to gold, without having to buy physical gold coins yourself. 

For the service of operating the ETF, the company that manages it (aka ETF Provider) charges a fee, typically a percentage of the total value of the fund’s assets.

So what’s a Bitcoin ETF?

A Bitcoin ETF is simply an ETF that holds bitcoin. It holds no other underlying asset – no other crypto, coin, or token… just [bitcoin](https://strike.me/learn/what-is-bitcoin). 

When the price of bitcoin goes up or down, the share price of the Bitcoin ETF goes up or down too. It’s a way to get investment exposure to bitcoin, without actually buying and owning the bitcoin *directly*.

Bitcoin ETFs differ from direct ownership of bitcoin, most notably in that ETFs incur ongoing management fees and don’t let you send, withdraw, and control your bitcoin yourself. The [Strike app](https://strike.me/download) is a way to buy, sell, hold, send, and receive bitcoin, as well as withdraw it to your own custody, without incurring any management fees.

![](https://www.datocms-assets.com/99305/1705598787-engineering_06-blended-bitcoin-fee-estimations-default.png)

## How does a Bitcoin ETF work?
From a high-level perspective, all you really need to know is that you can buy shares of a Bitcoin ETF in a brokerage account, and then as bitcoin’s price goes up or down, so too does your investment. 

Under the hood, the operations of a Bitcoin ETF are a bit more technical and involve creating and redeeming shares. Before digging in, there are a few terms you might need to know:

* **Net Asset Value (NAV):** The value of the ETF’s holdings
* **Authorized Participants (AP’s):** Special designated partners (usually large financial institutions) that can participate in creating or redeeming shares of the ETF
* **Custodian:** The company that actually holds the bitcoin, which could be the ETF Provider itself or a 3rd party company

So how does a Bitcoin ETF work?

1. Bitcoin ETF shares each represent a certain portion of the fund’s underlying bitcoin holdings (for example, 1 bitcoin per 1,000 shares), and are traded on a stock exchange.
2. The share price rises and falls according to supply and demand.
3. When there’s increased demand, the ETF share price rises, leading to a *premium to NAV*, meaning the ETF shares are higher in price than the underlying bitcoin they represent.
4. This premium to NAV acts as a signal to the APs to create new ETF shares, which they do by delivering cash to the ETF Provider who buys bitcoin and deposits it to the fund’s custodian.
5. The NAV of the Bitcoin ETF is updated to reflect the fund’s newly acquired bitcoin and the APs receive newly created ETF shares.
6. The APs can then trade the shares in the open market, thereby collecting and closing any premium to NAV.

The reverse can also occur when there’s a *discount to NAV*, meaning the ETF shares are lower in price than the underlying bitcoin they represent. This leads APs to gather shares and return them to the ETF Provider, *redeeming* them in exchange for the cash value of the bitcoin they represent. The ETF Provider delivers the cash to the APs by selling the underlying bitcoin.

This whole system is designed so that the ETF tracks the market price of bitcoin. Whenever there’s a premium or discount to NAV, either due to trading of ETF shares or price fluctuations of the underlying bitcoin, the APs are able to bring the share price back in line with the value of the bitcoin they represent. This system also provides liquidity, as the APs are able to participate in trading of shares, even when regular investors may be reluctant or illiquid.

The above scenario describes cash-create type ETFs, where the APs create or redeem shares by exchanging cash with the ETF Provider, rather than bitcoin. Different Bitcoin ETFs around the world may operate with different creation/redemption processes, bitcoin-per-share ratios, management fee amounts or schedules, or settlement times for when the bitcoin or cash need to be exchanged. You can read about each ETF’s details on their website.

Overall, APs and ETF Providers work to keep deviations from NAV to a minimum, so that the share price tracks the price movements of bitcoin. A 5% move in bitcoin’s market price should result in a corresponding 5% price move in the Bitcoin ETF share price. 

![](https://www.datocms-assets.com/99305/1705011631-learn-how-to-buy-bitcoin-support.png)

## Should you buy into a Bitcoin ETF?
If you’re getting into bitcoin, the question arises: should you buy shares of a Bitcoin ETF or buy bitcoin directly?

Ultimately, it’s up to you. 

For some, the convenience and familiarity of buying within their brokerage account is a big plus. For others, they might be swayed by “unit bias” – feeling better about owning *whole* shares of an ETF rather than owning *fractions* of a bitcoin, despite the fact that shares themselves represent a fraction of a bitcoin. 

Before deciding what’s best for you, there are some factors to consider:

### Management fees:
Bitcoin ETFs incur management fees, typically as a percentage of the total value of the fund’s holdings, while direct ownership has no ongoing management fees. From a long-term perspective, fees add up and are compounding, which steadily erodes the value of your holdings.

### Control of funds:
Owning bitcoin directly gives you the freedom to move your assets where, when, and how you want, while ETF shares can only be held via a brokerage service and have limited or no ability to be transferred to an alternate brokerage or custodian.

### Trading access:
Bitcoin ETFs can only be traded during market hours on business days, whereas owning bitcoin directly affords you the ability to buy and sell, any time, any day. During periods of high volatility, ETF-holders have to wait until markets open to be able to trade, while direct bitcoin-holders are free to trade and transfer when they please.

### Counterparty risk:
Bitcoin ETFs require trust in certain 3rd parties: the ETF Provider and custodian must securely manage the bitcoin, the Authorized Participants must ensure liquidity and limit deviations from NAV, and your brokerage service must provide reliable trading and access to your holdings. With direct ownership, you can decide where your bitcoin is held and by who, including self-custodying where you are the holder and sole authority over your assets.

### Future opportunities:
As the Bitcoin ecosystem grows, new use cases may arise for bitcoin holders, including using bitcoin to collect routing fees within the [Lightning Network](https://strike.me/learn/what-is-the-lightning-network) or posting bitcoin as collateral into escrow accounts to borrow against. Although these use cases are nascent and come with their own set of risks and complexities, they’re simply unavailable if your holdings are locked inside an ETF.

When considering whether to buy shares of an ETF, it’s important to consider the tradeoffs compared to buying bitcoin directly. 

The [Strike app](https://strike.me/download) offers a way to get into Bitcoin that’s simple and secure. You can sign up and buy bitcoin in minutes using regular cash payment methods, with little as $0.01 or as much as you want. Strike Private (private@strike.me) also provides OTC-desk bitcoin buying and selling for large orders from individuals, businesses, or institutions. 

With Strike, you control how you trade, hold, transact, or withdraw your bitcoin – and never pay any ongoing “management fee”. 

*Please note: this content is for educational purposes only. Strike does not provide financial advice.*

Bitcoin Exchange Traded Funds – what they are and how they work

What is a Bitcoin ETF?

Taking self-custody of your bitcoin is a process involving setting up a self-custodial wallet then sending your bitcoin to one of your addresses.

![](https://www.datocms-assets.com/99305/1704930777-learn-better-ai-agents-state-hero.png)

[Private keys](https://strike.me/learn/what-are-private-keys-and-public-keys) are central to bitcoin ownership.

Every bitcoin transaction must be authorized using the correct private key, meaning if you exclusively hold the private key, then you alone can spend the bitcoin associated with that key. The control of private keys– their creation, security, and management – is how you own bitcoin without relying on any 3rd party.

Custodial wallets, like [Strike](https://strike.me/download), handle private keys on behalf of their users. The process of taking [self-custody](https://strike.me/learn/what-is-self-custody) of your bitcoin involves setting up a new self-custodial wallet, then sending your bitcoin to an address created from that wallet. 

There are two basic types of self-custodial wallets:
* **Hardware wallet:** A physical device, usually with a screen, that runs its own wallet app to generate a [seed phrase](https://strike.me/learn/what-is-a-seed-phrase) and manage private keys directly on the device.
* **Software wallet:** A mobile or desktop app that you download, which generates a seed phrase and manages private keys within the app.

One of the major threats to your private keys is malicious or faulty software. If bad software infiltrates your wallet app, it could compromise your bitcoin. For this reason, it’s crucial to be cautious about your wallet’s connection to the Internet. 

Wallets can be further categorized based on their Internet connection:
* **Hot wallet:** A wallet that’s connected to the Internet
* **Cold wallet:** A wallet that’s disconnected from the Internet
* **Air-gapped wallet:** A wallet that is never connected to the Internet, and which passes transaction information via physical SD card or some other means.

