Almost everyone has heard of Bitcoin, as the cryptocurrency became the center of attention in 2017 when it hit $19,000. Even though its value has declined since then, the Bitcoin world is full of excitement and buzz. This was when cryptocurrencies gained traction and became a force to be reckoned with giant capital. But, it is also a fact that most people don’t clearly understand Bitcoin. What exactly is it?
Put simply, Bitcoin (BTC) is a digital currency that’s distributed and used electronically. It is a decentralized peer-to-peer network, which means that there is no individual or person controlling it. Bitcoin is not a physical currency; it is a digital one so it cannot be printed. Also, it has a cap as there will never be more than 21 million Bitcoins.
Who is Behind Bitcoin?
An anonymous program or a group of programmers first introduced Bitcoin 101 as an open source software in 2009, using the alias Satoshi Nakamoto. There have been a lot of rumors surrounding the real identity of Bitcoin’s creator. But, all of the people who have been mentioned have publicly denied being the creator. Once, Nakamoto himself claimed to be a 37-year-old male from Japan. However, there are reasonable doubts regarding this because his software was not labeled in Japanese and he had perfect English.
In mid-2010, Nakamoto moved onto other projects and he left Bitcoin in the hands of a few notable members of the Bitcoin community. Gavin Andersen was named lead developer by Satoshi Nakamoto. According to estimates, the creator owns about one million Bitcoins.
Does Anyone Control Bitcoin?
The lead developer, Gavin Andersen, stated that once Nakamoto had moved on from the project, the first thing he did was decentralizing Bitcoin even further. He said that he wanted Bitcoin to continue its function anonymous, even if he got hit by a bus. For most people, the primary advantage that Bitcoin has to offer is its independence from the world banks, governments and corporations. There is not a single authority that can interfere in Bitcoin transactions, take away people’s money or impose any transaction fee.
Furthermore, Bitcoin’s movement is also quite transparent; every single BTC transaction is stored in a massive public ledger that’s referred to as Blockchain. Essentially, since Bitcoin is not controlled as a network, it allows people to have full control of their finances.
How Does Bitcoin Work?
People can only see the amount of Bitcoin they have in their wallets and the results of transactions. Behind the scenes is the blockchain, which as mentioned above, is a distributed public ledger. This ledger comprises of every transaction ever processed. The digital records of the transactions are combined together to form ‘blocks’. If someone attempts to change even a single number of letter in a block of transactions, it will impact the following blocks as well.
Since the blockchain is a public ledger, the fraud attempt or mistake can be easily corrected or spotted by anyone. The validity of every transaction can be verified by a user’s wallet. As far as the authenticity of transactions is concerned, it is protected by digital signatures that correspond to the sending addresses. Depending on the trading platform being used and due to the verification process, it may take a couple of minutes for a Bitcoin transaction to be completed. The Bitcoin protocol has been designed in such a manner that every block takes approximately 10 minutes to be mined.
What is Bitcoin Mining?
Rather than a single server verifying every Bitcoin transaction, each one is verified by every other person on the network. This is where the miners come in. Simply put, a complicated math problem is presented to the miners and the first one to solve it is able to add the verified block of transactions to the ledger. The calculates depend on Proof of Work (PoW), or the proof that the correct answer was obtained through a minimum amount of energy.
When it comes to mining, you should know that people don’t hunch over computers with notebooks and calculators; Bitcoin mining is done with the help of hardware. The built-in reward system of the cryptocurrency compensates successful miners in the form of Bitcoins. As per Bitcoin’s programming, the quantity of the reward changes over time and the block reward is halved after every four years. Over the years, mining processes have also become quite sophisticated.
The most popular method makes use of Application-Specific Integrated Circuits (ASICS). These hardware systems are quite similar to CPU computers that are primarily developed for the purpose of mining Bitcoins. A lot of power and effort is required for Bitcoin mining and the sheer amount of competition can often make it difficult for newcomers to enter and make a profit. Not only do new miners require more than adequate computing power, they also have to have the knowledge to use it for outdoing their competition. Plus, an extensive amount of capital is also required for funding the operation.
What are the Characteristics of Bitcoin?
There are some prominent characteristics of the pioneer cryptocurrency that have also contributed to its popularity amongst the masses. Some of these include:
When creating Bitcoin, one of the main objectives of Satoshi Nakamoto was the independence of the network from any government authorities. Hence, this cryptocurrency is designed so that every machine, business or individual involved in Bitcoin mining and transaction verification becomes a part of the huge network. In addition, even if some part of the network goes down, the money will continue to move.
