If you want to know what is Bitcoin, how you can get it and how it can help you, without floundering into technical details, this guide is for you. It will explain how the system works, how you can use it for your profit, which scams to avoid. It will also direct you to resources that will help you store and use your first pieces of digital currency.
What is Bitcoin in a nutshell
Small wonder thatA�BitcoinA�A�emerged in 2008 just afterA�Occupy Wall Street accused big banksA�of misusing borrowersa�� money, duping clients, rigging the system, and charging boggling fees. Bitcoin pioneers wanted to put the seller in charge, eliminate the middleman, cancel interest fees, and make transactions transparent, to hack corruption and cut fees. They created a decentralized system, where you could control your funds and know what was going on.
Bitcoin has come far in a relatively short time. All over the world, companies, fromA�REEDS Jewelers,A�a large jewelry chain in the US, to a private hospital in Warsaw, Poland,A�accept its currency. Billion dollar businesses such as Dell, Expedia, PayPal, and Microsoft do, too. Websites promote it, publications such asA�Bitcoin MagazineA�publish its news, forums discuss cryptocurrency and trade its coins. It has its application programming interface (API), price index, and exchange rate.
Problems include thieves hacking accounts, high volatility, and transaction delays. On the other hand, people in third world countries may find Bitcoin their most reliable channel yet for giving or receiving money.
What is Bitcoin in-depth?
At its simplest, Bitcoin is either virtual currency or reference to the technology. You can make transactions by check, wiring, or cash. You can also use Bitcoin (or BTC), where you refer the purchaser to your signature, which is a long line of security codeA�encrypted with 16 distinct symbols.The purchaser decodes the code with his smartphone to get yourA�cryptocurrency. Put another way; cryptocurrency is an exchange of digital information that allows you to buy or sell goods and services.The transaction gains its security and trust by running on a peer-to-peer computer network that is similar to Skype, or BitTorrent, a file-sharing system.
Where can I find Bitcoins?
First, we would recommend you read this in-depth guide forA�buying Bitcoin.
You can get your first bitcoins from any of these four places.
- A cryptocurrency exchange where you can exchange a�?regulara�� coins for bitcoins, or for satoshis, which are like the BTC-type of cents. Resources:A�A�CoinbaseA�andA�CoinsquareA�in the US & Canada, andA�BitBargainA�UKA�andA�BittyliciousA�in the UK.
- A Bitcoin ATM (or cryptocurrency exchange) where you can change bitcoins or cash for another cryptocurrency. Resources: Your best bets areA�BTERA�andA�CoinCorner
- A classified service where you can find a seller who will help you trade bitcoins for cash. Resources:A�The definitive site isA�LocalBitcoins.
- You could sell a product or service for bitcoins. Resources:A�Sites likeA�Purse.
Caution!A�Bitcoin is notorious for scams, so before using any service look for reviews from previous customers or post your questions on theA�Bitcoin forum.
How does Bitcoin work?
Without getting into the technical details, Bitcoin works on a vast public ledger, also called aA�blockchain, where all confirmed transactions are included as so-called a�?blocks.a�� As each block enters the system, it is broadcast to the peer-to-peer computer network of users for validation. In this way, all users are aware of each transaction, which prevents stealing and double-spending, where someone spends the same currency twice. The process also helps blockchain users trust the system.
a�?Unlike traditional currencies, which are issued by central banks, Bitcoin has no central monetary authority. Instead it is underpinned by a peer-to-peer computer network made up of its usersa�� machines, akin to the networks that underpin BitTorrent, a file-sharing system, and Skype, an audio, video and chat service. Bitcoins are mathematically generated as the computers in this network executeA�difficult number-crunching tasks, a procedure known as Bitcoin a�?mininga�?.A�The mathematics of the Bitcoin systemA�were set up so that it becomes progressively more difficult to a�?minea�? Bitcoins over time, and the total number that can ever be mined is limited to around 21 million. There is therefore no way for a central bank to issue a flood of new Bitcoins and devalue those already in circulation.a�?
How do I buy and sell stuff with Bitcoins?
Herea��s the funny thing with Bitcoins: there are no physical traces of them as of dollars. All you haveA�are only records of transactions between different addresses, with balances that increase and decrease in their records that are stored on the blockchain.
To see how the process works, leta��s return to Alice.
Example of a Bitcoin transaction
Alice wants to use her Bitcoin to buy pizza from Bob. Shea��d send him her private a�?key,a�? a private sequence of letters and numbers, which contains herA�source transaction of the coins, amount, and Boba��sA�digital wallet address. That a�?addressa�? would be another, this time, the publicA�sequence of letters and numbers.A�Bob scans the a�?keya�? with his smartphone to decode it. At the same time, Alicea��s transaction is broadcast to all the other network participants (called a�?nodesa�?) on her ledger, and, approximately, ten minutes later, is confirmed, through a process of certain technical and business rules called a�?mining.a�? This a�?mininga�? process gives Bob a score to know whether or not to proceed with Alicea��s transaction.
The transaction between Alice and Bob
What is Mining?
Mining, or processing, keep the Bitcoin process secure by chronologically adding new transactions (or blocks) to the chain and keeping them in the queue. Blocks are chopped off as each transaction is finalized, codes decoded, and bitcoins passed or exchanged.
Miners can also generate new bitcoins byA�usingA�special softwareA�to solve cryptographic problems. This provides a smart way to issue the currency and also provides an incentive for people to mine.
The rewardA�is agreed-upon by everyone in the network but is generally 12.5 bitcoins as well as the fees paid by users sending transactions.A�To prevent inflation and to keep the system manageable, there can be no more than a fixed total number of 21 million bitcoins (or BTCs) in circulation by the year 2040, so the a�?puzzlea�? gets increasingly harder to solve.
What do I need to know to protect my Bitcoins?
Here are four pieces of advice that will help your bitcoins go further.
As youa��d do with a regular wallet, only store small amounts of bitcoins on your computer, mobile, or server for everyday uses, and keep the remaining part of your funds in a safer environment.
- Backup yourA�walletA�on a regular basis and encrypt your wallet or smartphone with a strong password to protect it from thieves (although, unfortunately, notA�against keylogging hardware or software).
- Store some of your bitcoins in an offline wallet disconnected from your network for added security. Think of this as a bank, while you, generally, keep only some of your money in your wallet.
- Update your software. For added protection, use Bitcoinsa�� multi-signature feature that allows a transaction to require multiple independent approvals to be spent.
Spending some time on these steps can save your money.
We recommend the Nano Ledger S a�� Hardware Wallet
Nano Ledger SA�is just as secure as the other two hardware wallets. It is popular because of its relatively low price of $65 compared to its competitors. Being smaller than KeepKey, it is more portable and easier to carry around. It is a hardware wallet that comes at a very competitive price.
What else do I need to know?
Protect your address:A�Although your user identity behind your address remains anonymous, Bitcoin is the most public form of transaction with anyone on the network seeing your balances and log of transactions. This is one reason why you should change Bitcoin addresses with each transaction and safeguard your address. You can also use multiple wallets for different purposes so that your balance and transaction history remain private from those who send you money.
Your confirmation score:A�As said, you receive a confirmation score of about 10 minutes before you make your purchase. Different wallets have their own reading