## When should I take self-custody
Many people start their Bitcoin journey using a custodial app, like Strike, since it offers convenience, simplicity, and security. However, as you gain a deeper understanding of Bitcoin or allocate an increasingly significant portion of your wealth into it, self-custody should become an essential part of your financial plan.

Before proceeding with self-custody of your bitcoin, it’s best to understand key concepts:
* **Private and public keys:** Learn how bitcoin transactions are created and authorized via [private and public keys](https://strike.me/learn/what-are-private-keys-and-public-keys).
* **Seed phrases:** Understand how your private keys are generated from a [seed phrase](https://strike.me/learn/what-is-a-seed-phrase) and how to recover them in case your wallet is lost, damaged, or destroyed.
* **Private key security best practices:** Know the best practices to [properly safeguard](https://strike.me/learn/how-do-i-protect-my-private-keys) your private keys and seed phrase to prevent loss or theft.
* **Mult-signature setups:** Especially for large amounts of bitcoin, consider multi-signature (multi-sig) wallets that require multiple, geographically distributed private keys to authorize transactions.
* **Cold vs. hot vs. air gapped wallets:** Understand the differences between cold wallets (offline storage), hot wallets (online storage) and air-gapped wallets (never-connected storage), and how to use each safely.
* **The UTXO system:** Learn how [UTXOs](https://strike.me/learn/what-is-a-utxo) (Unspent Transaction Outputs) work to avoid issues that could make your bitcoin uneconomical or unspendable and protect your privacy.

Once you have a strong grasp of these concepts, research and choose the right self-custodial wallet that suits your needs. Many people opt for a hardware wallet, which can cost around $100 or more. Whether you choose a hardware or software wallet, be prepared to stay updated on the latest software or firmware to protect against security vulnerabilities.

Online tutorials, videos, and step-by-step walkthroughs are great resources for researching wallets and how to use them.

## How to take self custody
Here’s how to take self-custody of your bitcoin using a hardware wallet:

1. **Buy a hardware wallet:** Research and choose a reputable hardware wallet and follow the setup instructions provided in the package. For security reasons, it’s best to purchase the wallet from the manufacturer, rather than from a reseller.
2. **Set up your wallet:** Turn on the device, follow the on-screen instructions to begin creating your new wallet.
3. **Record your seed phrase:** As part of the setup process you’ll be prompted to write down a 12, 18, or 24-word [seed phrase](https://strike.me/learn/what-is-a-seed-phrase), which can be used to recover your wallet if it’s lost or damaged. It’s vital to record the words accurately and in the correct order, and to follow [best practices](https://strike.me/learn/how-do-i-protect-my-private-keys) when storing them for safekeeping.
4. **Generate a Bitcoin address:** Initiate a “receive” transaction in your wallet to generate a new Bitcoin address.
5. **Copy and paste the address:** Copy the address and paste it into the service you’re using to send bitcoin (like [Strike](https://strike.me/faq/how-do-i-send-bitcoin/)). This can be done either by having your wallet generate a QR-code, or by sharing the address to yourself, preferably using a secure and encrypted message app. Double check that the address’s characters are correct.
6. **Set your fee and amount:** Choose a transaction fee and enter the amount of bitcoin you want to send, making sure it aligns with [UTXO best practices](https://strike.me/learn/what-is-a-utxo).
7. **Send a test transaction:** As an optional step, you can send a small “test” transaction to your Bitcoin address to be absolutely sure that the address is correct. 
8. **Initiate the transaction:** After reviewing all details, initiate the transaction to your address.
9. **View the transaction on the blockchain:** Once your transaction has been initiated, it will typically appear as a pending transaction. As a final step, you can monitor your transaction’s progress on a [blockchain explorer](https://mempool.space) by searching for your Bitcoin address.

Once your transaction has six confirmations (~60 minutes), it is generally considered complete. 

At this point, you exclusively own the bitcoin because you control the wallet with your private keys, and you have securely stored your seed phrase.

Sending your bitcoin to an address where you control the private keys

How do I take self-custody of my bitcoin?

## Cash –> Bitcoin –> Cash
Send Globally is a feature in the Strike app that lets you send cash through the [Bitcoin Lightning Network](https://strike.me/learn/what-is-the-lightning-network) and have it delivered as local currency to bank or mobile money accounts. It’s a way of sending money globally or locally that can cut out unnecessary middlemen, achieve lower costs, and deliver at faster speeds.

It’s cash, sent through Bitcoin, delivered as local currency.

![](https://www.datocms-assets.com/99305/1702407736-learn-what-is-send-globally-state-title.png)

To understand how it works, let’s take a look at Bitcoin.

[Bitcoin](https://strike.me/learn/what-is-bitcoin) is a digital asset that trades 24/7/365, uninterrupted. People worldwide buy and sell bitcoin across all major currencies. This means you can buy bitcoin with your local currency, send the bitcoin to someone else, who can then sell that bitcoin for a different currency. Cash to bitcoin to cash.

On top of Bitcoin is the Lightning Network, a second-layer scaling solution that lets people securely send real bitcoin faster and cheaper. With Lightning, people can now send and receive bitcoin, anywhere in the world at lightspeed, for low-to-no cost. 

With Bitcoin and Lightning, all you need are cash on/off ramps to make global cash transfers… which is where Strike comes in.

The [Strike app](https://strike.me/download) has full functionality for Bitcoin, Lightning, and cash. Strike has also built a global network of partnerships with bitcoin-powered companies. These global partners can receive bitcoin, convert it to their local currency, and deposit it directly to bank or mobile money accounts. 

So, how does it work?

With cash in your Strike account, you add your recipient’s bank or mobile account details, enter an amount to send, and hit “Confirm”. Immediately, your cash is converted to bitcoin, bitcoin is sent via Lightning to the global partner, the global partner sells the bitcoin for local currency, and the local currency is deposited into your recipient’s account.

The entire operation is automated, and can be done in seconds. Neither you, nor your recipient, ever owns bitcoin. It’s a cash to foreign currency transaction, made possible through Bitcoin.

![](https://www.datocms-assets.com/99305/1702580906-using-bitcoin-to-send-money-abroad-02.png)

## Bitcoin as public payments infrastructure
This is a new approach to using Bitcoin. 

It’s using Bitcoin, not as an asset, but as a network to transfer value. It’s Bitcoin as public payments infrastructure for the world – an alternative to traditional money transfers.

In traditional finance, sending money internationally to friends and family (aka remittances) is slow and expensive. The average cost to remit money globally is roughly [6.20%](https://remittanceprices.worldbank.org/sites/default/files/rpw_main_report_and_annex_q223.pdf) — as in you send $100 and $6.20 is lost to fees, exchange rates, and/or middlemen. 

There’s also delays. The money can take hours, days, or even weeks to arrive and be spendable. You’re also limited if you’re trying to send really small or really large amounts. It all depends on the country, currency, or companies involved.

But why is that?

Put simply, international banking processes.

To transfer local cash in a local bank to foreign cash in a foreign bank involves payment batching, net clearance schedules, chargeback risks, business hours, bank holidays, and of course fees for all middlemen involved. If the countries or currency-pairs are small or uncommon, then the rates, delivery times, and limitations are going to be worse. 

It’s an inefficient system, not designed for speed and savings.

![](https://www.datocms-assets.com/99305/1702580912-using-bitcoin-to-send-money-abroad-03.png)


## Lightning delivers real savings and real value
Send Globally is for saving time and money.

By using Bitcoin as the network to send value, Strike can deliver even better cross-currency exchange rates. That’s because the transfer is able to bypass a lot of the processes and middlemen that drive up costs. And since the money is sent through Lightning, it can arrive much faster than traditional money transfers.

Strike has already launched in a [number of countries](https://strike.me/faq/which-countries-are-available-for-send-globally/) (with more to come), each with super low minimums. All you need is your recipient’s bank or mobile account details, and then you can send to them in their local currency, typically in seconds. 

It’s as easy as texting.

You can also use it for travel. Airport money changers charge crazy high fees and bad rates, so why not use the cash in your Strike app while traveling abroad? On your next trip to the Philippines, just use your cash to pay people in pesos, by Sending Globally right to their mobile money account.

