As the internet became popular and a lot of business shifted online, a need for a fast, safe and secure digital cash system was observed by researchers. To fulfil the needs, a lot of attempts were made and finally in the year 2009, Bitcoin was released. An anonymous developer Satoshi Nakamoto released the source code on the internet. Bitcoins are generated as a reward for mining and could be traded or exchanged for products or services.
In this Bitcoin guide, we will cover what Bitcoin is, what are its benefits and everything related to Bitcoin to enable you to get started with the use of this innovation!
Let’s see what you will find exactly in this guide on what is Bitcoin:
What is Bitcoin?
So what actually Bitcoin is? Well, “Bitcoin” could be classified into two components.
On one hand Bitcoin – the digital cash or coin, that basically exists in the form of a snippet of code with the signed authority of you being the owner. When we say that someone has one Bitcoin, we are basically referring to a person having digital ownership of one Bitcoin whose worth is its value at that time.
When we are referring Bitcoin, we might be discussing the Bitcoin Protocol, i.e. the overall protocol designed to run the Bitcoin transaction operations and maintain the ledger. The system is decentralized with no central authority involved.back to menu ↑
How does Bitcoin Work?
To get started with Bitcoin, first of all, you need a Bitcoin wallet. This wallet is a software that holds the Bitcoins in its virtual form. To send Bitcoins, you need to give the public address of your wallet to the sender who will use your address to send Bitcoins. Once the transaction is completed, the Bitcoins will be added to your digital wallet.
The following is an example of Bitcoin address to receive payments:
All of this process is done on the Blockchain Network that is responsible for recording the transactions and maintaining the ledger. Blockchain verifies transactions using safe and secure cryptographic techniques.
What Makes Bitcoin Unique and Revolutionary?
If we look into the past few decades Bitcoin is surely one of the top inventions that could have a big impact on the future of digital cash systems. There are certain features that make Bitcoin unique and different from traditional cash systems.
The current traditional cash system is a centralized one, where a central authority such as the government or bank controls the cash system. The value is controlled by them that could be changed as per the economic conditions or other factors.
Bitcoin is designed on a completely decentralized system, i.e. there is no central authority controlling this system. So, now the question is if there is no central authority then who controls the system and how it works?
The answer to this question is the systems that are connected to the Bitcoin network are responsible for running the complete Bitcoin system. The computational power required by the Bitcoin protocol is supported by the systems participating in the system.
The concept of decentralization is one of the most attractive features of Bitcoin. Decentralization makes sure that the system is controlled by no-one but everyone.
Limited Supply of Bitcoin
The basic concept of supply and demand is one of the core features that states the value of goods or services. Traditional currencies like Dollars, they are printed by the governments that decide how much currency is to be printed.
Meanwhile, when it comes to Bitcoin it has a limited supply of 21 million. When this number is reached, there will be no new generation of Bitcoins, and only Bitcoins that will be left will be one that are already generated by the system. This limited supply could make Bitcoin much more valuable in the future. The demand would increase as the supply decreases, ultimately resulting in Bitcoin being one of the valuable assets for investors.
Bitcoin is not completely anonymous when it comes to the identification of transactions being made. When a transaction is made using traditional banks, the transaction is accompanied by the details of both sender and the receiver. These details could include name, account number, etc.
When it comes to Bitcoin transactions, it comes under the category of Pseudonymity, as there is no identification such as name but the transactions are made based on the wallet address that is unique to the user making the transaction.
Before making any transactions, the necessary security checks are usually done by exchanges. After proper verification, these exchanges allow the user to make transactions. Furthermore, the transactions made on the system are visible to the participants and could be tracked.
Immutability of Bitcoin is something that has both positive and negative sides. Once a transaction is made on the Bitcoin network, it cannot be reversed. This is obvious because there is no intermediary authority that could judge if the transaction is eligible to be reversed or not. The positive side of this, however, that this makes Bitcoin transactions prone to tampering.
Bitcoin could be divided into the smallest number, such as one hundred millionths of a Bitcoin (0.00000001). These small units of Bitcoin are known as Satoshi.
How to Buy Bitcoin
Now that you know the importance of Bitcoin and how it works, let’s jump into discussing how you could get Bitcoins.