If your recipient doesn’t live in one of the supported countries, that’s okay. The Strike app is available in [countries worldwide](https://strike.me/faq/where-is-strike-available-wr), so you can send them cash or bitcoin instantly to their Strike account. Or they can use any other Lightning-enabled wallet app to receive payments. Bitcoin is interoperable, and is traded across all major currencies. It just works.

You can use Send Globally the Strike app today, or check out this [step-by-step walkthrough](https://strike.me/learn/how-to-use-send-globally) to learn more.

Happy sending.


Bitcoin's Lightning Network makes global money transfers faster and cheaper

Using Bitcoin to send money abroad

UTXO stands for Unspent Transaction Output, and is the technical term for a discrete portion of bitcoin. Put simply, your UTXOs are your bitcoin that you’ve received, but not yet spent.

![](https://www.datocms-assets.com/99305/1721348184-learn-what-is-a-utxo-state-hero.png)

Amounts of bitcoin exist as records of transactions on the Bitcoin [blockchain](/learn/what-is-a-blockchain). Owning bitcoin means that there’s a transaction on the blockchain to an address for which you control the private keys. That record of an amount of bitcoin is called a UTXO.

The way Bitcoin works is that transactions have inputs and outputs. When a transaction is made, the sender specifies one or more inputs and one or more outputs, which can be of any amount, ranging from fractions of a bitcoin to multiple whole bitcoin:
* **Input(s):** An input in a bitcoin transaction references a previous unspent transaction output (UTXO) and is used to fund the new transaction. It includes the previous transaction’s ID, the specific output being spent, and a signature to prove ownership.
* **Output(s):** An output in a bitcoin transaction specifies the recipient of the bitcoin and the amount to be transferred, which can be an address controlled by the sender.

When a UTXO is spent as an input, it’s destroyed, and one or more UTXOs are created as the output. The one exception to this input-output system is the first transaction in each block, called the “coinbase.” The coinbase transaction has no input since it is newly issued bitcoin entering circulation as a reward to the miner, according to the strict [supply schedule](/learn/what-is-the-bitcoin-supply-schedule).

You can look at any given block on the [blockchain](https://mempool.space) for yourself and find the assorted transactions, each with one or more inputs and outputs, alongside the inputless coinbase. The network of nodes running Bitcoin’s software maintains a record of all UTXOs, known as the “UTXO set,” which represents all valid coins in the system. 

## Comparison with the account model
This UTXO model is different from the “Account model” used by banks. In the Account model, balances are tracked as single figures that are adjusted with each transaction, while the UTXO model treats each transaction output as a discrete, spendable unit.
* **Account model:** Balances are updated by debiting and crediting accounts, similar to how banks manage cash balances. When you deposit or withdraw any amount, your balance will adjust accordingly.
* **UTXO model:** Each transaction output is like a separate piece of physical cash (paper notes and metal coins). When you make a payment, you must select specific notes or coins to use. As part of the transaction, you might receive change in return, which are new notes or coins in your wallet.

A key difference to this physical cash analogy is that the recipient of a bitcoin payment receives it as a unified UTXO, not as an assortment that matches the inputs. Overall, what this means is that your bitcoin holdings are simply a collection of outputs from previous transactions that you haven’t yet spent, hence “Unspent Transaction Outputs” or UTXOs.

## Understanding UTXOs and fees
When you make a transaction on the Bitcoin blockchain, you need to pay a [transaction fee](/learn/what-are-bitcoin-fees) (aka on-chain fee) to get it added to a block and be “confirmed.” Transaction fees are paid to the [miner](/learn/what-is-bitcoin-mining) who adds the block and offers an incentive to get transactions confirmed sooner.

In any given transaction, the fee amount is simply the difference in amounts between the inputs and outputs. If the total amount of the inputs is 1 bitcoin, and the total amount of the outputs is 0.99 bitcoin, then the fee payable to the miner is 0.01 bitcoin.

Bitcoin blocks have a limited amount of space and are only added on average every 10 minutes. This ensures the entire blockchain remains small enough to be downloaded and verified on an average laptop computer, helping Bitcoin stay decentralized by keeping participation open to all. Fees are therefore based on the *amount of data* a transaction requires, rather than its *financial value*. Transactions that occupy more bytes of data, such as those with many inputs and outputs, pay more in fees, since they’re using more of the scarce resource of block space. 

![](https://www.datocms-assets.com/99305/1702407727-learn-how-to-buy-bitcoin-state-title.png)

## Fees and UTXO sizes
Fees are measured in [satoshis](/learn/what-are-satoshis/) per virtual byte (aka “sats/vbyte”). Since the market for fees is free and open, anyone can include any amount of fee for their transaction, and miners can select which transactions to include in a block. Fees can be competitively bid up, especially during periods of high network traffic. Higher fees means it’s more expensive to have your transaction added to the blockchain, even for transactions with a single input and output, since each input and output incur a cost based on the bytes of data they require.

This becomes a problem for low-value UTXOs. 

When fees are high, using a low-value UTXO as an input can become uneconomical, since the fee cost to include that UTXO could be a significant percentage of its value – as in you might end up spending half of the UTXO’s value just on fees. What’s more, if the cost of including a specific UTXO as an input surpasses its value, it effectively becomes unspendable. Such low-value UTXOs, which cost more in fees to spend than they’re worth, are often referred to as “dust” – they’re lost.

For example, a [single input](https://bitcoinops.org/en/tools/calc-size/) could require between 57.5 vbytes for a Taproot transaction to 148 vbytes for standard P2PKH transaction (or more for complex transactions like multi-sig), so if fee rates were to reach [200 sats/vbyte](https://mempool.space/graphs/mining/block-fee-rates#1y), the following UTXO sizes or smaller would become unspendable, depending on the transaction type:
* 57.5 vbytes * 200 sats/vbyte = 11,500 satoshis UTXO 
* 148 vbytes * 200 sats/vbyte = 29,600 satoshis UTXO

What this means is that as fees rise, smaller UTXOs can become uneconomical or even unspendable. UTXOs worth thouands, tens of thouands, or even low hundreds of thouands of sats might cost a third, half, or even their entire value in fees to add to the blockchain. In the long term, fees are expected to rise with increased Bitcoin adoption, as more individuals, businesses, apps, and even governments begin to transact on-chain. When self-custodying your bitcoin, you need to plan accordingly to manage your UTXOs effectively.

## How to manage your UTXOs
Using an app like [Strike](https://strike.me/download) to custody your bitcoin is a way to delegate UTXO management, including the selection of inputs and the setting of fee rates to process your transactions economically. With Strike, you can buy as little as $0.01 of bitcoin either as a one-time purchase or through dollar cost averaging (DCA) via recurring purchase, without affecting UTXOs, since the purchases aren't recorded on the blockchain. However, when you make an on-chain transaction, like sending bitcoin to your own custody, you'll need to manage your UTXOs, as your bitcoin purchases on Strike will be combined into a single UTXO sent to your chosen Bitcoin address.

When you’re ready to take self-custody of your bitcoin, managing your UTXOs becomes crucial and requires that you consider a number of factors, suchas fee rates, privacy, and the economic viability of your future transactions. 

Below are some UTXO management best practices to follow: 
* **Not too small:** Keep your UTXO’s at least around 1 million satoshis (0.01 bitcoin), to ensure they remain economically viable, even as fees rise. UTXOs as low as 10,000’s or even 100,000’s satoshis may become uneconomical or unspendable in high-fee environments.
* **Not too big:** Avoid having all your bitcoin in a single large UTXO. Using a large UTXO as an input in a future transaction can reveal your holdings to your recipient, as they can see which UTXO was used as an input and where the change was sent, potentially affecting your privacy.
* **Diversify your UTXO sizes:** If possible, maintain a mix of UTXO sizes, to give yourself options when selecting appropriately sized inputs for future transactions. 
* **Segregate UTXOs:** Keep UTXOs from different sources separate, including any non-kyc sources, to maintain privacy and prevent traceability by transaction recipients.
* **Time your sends:** Monitor [fee rates](https://mempool.space/graphs/mining/block-fee-rates#1y) and aim to send transactions when fees are relatively low, but avoid waiting too long as your desired fee rate may not materialize.
* **Avoid reusing addresses:** To promote privacy and avoid traceability by your recipients, use a new Bitcoin address each time you transact on-chain.
* **Consolidate when fees are low:** Use periods of low fees to combine smaller UTXOs as inputs into larger outputs to ensure future economic viability.
* **Be wary of fee spikes:** Sudden increases in fees may be temporary and could subside within hours or days. For non-urgent transactions, waiting might be wise, though long-term fees are expected to rise with increased Bitcoin adoption.
* **Use Lightning:** For small transactions, use the [Lightning Network](/learn/what-is-the-lightning-network). Lightning enables real bitcoin transactions, without recording each one on the blockchain, avoiding on-chain fees and wait times. Transactions on Lightning are instant and low-to-no cost, allowing you to send even single satoshis to friends or your own Lightning wallet.

For a more in-depth explanation of UTXO management and best practices, read [this article](https://strike.me/learn/how-to-manage-utxos/).

By carefully managing your UTXOs, you can optimize your transaction costs, maintain privacy, and ensure you’re able to spend your bitcoin in the future the way you want, regardless of future fee market conditions. 

Unspent transaction outputs are discrete portions of bitcoin

What is a UTXO?

Make your move into bitcoin.

Learn

Bitcoin-backed loans let you unlock cash liquidity, without selling your bitcoin.

![](https://www.datocms-assets.com/99305/1746478218-learn-what-are-bitcoin-backed-loans-state-defaul.png)

Bitcoin-backed loans are a way to use your bitcoin as *collateral* – a valuable asset that serves as a secure guarantee to get a cash loan. These loans help bitcoin holders access liquidity, while maintaining benefits of ownership, including maintaining their position for long-term price appreciation.

Bitcoin offers [several advantages](https://strike.me/learn/understanding-bitcoin-as-collateral) over traditional types of collateral:

* **High liquidity and fast settlement:** Bitcoin's 24/7 global trading and the speed of the [Lightning Network](https://strike.me/learn/what-is-the-lightning-network) or [on-chain](https://strike.me/learn/how-does-bitcoin-work/) transfers enable quick conversion to cash and efficient settlement.
* **Transparent and verifiable ownership:** Bitcoin transactions and ownership are recorded on its public [blockchain](https://strike.me/learn/what-is-a-blockchain/), ensuring transparency and ease of verification.
* **Global scalability and programmability:** Bitcoin's [divisibility](https://strike.me/learn/how-many-bitcoin-are-there/), programmability, and global nature enable loans of any size, from micro to macro, and facilitate flexible collateral management.

Bitcoin represents an entirely new kind of collateral, free from the inherent constraints of legacy financial systems. Compared to traditional collateral assets like real estate, stock portfolios, or personal property, bitcoin offers compelling advantages that make it a valuable alternative for both borrowers and lenders. 

The aforementioned advantages simply can’t be accessed when using legacy forms of collateral. Real estate suffers from illiquidity, appraisal requirements, and local market conditions, whereas stock portfolios are bound by trading hours and settlement delays.

Bitcoin as collateral opens a [new world of possibilities](https://strike.me/learn/understanding-bitcoin-as-collateral) for lending and financial markets.

## How do bitcoin-backed loans work?
Bitcoin-backed loans function just like any other collateralized loans – you pledge an asset as a secure guarantee to borrow cash and then upon repayment of the loan, your collateral is returned to you.

Here’s the basics:
1. **Post bitcoin as collateral:** You transfer your bitcoin to a lender who holds it as security, ensuring that they can recover their funds in case you default.
2. **Receive cash:** The lender provides you with a cash loan, to be repaid within a designated time period and interest rate.
3. **Repay the loan:** Over the loan’s term, you make payments (or a lump sum at maturity) to repay the loan’s principal amount plus interest.
4. **Return of your bitcoin:** Once the loan is fully repaid, your bitcoin is returned to you.

The loan size and required collateral are determined by the Loan-to-Value (LTV) ratio – the loan amount compared to the collateral's value. For example, an LTV of 50% means you can borrow up to 50% of your collateral’s value. Due to bitcoin's price volatility, the value of the collateral fluctuates, directly impacting the LTV ratio. If the collateral value were to fall significantly, the lender’s investment could be at risk, which is why certain LTV thresholds are preset to trigger margin calls or liquidations: 

* **Margin call:** If the LTV rises to a certain threshold, a margin call is triggered, requiring you to add collateral or repay part of the loan within a certain timeframe.
* **Liquidation:** Failure to resolve a margin call or a critically high LTV ratio can cause an immediate collateral liquidation to recover the lender's funds.

## Example of a bitcoin-backed loan:
To show how this works, here’s an example of a bitcoin-backed loan:
* **Loan amount:** $100,000
* **Loan term:** 12 months
* **Initial LTV (Loan-to-Value):** 50%
* **Annual Percentage Rate (APR):** 13%
* **Interest accrual:** Daily
* **Loan type:** Payment at maturity
* **Collateral required:** An amount of bitcoin valued at $200,000

In this example, you begin by posting an amount of bitcoin worth $200,000 and receiving $100,000 in cash (50% LTV). During the loan, you monitor and manage your LTV, ensuring sufficient collateral to avoid margin calls during any significant bitcoin price drops. You can do this by either adding more bitcoin collateral or by making cash payments to reduce the loan’s outstanding principal.

After one year of interest accruing, you repay $113,000 ($100,000 principal, plus 13% interest) and your bitcoin is returned to you.

## Why should you consider a bitcoin-backed loan?
Established bitcoiners know that bitcoin is a peer to peer electronic cash with a strictly limited supply and growing worldwide adoption. History has shown that time in the market beats timing the market, since many of bitcoin’s biggest price gains happen on a small number of days and no one knows when they will be. Because of this, a popular strategy is simply to hold your bitcoin, and not sell.

This presents a problem – how do you enjoy your wealth if you never sell? How do you buy a home or car, support friends and family, start a business, invest, or even take a vacation if your wealth is tied up in bitcoin, which you don’t want to sell?

Bitcoin-backed loans can offer a solution, giving you cash liquidity to use now, while keeping your bitcoin exposure for the long-term.

## Benefits of bitcoin-backed loans:
* **Access cash, without selling:** Maintain ownership benefits and exposure to future price appreciation.
* **Avoid taxable events from selling:** Borrowing against your bitcoin avoids triggering immediate capital gains or losses, unlike selling your bitcoin
* **No credit checks:** Loan approval is based solely on your bitcoin collateral, not your credit score.
* **Fast and efficient:** No need for lengthy approval processes or property appraisals, as funds can be delivered and accessed quickly.

## Risks of bitcoin-backed loans:
* **Lender risk:** Opening a loan means you temporarily give up direct control of your bitcoin, trusting the lender or third-parties to return it when the loan concludes. 
* **Price volatility risk:** If bitcoin’s price drops significantly, your LTV increases, which can trigger margin calls or liquidations – forced sales at inopportune times. 
* **Interest costs:** If your use of the loan proceeds doesn’t generate enough return to cover the interest costs, then you won’t benefit financially.

Because bitcoin is more volatile than traditional collateral like real estate, it’s crucial to know the risks and monitor your LTV to avoid forced liquidations.

Strike offers bitcoin-backed loans with market-leading rates. Learn more [here](https://strike.me/learn/how-to-open-a-bitcoin-backed-loan).

Bitcoin as collateral to unlock cash liquidity

What are bitcoin-backed loans?

## Peer to peer electronic cash
“Is bitcoin money?” – super simple question, a bit tricky to answer.

The answer can depend on who you are, where you live, or even on your definition of “money.”

![](https://www.datocms-assets.com/99305/1702580882-is-bitcoin-money-01.png)

The basic fact is that Bitcoin was originally intended and currently functions as a peer-to-peer electronic cash. You can spend it, save it, and earn it, in the similar way that you do with other money. 

People worldwide use bitcoin on a daily basis to transact, either out of personal preference or out of necessity (often when their national currency is failing). There are Bitcoin communities where you can live exclusively with bitcoin, and the number of those communities keeps growing, thanks to increasing bitcoin recognition and better bitcoin services coming online. 

For these people, bitcoin is their money.

But maybe for some people that doesn’t quite get to the heart of the question. Even if bitcoin is money for some, is it money for all?

## Money is … a G.A.M.E.
First of all, what is money?

History has had a lot of different kinds of money: shells, beads, cattle, metal coins, paper notes, and now digits on screens. Whatever money is, it needs to serve three basic functions:

1. **Store of value:** it needs to hold value over time (or at least some of its value)
2. **Medium of exchange:** it needs to be relatively good for trading
3. **Unit of account:** it needs to be usable for measuring/comparing prices

For example, when you have $10 dollars, you are *storing value* in the form of dollars, which you can use to *exchange* for other things, which are *priced* at $10 or less. 