There are a few methods and ways that help you to get Bitcoins. One of the most common and general ways of Buying Bitcoin online is by using a cryptocurrency exchange. This could be done by buying Bitcoin against the traditional cash like dollars using payment cards. You could also buy Bitcoin using other cryptocurrencies.
Bitcoin Digital Wallet
One of the first things you require before using Bitcoin is a Bitcoin wallet. This could be in the form of an online wallet, Desktop wallet or even a mobile application. Each kind of wallet has its own pros and cons, and you could choose one based on your needs.
A wallet has two major components, i.e. public and private keys. The public key, as the name suggests, could be made available to the public. Private Key, on the other hand, is like a password and must be kept secure at every time.
Buy Bitcoin via Online Exchanges
One of the most general ways of buying Bitcoin online is using online exchanges. These exchanges are basically web applications that allow buying and selling of Bitcoin and other cryptocurrencies. The price of the currencies is updated frequently, and users could make trade decisions as per their choice.
There are hundreds of online exchanges to choose from. Make sure you use a reputable and trusted one. One of the well-known exchanges having a huge user base includes Changelly and Binance. Exchanges that are not reputable could prove to be risky.
In the beginning, there was not much restriction on using online exchanges. Overtime strict security measures are being taken, including geo-restriction bans and proper identification before you start using an exchange. This is done to avoid issues of money laundering and tampering of user data.
To buy cryptocurrencies on these exchanges, the exchanges accept payment via Bank Transfer, using a credit card or PayPal. There is usually a transaction fee associated with the purchases made. Each exchange has different ways and procedures of operating. Once a transaction is made using an exchange, the actual transfer could take any time from seconds to hours depending on the exchange.
Exchanging Cash via Bitcoin ATM
Yes Bitcoin ATM is a thing. Companies are now installing Bitcoin ATM’s that allow the buying of Bitcoins in exchange for cash and vice versa. You could use a mobile application to scan QR code for identification purposes and get the desired amount of Bitcoin in your account.back to menu ↑
How to Store your Bitcoin
Like traditional currencies like dollars or pounds are stored in a physical wallet. Bitcoin and cryptocurrencies, in general, are stored in digital wallets known as a cryptocurrency wallet. We have already discussed the wallets in the earlier part of the guide. Now we will discuss Cryptocurrency Wallets in detail.
Cryptocurrency wallets exist in both forms, i.e. software and hardware. Software wallets as the name suggests could be installed on a computer or even used as a mobile application. Hardware wallets exist in the form of devices such as USB.
How does a Cryptocurrency Wallet work?
When we assay that these wallets “store” the cryptocurrencies it means that you have digitally signed ownership of a cryptocurrency, that you could use to send to other wallets when you send any amount of crypto from one wallet to another, you are just signing of your ownership from yourself to the receiver.
All of this record is kept using public and private keys that interact with blockchain to perform the operations.
Public vs Private Keys
Public Key is like a bank account number that identifies your cryptocurrency wallet. If someone wants to send you cryptocurrency, they could do it by using your Public Key.
Private Key is as sensitive as a password or pin code of your bank account. Losing a private key could mean you could lose all your funds from your wallet. Security of private keys is very important.
Since all the process is done digitally, so storing, sending and receiving of funds is done without any physical transaction taking place.
Why are Cryptocurrency wallets important?
The concept of Bitcoin and other cryptocurrencies is to be a safe and anonymous digital currency. Cryptocurrency Wallets helps in doing so by providing the highest level of security and anonymity. So to keep the narrative of safe and secure transaction mode, these wallets are important.
What are the Types of Cryptocurrency Wallets?
There are different types of cryptocurrency wallets that could be classified into two major categories, i.e. hot storage wallets and cold storage wallets.
Hot storage wallets are one that is connected online, whereas cold storage wallets are offline modes of wallets. Hot storage wallets could be wallets that exist online in the form of a web application, whereas cold storage wallets could be desktop applications that are installed onto a personal computer.