With those functions in mind, a definition of money can be anything that has become a “Generally Accepted Medium of Exchange” (G.A.M.E.). Money can be anything from paper, to coins, to cigarettes, to food, so long as it’s *generally* accepted.

That definition has some flaws. What if something is generally accepted in one city, but not another? What exactly does “generally” mean? 51% accepted? Accepted by who? … It’s not a perfect definition, but it’s good enough for now.

Of course, for something to be generally accepted, it has to first gain the trust and recognition of people. Gaining trust (or losing it) can take decades, or years, or it can happen all at once. Hyperinflating currencies can be generally accepted one week and then not accepted the next, replaced by a different G.A.M.E. (despite what the local government says).

So money is about “general acceptance.” Check.

![](https://www.datocms-assets.com/99305/1702580888-is-bitcoin-money-02.png)

## Geography matters
In Lyn Alden’s book “[Broken Money](https://www.lynalden.com/broken-money/)” (must-read btw), she points out how money is very country-specific.

For example, in India the rupee is money, but in Japan the yen is money. Trying to spend yen in India or rupees in Japan is hard, because they’re not generally accepted. That’s the case for pretty much all of the world’s roughly 180 different “monies” today. Most money is *universally* accepted within its national borders, but is rarely (if ever) accepted far beyond those borders. 

The further you travel, the less your money is money.

The exception to this rule is, of course, the US dollar (and maybe to a lesser extent the Euro), which are more widely accepted beyond their borders. For the other 99% of monies in the world, they’re pretty useless beyond their borders. Yet we can still agree that the South African rand or Malaysian ringgit are money… just not in most places.

Visit any major city around the world and you’ll probably find that the local currency is the “number one” accepted money, followed by the US dollar, Euro, or a neighboring country’s money as numbers two, three, and four. Aside from those, it’s a steep drop-off for the acceptance of any other nation’s currency as money. 

But then there’s bitcoin…

Despite only being around since 2009, you’ll find that people accept bitcoin in every major city worldwide. There are also people who will trade their local money for your bitcoin. Although bitcoin isn’t the “number one” money in any single country (yet), it’s probably in the top 5 or 6 in almost all countries. The same can’t be said for the Brazilian real, Swedish krona, or Indonesian rupiah (or any of the ~180 world monies).

Bitcoin’s in a unique spot. It’s not *generally* accepted in any country… but it’s more generally accepted worldwide than almost all other monies. A leader nowhere, top-tier everywhere.

![](https://www.datocms-assets.com/99305/1702580893-is-bitcoin-money-03.png)

## Money here, money there
Back to the question, is bitcoin money?

Is it generally accepted as a medium of exchange? 

A simple answer of “no” doesn’t really capture the fact that bitcoin has become more widely accepted than most other monies. Bitcoin’s trajectory has gone from non-existence prior to 2009 to being used by millions of people worldwide. It’s even become legal tender in some countries (shoutout to El Salvador as first mover).

Sure, your country might classify bitcoin as property, and tax transactions accordingly (like the USA)... but people are still using it as a medium of exchange. In free economies, people can use whatever money they want, regardless of what the official classification may be. 

Regardless of how you answer “is bitcoin money?”, the reality is that bitcoin works as peer-to-peer electronic cash. It can be sent, received, spent, earned, or saved. Bitcoin is more generally accepted than ever, and it keeps growing year after year.

Is bitcoin money? You decide.

Understand the nuance to get the full picture

Is bitcoin money?

Bitcoin, the first peer-to-peer electronic cash, is used for storing value and exchanging value, but can also serve as collateral for loans.

![](https://www.datocms-assets.com/99305/1746478221-learn-understanding-bitcoin-as-collateral-state-hero.png)

First off, what are collateralized loans?

Collateralized loans involve borrowers pledging valuable assets to secure cash loans.

The collateral serves to protect the lender by providing security assurances for their investment. If the borrower defaults on the loan, the lender can sell the collateral to recover their funds. This assurance provides the foundation for the loan to exist, benefiting both borrowers and lenders.

A key aspect of collateralized loans is the Loan-to-Value (LTV) ratio, comparing the loan amount to the collateral’s value. The larger the loan, the more collateral is required. For lenders, effective LTV management—including collateral value assessment, tracking, transfer, and liquidation—is crucial for risk management across their portfolios of loans. The *quality* of a loan’s collateral, or its suitability to meet the lender's needs, is paramount.

Among the many types of collateral that exist, each offers its own unique qualities, market size, strengths, and weaknesses, both for lenders and borrowers. Some of the most common types of collateral include:
### Real estate: Homes, properties, or land
* **Positives:** Large and well-established market, relatively low volatility, potential for long-term appreciation, tangible asset as security
* **Negatives:** Illiquid, slow to sell, subject to local/regional market conditions, uncertain sale price or speed, lengthy administrative processes and costs involved in selling, limited divisibility
### Personal property: Cars, collectibles, jewelry, etc…
* **Positives:** Access to capital using existing assets, potentially quicker than some loans, versatile use
* **Negatives:** Difficult appraisal, tracking, and ownership transfer, potential depreciation, high interest rates.
### Stocks: Portfolio of securities in a margin trading account
* **Positives:** Easy transfer/valuation (digital), large market (public securities), potential appreciation.
* **Negatives:** Trading hours, settlement delays, varying liquidity, volatility risk tied to portfolio diversification, potential rapid devaluation, regulatory limitations

Lenders need to weigh the qualities of a given type of collateral to properly manage risk and set interest rates for their portfolios. With Bitcoin's emergence as a new type of asset, lenders now have the opportunity to evaluate this new asset class as a potential collateral option.

## Evaluating bitcoin as new type of collateral
Bitcoin offers new dimensions to collateral, with an entirely new set of qualities and limitations:
### Advantages of bitcoin as collateral:
* **Liquidity:** Bitcoin trades 24/7/365 across all major currencies, with substantial and growing daily trading volumes.
* **Ease of transfer:** Bitcoin can be transferred with final settlement between borrower, lender, and escrow accounts, in a matter of seconds to minutes depending if you’re using the [Lightning Network](https://strike.me/learn/what-is-the-lightning-network/) or on-chain transfers.
* **Verifiability:** Ownership can be easily verified [on-chain](https://strike.me/learn/what-is-a-blockchain/), providing a transparent and secure record.
* **Transparency:** The [total supply](https://strike.me/learn/what-is-the-bitcoin-supply-schedule/), individual holdings, and the time of transfers are equally transparent on-chain for all participants.
* **Efficiency:** Bitcoin eliminates the need for credit checks, property appraisals, or lengthy settlement delays, since its price is continuously updated and settlement can be made peer to peer.
* **Programmability:** Bitcoin can be managed programmatically, enabling sophisticated tools like multi-signature escrow wallets, time-locked transactions, and smart contracts.
* **Scalability:** Each bitcoin is divisible into 100 million sub-units (called [satoshis](https://strike.me/learn/what-are-satoshis/)) enabling loans ranging from a few dollars to billions, with negligible operational costs for managing collateral. 
* **Global accessibility:** Bitcoin is a global asset, where borrowers and lenders can access markets and liquidity across borders.

These qualities represent an unprecedented opportunity, unmatched by any prior form of collateral.

With bitcoin, you can programmatically transfer full custody of collateral, with final settlement in seconds to minutes, in amounts ranging $1 to over a $1 billion, from domestic or international customers, with no need for credit checks or property appraisals. If need be, collateral can be added, removed, transferred or liquidated, anytime, from anywhere.

Bitcoin is unprecedented collateral.

### Potential drawbacks of bitcoin as collateral
Despite these advantages, bitcoin as collateral also presents unique challenges:

* **Volatility:** Bitcoin can have large short-term price swings, potentially leading to margin calls or liquidations of collateral at inopportune times.
* **Counterparty risk:** Bitcoin-backed loans require trust in the lender's ability to securely manage and return the collateral.
* **Technical skills:** Issuing, managing, and disbursing bitcoin-backed loans requires lenders to have specialized skills, particularly regarding security and potentially Lightning Network or L2 integrations.
* **Market size:** The market of borrowers and lenders seeking bitcoin-backed loans is still emerging, which may limit accessibility and potentially result in unfavorable terms compared to more established forms of lending.
* **Borrower's loss of control:** Borrowers give up direct control over their bitcoin collateral, temporarily foregoing the sovereignty and optionality that comes with self-custody.

From borrowers, bitcoin-backed loans offer a way to access cash liquidity while avoiding selling their bitcoin. The above risks can be mitigated through careful loan sizing (using lower LTV ratios), choosing reputable lenders, actively managing their loans, and pledging only bitcoin they are comfortable risking. 

This approach aligns with the incentives of many bitcoin holders, who prioritize long-term accumulation for potential price appreciation. Bitcoin-backed loans allow them to maintain exposure to this upside while accessing capital, encouraging them to acquire and hold their bitcoin, using it strategically to fund lifestyle expenses or investments without selling and foregoing potential future gains.

## Leveraging bitcoin's appreciation with loan rollovers
Bitcoin-backed loans present a unique dynamic due to Bitcoin's historical price appreciation, even with its inherent volatility.

Imagine a loan with a 12% APR. If you believe that bitcoin's price will appreciate significantly, for example, by 25% annually on average, the collateral's value could increase more than the interest owed. This creates an opportunity where, instead of repayment at maturity, a borrower might refinance by taking out a new loan to cover the existing one. For certain lenders, this can be done as a single transaction, effectively “rolling-over” the loan.

This strategy could be repeated over multiple years, with subsequent loans repaying prior ones, as long as bitcoin's price appreciation continues to outpace the loan's APR.
It’s key to note that while bitcoin’s price is unlikely to match the dramatic gains of its early years, it could still see significant long-term growth driven by broader adoption across consumers, businesses, and even countries, in the face of its strictly limited supply. Furthermore, as the market for bitcoin-backed loans matures, increased competition could potentially lead to lower interest rates, further enhancing this dynamic.

If bitcoin’s price appreciation outpaces the loan’s interest accrual, the LTV would decrease, naturally reducing risk over time. Additionally, if the borrower uses some or all of the loan proceeds to buy more bitcoin, the loan repayment burden could potentially decrease relative to their holdings. This creates a scenario where the lender maintains their desired risk and return profile, while the borrower has an ever-easier time repaying the loan as their holdings grow faster than their debts.

Bitcoin-backed loans offer a new opportunity with unprecedented features for both lenders and borrowers. Learn more about bitcoin backed loans [here](https://strike.me/learn/what-are-bitcoin-backed-loans).

Bitcoin is for savings, payments, and collateral for loans

Understanding bitcoin as collateral

Opening a bitcoin-backed loan lets you unlock your bitcoin’s buying power, without having to sell your bitcoin.

![](https://www.datocms-assets.com/99305/1746478217-learn-how-to-open-a-bitcoin-backed-loan-state-hero.png)

Established bitcoiners face a dilemma: how do you access your wealth, while maintaining your bitcoin position? 

[Bitcoin-backed loans](https://strike.me/learn/what-are-bitcoin-backed-loans/) offer a potential solution. They offer a way to access cash liquidity to fund your lifestyle or make inestments, while maintaining the upside of bitcoin's price appreciation. Using bitcoin as collateral unlocks [new financial opportunities](https://strike.me/learn/understanding-bitcoin-as-collateral), beyond saving and making payments.

## Before opening a bitcoin-backed loan:
Prior to starting a loan there are some considerations to keep in mind:
1. **Bitcoin requirement:** Get sufficient bitcoin to accommodate your desired loan size and the lender's initial LTV requirements (e.g., a 50% LTV means you can borrow up to 50% of your collateral's value). Due to bitcoin's price volatility, some borrowers may elect to over-collateralize their loan to mitigate the risks associated with price fluctuations.
2. **Plan for cash use:** Have a clear plan for the cash, as you'll be obligated to repay the loan plus interest. If you’re investing the funds, ensure that the investment is projected to generate sufficient risk-adjusted returns to cover the interest expenses on your loan, otherwise it may not be a good financial move.
3. **Risk evaluation:** Understand the inherent loan risks, including giving up direct control of your bitcoin, counterparty risk with the lender, and price volatility risk, potentially leading to liquidation.
4. **Lender selection:** Carefully compare lenders, considering interest rates, fees, loan minimums/maximums, reputation, user interface, and terms/conditions.

## Evaluating a bitcoin-backed lender:
A key aspect of opening a bitcoin-backed loan is finding a lender that best suits your needs. Before proceeding, it’s useful to ask yourself the following:
* **Interest rates:** The cost of the loan should be weighed in relation to your intended use of the cash, as this will directly impact the loan’s overall profitability
* **Fees:** Loans can have multiple fees, including opening, closing, collateral additions, early/late payments, and liquidation fees. You need to look at both interest rates and fees can you get the full picture of the loan’s total cost.
* **Loan terms:** The loan minimums, maximums, duration, initial maximum Loan-to-Value (LTV), and LTV thresholds should be clarified, as these parameters define the loan's boundaries and the conditions under which collateral might be at risk.
* **LTV management:** Due to bitcoin’s price volatility, it’s important to be able to easily monitor and manage your loan’s risk through LTV adjustments. Consider the lender’s user interface, and how easy or difficult it is to track your loan’s health and make adjustments if need be.
* **Loan flexibility:** The availability of options such as early loan closure or adjustments to the loan size can provide valuable adaptability during the loan term.
* **Fund transfer options:** The available options for depositing and withdrawing bitcoin (e.g., on-chain, Lightning) or cash (wires, ACH, p2p payments) and their associated fees should be explored, as these can significantly impact the efficiency of moving your assets.
* **Lender trust:** The trustworthiness of the lender should be seriously assessed, as the security and reliability of your lender will be key in ensuring the return of your collateral.

## How to open a bitcoin-backed loan with Strike:
Strike offers [Bitcoin-backed loans](https://strike.me/lending) to eligible customers, providing a quick and simple loan origination process with a straightforward user interface for easy loan monitoring and management.

Before you get started, make sure you meet the [eligibility requirements](https://strike.me/faq/where-are-bitcoin-backed-loans-available/) and have sufficient bitcoin to accommodate your desired loan size and LTV ratio. Additionally, read through the available resources, including [FAQs](https://strike.me/faq/#bitcoin-backed-loans), [walkthroughs](https://strike.me/faq/how-do-i-open-a-bitcoin-backed-loan/), and [articles](https://strike.me/learn/what-are-bitcoin-backed-loans/) to understand the potential risks and benefits. 

When you’re ready to proceed, make sure your Strike app is up to date, then open the app, visit your Cash tab, and select the "Bitcoin-backed loan" card to begin.

### Opening your loan:
1. **Select loan type:** Choose between "[Monthly Interest](https://strike.me/faq/how-do-loan-payments-work/)" (interest paid monthly, principal paid at maturity) or "[Payment at Maturity](https://strike.me/faq/how-do-loan-payments-work/)" (entire repayment due at maturity).
2. **Adjust loan amount:** Use the slider to select your desired loan amount. This will affect the minimum required collateral and total loan costs.
3. **Adjust collateral amount:** Use the slider to select your bitcoin collateral amount. Remember, the minimum collateral is determined by your loan size, and over-collateralizing reduces the bitcoin price thresholds for margin calls and liquidations.
4. **Choose payment source:** For monthly payments (if applicable), select to pay from either your cash, bitcoin, or linked bank account. For your final principal payment, or for the only payment for Payment at Maturity loans, select to pay from your cash balance or to liquidate part of your bitcoin collateral.
5. **Enable notifications:** If you haven’t already, make sure you have notifications enabled for the Strike app to receive important loan updates.
6. **Preview loan details:** Review your loan configuration before proceeding to the final step.
7. **Review and sign agreement:** The loan agreement will be emailed to your account for ease of review. Upon reviewing it, return to the Strike app to sign your screen and tap “Initiate loan” to complete the process.

Upon completing the process, bitcoin will be debited, and your cash will be credited to your Strike account, available to withdraw externally within one business day.