These are a form of cold storage wallet where the application is installed on the desktop. They are one of the secure forms of wallets as these types of wallets are not connected to the internet. However, the major issue with these wallets is they are prone to virus attacks. Examples of Desktop Wallets include Exodus, Electrum, and ZelCore.
Online wallets as the name suggests are wallets that exist online in the form of a web application. These kinds of wallets have a major advantage of easy accessibility, but a third party holds control over it so your data might get breached.
Mobile wallet is mobile applications that could be used using smartphones. These kinds of wallets lack many features, but when it comes to the basic functionality of sending and receiving funds, this wallet could do that. BRD Bitcoin wallet is one of the well-known mobile application wallets, and it supports almost all the major cryptocurrencies.
To buy and sell cryptocurrencies online, cryptocurrency exchanges are used. These exchanges also support wallets to perform online transactions on these exchanges. Binance and Coinbase are a couple of well-known exchanges in crypto space.
Paper wallets are a type of physical storage wallet. Paper wallets are printouts of private or public keys. QR codes could also be scanned from paper wallets.
Hardware wallets are the most commonly used type of wallets. These kinds of wallets are secure and safe as they are only used when required and could be unplugged when they are not in use. Hardware wallets are made secure both from inside and the outside.
As these wallets have a threat of damage from falling or a hit, the hardware is designed from material that is not so easy to break. One of the threats carried by hardware wallets is that they could be stolen. It is important to store hardware wallets at a safe and secure location. Trezor and ledger are a couple of examples of hardware wallets.
What are the Best Hardware Wallets?
There are many hardware wallets available in the market that offer different features. We will discuss a few of the famous and most trusted hardware wallets.
Ledger Nano is a small-sized hardware wallet having excellent security. The wallet exists in the form of a small USB type device and is easy to carry around. This wallet falls under the category deterministic wallets.
|Easy to use||Not an open-source hardware|
|Easy to carry around||Navigation may be a little tedious for users|
|Supports Multiple Cryptocurrencies||Lack of password manager|
When it comes to Bitcoin wallets, Trezor is one of the top names in the crypto market. Trezor wallet offers the highest level of security against the malware attacks and securing the private keys. It is one of the most used cryptocurrency wallets. Major features of Trezor include security and privacy. One of the drawbacks of Trezor wallet is being a bit more costly as compared to other wallets.
Security of Cryptocurrency Wallets
When it comes to the security of the crypto wallets, it is quite a subjective term. The security of a wallet depends on certain factors like the working of a wallet and the type of wallet etc. But the important thing to note is that it doesn’t matter how strong the wallet security is in case you end up losing your private keys. Losing private keys might end up losing everything you have in the wallet.
Online wallets offer the highest level of accessibility and security, but these wallets are hosted by third parties who could use the user data. If a wallet is developed by a reputable business or team, the trust factor might increase.
Offline wallets are secure as they could be unplugged when not in use and vice versa.
How to Keep Cryptocurrency Wallets Secure
- It is important to update your wallet as soon as any update arrives, most updates have security patches that are needed to be applied.
- Make sure that your record has proper backup at a safe place.
- Keep private keys safe and secret
- Even if you have to bear some extra cost, it is recommended to buy wallets that have a good reputation in the market
- Use two-step verifications and other security layers offered by the wallet
Bitcoin Exchanges – How to Buy Bitcoin
Now that we have discussed what Bitcoin Wallets are, let’s discuss Bitcoin and cryptocurrency exchanges in general. We will cover things you need to keep in mind before signing up to an exchange.
Before getting started with choosing an exchange, you need to ask yourself some questions. This is because not all the exchanges are the same and offer different features.
- What type of exchange is this? Is it a broker or a trading platform?
- Does the exchange support the currencies that you want to trade?
- Does the exchange support the payment methods that you currently have?
- What are the fees and buying or trading limits by the exchange?
- Is the exchange operating in my country or comes under restriction?
These are all the questions that you need to ask yourself before you start using an exchange.
How to Get Bitcoins in Exchange for Real Cash?
When you are a new user to an online exchange, to buy Bitcoin or other cryptocurrencies, you need to use real cash like dollars or pounds. Different exchanges accept payment methods such as Credit or Debit cards to exchange currency for Bitcoins. All the procedure is done online digitally.