## After opening your loan
After opening your loan, your Cash tab will have an LTV Tracker, letting you review your loan’s health at a glance. By tapping your LTV Tracker, you can open your [Loan Center](https://strike.me/faq/how-do-i-manage-my-loan-in-my-loan-center/), where you can monitor and manage your loan:

* **Track your LTV:** The large percentage at the top of your Loan Center displays your current LTV. Tap the question mark for detailed LTV threshold information, or the LTV chart to review LTV history, including warning, margin call, and liquidation levels.
* **Manage your LTV:** The "Manage LTV" button below the LTV percentage provides options to lower your LTV and reduce risk by paying cash to reduce principal or adding more Bitcoin collateral.
* **Manage payments:** The Payments Tile (bottom left) shows your upcoming payment and due date, with a loan progress visualization. Tapping it lets you change payment sources for monthly interest (if applicable) or maturity payments, view your payment schedule, or close your loan early (available 60 days after opening).
* **Review collateral:** The Collateral Tile (bottom right) displays your current collateral value, with a visualization tracking it over time above a dotted line indicating your current margin call price. Tapping it shows a detailed collateral chart with value and warning, margin call, and liquidation thresholds.
* **Check loan details:** At the bottom of the Loan Center, you'll find your loan amount, collateral, and Bitcoin prices for margin calls and liquidations. These amounts adjust automatically when you add collateral or repay principal.

At the end of your loan (either at maturity, or through early repayment) your loan can be archived, and you can open a new one.

Find a lender, post bitcoin, get cash

How to open a bitcoin-backed loan

Money is all about value.

It serves as a tool for storing and exchanging value, allowing people to plan, cooperate, and trade. Value itself is subjective – what one person finds valuable, another may not. Yet money transforms these personal preferences into a shared language, making value tangible, transferable, and universally understood.

![](https://www.datocms-assets.com/99305/1734386385-learn-what-is-money-state-her.png)

Money has taken many different forms throughout history: beads, cattle, metal coins, paper notes, and, more recently, digits in databases. Despite its evolving forms, money has always served three key functions:

* **Store of value:** Money should hold its value over time.
* **Medium of exchange:** Money should be accepted in exchange for goods and services.
* **Unit of account:** Money should provide a standard measurement of value, making it easier to compare the value of different items.

Given these functions, a common definition for money is something that has become a *Generally Accepted Medium of Exchange* (aka G.A.M.E.). For something to gain general acceptance, it must store value between transactions, and once accepted, it can serve as a unit of account for convenience's sake. 

Store of value first, then medium of exchange, and finally unit of account.

That definition has some flaws. What if something is generally accepted in one city, but not another? What exactly does “generally” mean? 51%? Accepted by who? – Although it’s not a perfect definition, it's good enough.

Different forms of money have come and gone through the ages, sometimes taking years or decades to gain or lose general acceptance, while other times it happens suddenly. During times of economic upheaval or when a superior monetary technology is introduced, old money systems can die, while new systems take their place.

Money can be anything, it just needs to gain general acceptance.

## The properties of money
To understand why certain things become money while others don’t, it helps to know the key properties that make something more or less suitable as money.

The properties which make something suitable as money can be summarized as follows:
1. **Durable:** Money should withstand physical wear and tear.
2. **Fungible:** Each unit of the money should be interchangeable with the next.
3. **Portable:** Money should be movable from one place to another.
4. **Verifiable:** Authentic units of money should be distinguishable from fake units.
5. **Divisible:** It should be possible to subdivide the money into smaller units.
6. **Scarce:** Money should have limitations on its supply to maintain value.

Given these properties, you can compare different things in terms of their ability to serve as money. Beads are not scarce in industrial economies, cattle are not easily portable or divisible, and iron or copper coins lack durability due to rust and oxidation. Of all the available things that can serve as money, people throughout history gravitated towards standardized gold and silver coins due to their relative robustness across all properties, with gold being the more valuable of the two because it’s more scarce.

Scarcity is of critical importance.

For money to hold value over time, it must be scarce and have some means of preserving that scarcity. Once something is accepted as money, people become incentivized to find ways to produce more of it to gain wealth. Just as with all supply-demand dynamics, when the supply of money grows while demand remains constant, the price of the money (purchasing power) drops. Excessive money supply increases causes its value to decline and incentivizes people to dispose of their holdings in favor of alternatives to preserve their value. 

Gold’s scarcity is natural since there’s a limited amount on earth and it’s difficult and costly to mine. No one can print or artificially manufacture gold, so its scarcity is preserved and it holds value over time.

![](https://www.datocms-assets.com/99305/1710202309-learn-bitcoin-vs-cash-state-hero.png)

## A brief summary on the changing forms of money
When two competing money systems meet, the one with superior properties (especially scarcity) tends to prevail over time through repeated transactions in an economy. People prefer to save and earn with a money that’s more scarce and hard to produce (aka “hard money”) since it retains value as compared to money that’s relatively easy to produce. Conversely, people prefer to dispose of (spend) and take on debts in abundant or weakning money.

Given the choice, hard money tends to outcompete "soft" money over time.

Gold’s status as a form of money lasted for millenia, largely thanks to its strong overall monetary properties, most notably its scarcity, as compared to all other alternatives. However, gold’s lack of portability in large quantities over distances led to its consolidation in banks, which issued paper notes as redeemable claims for gold, creating a “two-layer” money system. Paper money *backed* by gold reserves offered scalable portability, but introduced the requirement of trust that the paper was *legitimately* backed by real gold reserves. Over time, banks made a business of issuing paper claims in excess of the gold in their vaults, with the knowledge that not all depositors would come to withdraw their gold at once – a practice known as “fractional reserve banking”.

The advent of the telegraph in 1837 changed how money could work by allowing information to travel at lightspeed over great distances, including information relating to financial contracts and transactions. Over time, money became increasingly distant from scarce physical assets, moving towards gold-backed paper notes and eventually to claims on partial-reserves of gold that could be quickly and conveniently transacted through networks of banks. 

In 1971, after decades of re-adjustments and suspensions of its gold backing, the US dollar’s redeemability for gold was completely severed, and by extension, all other major world currencies became unbacked by gold. This marked a major shift to fiat money – a money whose value isn’t backed by physical assets, but rather by “fiat” (Latin for “decree”). 

To learn more, read Saifedean Ammous’ [The Bitcoin Standard](https://thesaifhouse.com/).

## Fiat money
Fiat money is what people most commonly use as their money today–dollars, euros, yen, pesos, etc…. Fiat isn’t backed by any scarce physical asset (like gold) nor does it have any natural barrier limiting its supply (like gold mining). Its value comes from government policies and the public’s ongoing trust that it has value.

Central banks, like the Federal Reserve in the US, are at the core of the fiat money system. These institutions control the supply of fiat money by dictating monetary policy, including digitally “printing” money or adjusting interest rates to change lending levels in an economy. Over time, all fiat money supplies have been expanding to meet political or economic goals, including to bailout banks, “stimulate” economic activity, or cover government fiscal deficits.

The expansion of fiat money supplies is experienced by people as inflation – prices rising because the purchasing power of money is falling. When you see the prices of goods and services going up year over year, it’s not necessarily that the items are increasing in value or that sellers are more greedy, it’s that the money itself is losing purchasing power as its supply is expanded. Since the creation of the Federal Reserve in 1913, the US dollar has [lost over 96% of its purchasing power](https://fred.stlouisfed.org/graph/?g=1BLwo), in large part due to policy decisions to intentionally and compoundingly expand the money supply. 

The phenomenon of inflation benefits some people at the expense of others:
* **Wage earners:** Lose purchasing power as their income buys less over time
* **Savers:** Lose value as their saved money erodes
* **Borrowers:** Benefit from inflation as the real value of their debt decreases
* **Asset owners:** Benefit from inflation as the nominal value of assets like real estate and stocks rise

Unless your wages and the interest on your savings surpass the increase in the money supply, then you are being diluted. This arrangement discourages saving and earning, while incentivizes taking on more debts or making ever-riskier investments than people would otherwise make. As the rate of expansion increases, these trends are magnified.

With many governments facing high debt, large spending, and fiscal deficits, there’s a growing risk of increased money supply expansion via money printing to cover ever-growing government financial needs. As the supply of fiat money increases at an accelerating pace, its scarcity erodes, and along with it the purchasing power of all savers and earners. This trend could lead to yet another shift in what is considered money.

Bitcoin was launched in 2009 as a peer-to-peer electronic cash system – a form of money that can be transacted globally without banks as intermediaries, and which has an absolutely [scarce supply limit](https://strike.me/learn/what-is-the-bitcoin-supply-schedule/) backed by a globally distributed network of self-interested [node operators](https://strike.me/learn/what-is-backing-bitcoin). Learn more about Bitcoin as money [here](https://strike.me/learn/is-bitcoin-money).

Store of value, medium of exchange, and unit of account

What is money?

Stablecoins are a digital form of money that aim to maintain a stable value, such as a 1:1 peg to fiat currencies like the US dollar.

![](https://www.datocms-assets.com/99305/1710202309-learn-bitcoin-vs-cash-state-hero.png)

Stablecoins are transacted on [blockchains](https://strike.me/learn/what-is-a-blockchain)–the ledger system modeled after Bitcoin’s technology. However, unlike Bitcoin, stablecoins rely on centralized authorities, such as the issuer and/or blockchain operator to maintain price stability and to process transactions.

Whereas bitcoin experiences dollar-price volatility, stablecoins intentionally maintain dollar-price stability, making them popular for certain transactions, short-term holdings, or as a bridge to buy or sell other assets, including bitcoin. 

For people living in certain countries, especially those with high inflation or limited banking access, stablecoins offer a practical way to hold value in a monetary asset that’s equivalent to a globally recognized currency. This opens the door for people who lack a traditional bank account or who are encumbered by the restrictions and limitations imposed by legacy financial systems. 

## How do stablecoins work?
Stablecoins are a digital asset intended to maintain a stable exchange rate with a chosen fiat currency, like the US dollar. This stability is achieved through a set process of issuance, backing, transacting, and redemption. 

Here’s the basics of how a USD-backed stablecoin generally works:

1. **Acquiring stablecoins:** To get stablecoins, you typically buy them through an exchange platform using your debit card or bank account, and exchanging fiat cash for an equivalent amount of stablecoins (e.g., $1,000 USD for $1,000 USDT).
2. **Issuing and backing:** Platforms acquire stablecoins from the issuer, who receives and holds the fiat cash in reserve as backing, typically as cash or cash-equivalents, like US treasuries, or a mixture of both. Upon receiving fiat cash, the issuer “mints” (creates) an equivalent amount of stablecoins on a designated blockchain, such as TRON or Ethereum, ensuring a 1:1 backing of reserved fiat cash to circulating stablecoins.
3. **Holding in a wallet:** Once acquired, your stablecoins are delivered to either your wallet that’s built-in to the platform where you bought the stablecoins or to an external wallet of your choosing. 
4. **Making transactions:** With stablecoins in your wallet, you can hold a balance, send payments globally to anyone with a compatible wallet, or trade for other assets, like bitcoin. Off-platform transactions (sending to external wallets) are recorded on the designated blockchain and typically incur a transaction fee based on the data size rather than dollar value of the transaction.
5. **Redeeming back to fiat:** To convert stablecoins back to fiat cash, you typically redeem them on a platform, which aggregates redemptions in bulk to be returned to the issuer in exchange for fiat cash.
6. **Burning stablecoins:** When stablecoins are returned to the issuer for redemption, the issuer returns fiat cash or liquidates reserved assets to fulfill the request. Once redeemed, the stablecoins are “burned” or removed from circulation, maintaining the 1:1 peg by reducing the supply.

Stablecoins generally follow the account model, where each user’s balance is tracked on the given blockchain, updating balances with each transaction. This contrasts with Bitcoin’s [UTXO model](https://strike.me/learn/what-is-a-utxo), which keeps account of individual transaction inputs and outputs.

Stablecoins on one blockchain (like Ethereum) can’t be directly transferred to another blockchain (like TRON) without using a cross-chain bridge or converting to a native version of the stablecoin on the target blockchain. Centralized stablecoin issuers can often facilitate this process but may charge fees.

The result of this process is that stablecoins allow people to buy, hold, and transact with a dollar-pegged asset quickly and easily, without being limited by legacy impediments of the traditional financial system.

## Why do people use stablecoins?
Stablecoins can offer certain benefits to people, especially in regions with high inflation, strict capital controls, or limited access to banking services. 

Here are some common reasons for using stablecoins:
*  **Inflation protection:** In countries where local currencies are rapidly losing value, stablecoins offer a way to hold liquid assets pegged to a more stable currency, like the US dollar. Although stablecoins are not inflation-proof, since the dollar itself is inflating, they can provide a better option for short-term holdings compared to their volatile or inflationary local currency.
*  **Access to financial tools:** Stablecoins make it possible for people without bank accounts to access dollar-denominated assets, savings, and international payment options, simply with an internet connection. This opens financial access to millions of people worldwide who are “unbanked”.
*  **Avoiding capital controls:** In places where there are currency exchange limits or restrictions on cross-border payments, stablecoins can be a way to move money domestically or internationally without going through traditional banks or facing heavy restrictions.
*  **Gateway to Bitcoin or other assets:** By acquiring stablecoins, people can easily access the global, highly-liquid bitcoin-stablecoin market, allowing them to convert to bitcoin when they’re ready for longer-term, inflation-resistant savings.

## Stablecoin risks and limitations
Stablecoins are not without risks, especially when compared to bitcoin. Below are some of the risks and limitations associated with stablecoins.

* **Centralization:** Stablecoins rely on centralized issuers to hold assets that back the stablecoin’s value, typically in fiat currency or cash-equivalents, like Treasury bills.
* **Counterparty risk:** Stablecoin issuers, platforms, or even blockchain operators themselves, carry risks associated with their continued operations. They may also have the power to freeze, block, or reverse transactions if legally or regulatorily pressured.
* **Network and security risks:** Stablecoins are issued and transacted on various third-party blockchain networks, which exposes users to the underlying network’s operational risks. If the network goes down, faces congestion, or suddenly incurs periods of high fees, stablecoin transactions could become uneconomical or delayed. Additionally, networks may have central authorities with the power to block or reverse transactions, which could create disruptions or limit users’ access.
* **De-pegging and failure risks:** Stablecoins carry the risk that an issuer will be unable to honor large or sudden influxes of redemption requests. This is especially true in the case of crypto-backed or algorithmic stablecoins, which back their stablecoins with crypto assets or algorithm-based smart contracts to manage supply and demand dynamically. If an issuer cannot fulfill redemption requests in a timely manner, the 1:1 exchange rate may be broken, causing instability or even failure.
* **Exposure to fiat inflation:** Stablecoins are pegged to fiat currency, making them vulnerable to arbitrary fiat inflation. If the value of the US dollar declines due to money printing or the central bank’s expansionary monetary policy, stablecoin holders will experience a corresponding loss of purchasing power.
* **Policy risk:** Countries where financial freedom isn’t valued or where financial restrictions are imposed may change official stances on stablecoins. Authorities could limit peoples’ ability to buy, hold, or transact stablecoins impacting their utility within that jurisdiction.

## Comparing stablecoins to bitcoin
For people in high-inflation or financially restricted countries, stablecoins offer a potential alternative to local fiat currency. If stablecoins are accessible, it’s likely that bitcoin is as well, bringing a completely different set of benefits, assurances, and risk profile. While stablecoins aim to maintain stability, bitcoin is designed to be scarce, secure, and resistant to censorship.

Here’s a basic breakdown comparing stablecoins to bitcoin:

| **Feature**                | **Stablecoins**                                  | **Bitcoin**                                                         |
|------------------------|---------------------------------------------|-----------------------------------------------------------------|
| **Backing**            | Typically fiat cash or equivalents held by central issuer | A [decentralized network](https://strike.me/learn/what-is-backing-bitcoin) of nodes, miners, holders, and developers |
| **Centralization**     | Centralized issuer and blockchain operator  | Decentralized, no central authority                             |
| **Supply limit**       | Unlimited (depends on fiat currency supply) | Fixed at [21 million bitcoin](https://strike.me/learn/how-many-bitcoin-are-there)                                     |
| **Transaction model**  | Account model                               | [UTXO](https://strike.me/learn/what-is-a-utxo) model                                                      |
| **Inflation exposure** | Yes, tied to fiat inflationary swings       | No, supply follows a [pre-programmed schedule](https://strike.me/learn/what-is-the-bitcoin-supply-schedule)                   |
| **Use case**           | Short-term stable value, cross-border transactions | Long-term store of value, borderless transactions, and financial self-sovereignty |
| **Censorship resistance** | Limited; can freeze transactions           | High; resistant to censorship                                   |

While stablecoins can offer financial stability, cross-border accessibility, and an entry point into bitcoin, they don’t provide the same inflation protection or censorship resistance as bitcoin. 