What are the Types of Crypto Exchanges?
All Bitcoin exchanges are not the same. Some allow trading and some of them support direct selling of Bitcoins. We will discuss different kinds of exchanges.
Brokers, as the name suggests, are online exchanges that sell cryptocurrencies at a predetermined price. The process is quite simple and less confusing, but it is expensive. A major example of broker exchange is CoinMama and CoinBase.
Crypto Trading Platforms
Trading platforms are commonly used exchanges. These exchanges connect buyers and sellers who could trade Bitcoins or other cryptos among each other. For beginners trading platforms might be “too much information” to grasp, that often led to confusions. Orders are placed on these platforms, and if sellers are available, they are connected to make a trade. Binance is an example of a trading platform.
Peer to Peer platforms connect sellers and buyers directly. This led to a wider array of payment options where you could pay each other using traditional payment methods. These kinds of platforms are risky, as two people are directly involved in the transaction process.back to menu ↑
Best Bitcoin Exchanges
Coinbase is one of the most reputable and well known Bitcoin exchanges. This platform has features of both being a brokerage service as well as being a trading platform. Coinbase is available in more than 100 countries, and the transaction fee is quite competitive as compared to the market.
When it comes to crypto to crypto trading, Binance is one of the most reputable names in the market. Binance accepts various payment methods that you could use to buy Bitcoins. You could also buy coins using a credit card.
In BitMex traders are allowed to buy and sell contracts instead of selling cryptocurrencies. The exchange works for Bitcoin only, and if you have experience of trading, this platform could prove good for you.
General Terms Associated With Exchange
When you research or read a review about an exchange, you will come up with different terms associated with the exchange. Let’s discuss general terms associated with Exchanges and what you need to check.
Supported Coins: One of the most important factors regarding any exchange is its support of various cryptocurrencies. You must check if the coin you are interested in available on the exchange or not.
Supported Countries: Although cryptocurrencies are now in the market for a long time, they still face certain restrictions when it comes to worldwide availability. Certain countries have blocked or restricted exchanges in their country.
Payment Methods: Few exchanges accept a different kind of payment methods while others offer very few. Some payment methods don’t allow for reversing back the payment. Some have a high fee attached to it. It is important to check what payment methods are supported by the exchange you are interested in.
Fee: When it comes to exchanges, there are three kinds of fees associated with them. This includes Deposit fees, transaction fees, and withdrawal fees. The fees are different for every exchange, and the total balance will be determined after cutting off this fees.
Buying Limitations: Certain exchanges have limitations depending upon the payment method you are using and the identity verification level.
Exchange Reputation: When it comes to the cryptocurrency market, reputation factor plays a huge role. Before using any exchange, check its overall reputation on the market. The team or organization behind the project could play an important role in project trustworthiness. Check the reviews for the exchange, see if it’s ever hacked before or not and see the number of users who have benefited from the platform.back to menu ↑
What is Bitcoin Mining?
Bitcoin mining is the process of earning Bitcoins using mining done by the “miners” who are connected to the Bitcoin network since Bitcoin shares its properties with the gold, so the word mining is somewhat associated with gold mining.
As discussed earlier, the total supply of Bitcoin is 21 million Bitcoins that are to be generated by the Bitcoin protocol. The miners are responsible for digging up these available Bitcoins.
The Bitcoin Mining Process
Before jumping into discussing the Bitcoin mining process, let’s first discuss the terms that take part in the mining process.
Nodes: Nodes are software’s computers that run the Bitcoin software. Any computer that wants to take part in the mining process could become a node.
Solving Mathematical Problems: Bitcoin mining is performed by high-end computers that solve complex problems that require proper hardware along with luck to be successful in solving the problem.
In the Bitcoin mining process, when a transaction is made on the Bitcoin protocol, all the nodes in the system need to update their copy of the blockchain. The system that solves the mathematical problem is responsible for updating the ledger and in reward of the computational power used, Bitcoin is awarded to the successful node. This process makes sure that the transaction is transparent, and there is no central authority taking control of the blockchain.
What is the purpose of Bitcoin Mining?
Bitcoin Mining is a process that gives the anonymous users a chance to take part in the process, maintain the blockchain and get rewarded in return.
In short Bitcoin Mining Serves the following purposes:
- Issuance of New Bitcoins
- Maintains the transaction record on Block
- Ensuring the safety of transactions made on the network
How are new Bitcoins generated?
Fiat currencies that exist in physical form are printed by central banks. Bitcoins are generated as a result of the mining process. Unlike traditional currencies that are printed as per requirements, Bitcoins are generated as a result of an algorithm that is coded and can’t be changed. A 10-minute interval is set after which new Bitcoins are generated. The reward is given as a result of computational power used by the network.
How to get started with Bitcoin Mining?
If you are interested in Bitcoin Mining, you will need the following things:
Bitcoin Mining Hardware: As you need to solve complex mathematical problems, you will need mining hardware to solve the complex computations. In the start, when the competition was not so tough, mining could be done on personal computers, but now there are high-end hardware requirements to fulfil the mining needs, which can be acquired but they are quite pricey.
Mining Pool: Once you set up the hardware, you will need to select a mining pool.
Mining Software: Mining software is attached to mining hardware that is a software used to run mining operations.
Is Bitcoin Mining Still Profitable?
Bitcoin mining might seem to be an easy way to earn Bitcoins. In reality, it is not. When Bitcoin was first launched in 2009, the mining process was simple as there were no such hardware requirements, due to letting people take part in the mining process. Also, the reward value was a lot higher than it is now.
Over time as the value of Bitcoin increased and it became popular, a lot of people started taking part in the mining process. This increased the competition, and some big businesses even set up complete warehouses just for mining purposes.
Also, the cost of hardware kept on increasing seeing the increase in demand. All of this led to cases where even in case of earning Bitcoins as a result of mining, the reward value might be less than the cost beard on hardware and power consumption.
This could mean that you make no profits at all. If you are someone with access to cheap hardware and low electricity cost mining could prove fruitful for you.
What determines the value of Bitcoin?
Bitcoin is one of the most valuable assets in the online world. It is amazing to see how an online currency that doesn’t even exist physically was once valued at nearly 20,000 USD.
First of all, we must know that Bitcoin and cryptocurrencies are volatile in nature, i.e. their value could change within days or even hours. It is difficult to predict the future value of them, unless you are a crypto trader-expert. We are actually quite fans of Crypto Crew University, a free and educational YouTube Channel, but of course, feel free to follow any channel you think is worth following and if you like, share it with the community!
When it comes to factors that affect the value of Bitcoin, the basic feature that makes Bitcoin valuable is the concept of supply and demand. The system is smartly designed where supply is decreasing over time, and the demand is increasing. The events like Bitcoin Halving have shown how the price is affected when the reward value is decreased.back to menu ↑
What is Bitcoin Halving?
The definition of Bitcoin Halving is “Programmatic reduction in the reward value of Bitcoins given as a result of mining” as we discussed earlier that Bitcoin is generated as a result of the mining process. Bitcoin halving is the event that reduces the supply of Bitcoin after every 210,000 blocks or a period of 4 years.
The first halving event occurred in 2012, and the value of Bitcoin was an increase from $11 to $1000. The second Bitcoin halving event occurred in 2016, and the price increase was once again observed. As of writing this guide, the next Bitcoin Halving event is about to happen in a few days (11 May 2020), and the price increase is supposed to happen once again.back to menu ↑
Bitcoin –The Gold of The internet
Bitcoin is also known as the gold of the internet. This is because it has a fair share of properties that are like gold. Gold is a precious metal with a very high price generally because of less supply and more demand, Bitcoin is also like this, a valuable asset whose supply is decreasing over time. When it comes to the mining process, in the start the mining of both gold and the Bitcoin was both easy as it is now. There were fewer hardware requirements, and you could get gold by mining easily. Now the mining of both the gold and the Bitcoin requires special hardware that is costly. This relevancy with gold shows how smartly Bitcoin was designed to become a precious gold of the internet.back to menu ↑
Should you invest in Bitcoin?
Investments are always accompanied by the risk factor. When it comes to cryptocurrencies, especially Bitcoin, it surely comes under one of the most attractive investment assets where the potential reward value is certainly high but so does the risk.
To sum up, how the value changes, Bitcoin was valued at $0.01 when it was launched in 2009 and after eight years it reached an all-time high of nearly $20,000 USD. This price increase made many people rich literally overnight.
When it comes to whether or not you should invest in Bitcoin is not a question with a straightforward answer. You could end up being a millionaire from small investments or could end up losing a fortune. So what’s the solution? When it comes to making investments, the famous saying “don’t put all your Eggs in One Basket” always comes in hand. It is always better to diversify your investments. When it comes to diversifying investment in cryptocurrency, there are a lot of coins in the market that you could invest in and make good profits – but better make your own research or even better talk to someone that is a higher authority in the market.
If you are interested in investing in just Bitcoin it is better to expose yourself to how the market works, make strategies, do your research and start small. Keep learning on your way, and never go all in. Always ask yourself if you could afford to lose what you are investing.back to menu ↑
The Blockchain – Thanks to Bitcoin
Bitcoin itself is just a tip of the iceberg, the underlying revolutionary blockchain technology that came with Bitcoin is now being used in various technologies. The technology is safe and secure and is now being applied to different industries such as the gaming industry and the smart contracts.
Smart contracts is one of the best applications of blockchain technology. These are coded contracts that are enabled automatically when the condition for the contract is met. Smart contracts could be made entirely self-executing and self-enforcing with almost no human involvement.
Cross Border Payments:
Blockchain technology enables fast and cheap across the border transactions. With traditional methods, there are central banks or authorities involved due to which transactions are delayed and take time. Blockchain technology surely has the potential to be a fast, safe and secure platform for fast transactions. There are hurdles in a way, but hopefully, blockchain will be able to overcome hurdles, and we will see it being used for fast across the border payments.
In the modern era of the internet, securing personal information is crucial. Identity management is something that blockchain could do in the best possible. It keeps the user data secure, and the verification is done at individual levels.back to menu ↑
What can you buy with Bitcoin?
In the beginning, Bitcoin was not so welcomed by the online market, but as one thing led to another, and the Bitcoin got a positive response from the community, the use of Bitcoin increased. Two years ago, people even started buying pizza using Bitcoin. But it is too early to say that Bitcoin will be used in restaurants or small shops.
Travelling and Tourism
If you are someone who loves travelling now, you could book hotels using Bitcoin. Expedia, one of the largest hotel booking apps, now offers users to book hotels by making transactions via Bitcoin. They are using Coinbase as a facilitator to help in the transactions. Also, you could book airline tickets by using Bitcoin.
Although Bitcoin is not so common in the food market if you are craving for a pizza and you live in California, a service named Pizzaforcoins is accepting orders with Bitcoin as a payment method.
You could purchase games using Bitcoins, Microsoft Xbox store and Windows store allow purchasing of games and movies by using Bitcoins. One important thing to note here is that Bitcoin transactions are irreversible so there will be no refunds when payment is made via Bitcoin. Or as you know, CryptoGamble.Tips helps you to find the best bitcoin casino available on the market and provide you with the latest news in the crypto gambling industry.
Online shopping is a market where Bitcoin is getting quite popular. A lot of online stores now allow purchasing using Bitcoin. When it comes to the tech industry, hosting websites like Namecheap also accept Bitcoins.
Digital currencies are going to be a mainstream thing in the future. The issues that are currently being faced by cryptocurrencies are being handled well by the community. In the future, we might see Bitcoins being used just as traditional currencies are used these days.back to menu ↑
The Bottom Line
It’s been more than a decade since the launch of Bitcoin. The technology revolutionized digital cash transactions with features like giving power back to people through decentralization. Anonymity and safety and security attracted a huge number of users. The concept of supporting the unbanked population also increased the popularity of Bitcoin.
Bitcoin faced a lot of challenges over the past years, but they were faced well by the developers, and the community and overtime Bitcoin truly disrupted the world economy and financial system. It came up with a payment system that is ahead of its time and is making its place in the traditional financial market slowly but surely!
This was our Guide on what is Bitcoin, what do you think about the future of Bitcoin?
Let us know in the comments!