Nowadays, banks know almost everything about their customers; addresses, phone numbers, credit histories, spending habits and more. With Bitcoin, things are vastly different because the wallet doesn’t need to be linked with any information that can personally identify you. This has led to the argument that illegal and dangerous activities like terrorism and the drug trade will thrive because of this relative anonymity. However, the fact is that there are lots of people who simply don’t want their finances to be tracked or governed by any kind of authority.
Bitcoin’s anonymity is relative because every single transaction that ever happens is stored in the Blockchain. Theoretically, if your wallet address is used publically, anyone can carefully study the bitcoin ledger and tell exactly how much money is in it. Nonetheless, tracing a specific Bitcoin address to a person is still almost impossible. It is possible for people who wish to stay anonymous with their transactions to take measures for staying under the radar. There are certain kinds of Bitcoin wallets that prioritize security and opaqueness. However, the simplest measure at your disposal is to use multiple addresses and to avoid transferring huge amounts of money to a single wallet.
Once you have sent your Bitcoins to someone, there is absolutely no way for you to get them back unless the recipient is willing to send them back to you. This is an excellent way of ensuring the receipt of a payment because whoever you are trading with cannot just scam you by claiming that they never received your money.
Payments are processed almost instantaneously by the Bitcoin network. It takes only a few minutes for someone on the other side of the world to get the money whereas normal bank transfers can take a couple of days.
Where to Buy Bitcoin?
Even though buying Bitcoin is not as easy as people may expect, it is a fact that new options are constantly being introduced. People have the option of choosing an option of buying Bitcoin that suits their needs, some of which don’t even require an internet connection or access to a Bitcoin wallet. Some of these options are:
Yes, they might be a relatively new concept, but Bitcoin ATMs are appearing in cities all over the globe and their number is constantly increasing. A commission of three to eight percent is charged by the machines on top of the regular exchange price, but they can provide users with the most private Bitcoin buying experience. You just need to insert cash into the ATM and you can either receive a paper receipt with instructions and codes on how to transfer the funds to your wallet or you can directly scan the QR code of your mobile wallet.
As the popularity of Bitcoin increases, these ATMs have the potential of becoming one of the most common ways of purchasing cryptocurrencies. Nevertheless, it should be noted that Bitcoin ATMs will not make an appearance in countries where the crypto is outlawed or banned.
Gift cards are often purchased with Bitcoins because it is anonymous and can often be cheaper than using cash. It is also possible to trade gift cards themselves for Bitcoin. You just need to buy a gift card from any retailer, sign up on one of the numerous Bitcoin exchanges where gift cards are accepted by sellers, such as LocalBitcoins, and make your purchase.
Depending on the seller, some of them may ask you to provide a receipt from the store from where you bought the card or an actual image of the gift code found on the back. Some sellers will also be fine with an e-code. When you open a trade, the website will automatically hold the amount of Bitcoin you wish to purchase to ensure that it is safe to share the gift card information with the seller.
There are a number of online retailers who are selling gift cards for almost 60% of their value, due to which you can save a lot of money if you buy Bitcoins this way. Gift cards are also a wonderful way of storing Bitcoins, considering how their value fluctuates constantly. But, like any other way of purchasing Bitcoin, you have to be on your guard because scammers may try to steal money from you.
Any potential Bitcoin buyer can easily find an array of different exchanges that are competing for their business. Selecting the right one can depend on a number of factors, with location being the most important. An exchange needs to be properly regulated and should also have KYC (Know your Customer) and AML (Anti-Money Laundering) policies. This means that you have to provide your personal information, which voids your anonymity. However, you will find an unparalleled choice of trading options on these exchanges.
Whether you want a simple solution for a single trade or you want a full-blown platform catering to institutional traders, you will find an exchange. Furthermore, most of these platforms can be accessed via desktop as well as mobile devices, which allows users to trade from anywhere. The exchanges also vary in terms of their security measures, fees, buying limits, verification requirements, the payment methods they accept and so on.
What are the Benefits of Bitcoin?
There are some impressive benefits of Bitcoin due to which it has spawned an entire industry of cryptocurrency. Let’s check out some unique ones:
Bitcoin was designed to provide people with freedom from third parties and governing authorities who control transactions, impose fees and take charge of people’s money. In recent years, Bitcoin has become just as legitimate as fiat currency for buying things. Moreover, considering the existence of various deep-web markets that only accept Bitcoins, buying some things is a lot easier with Bitcoin than with fiat currency.
Portability is one of the distinct characteristics money should have, which means it should be able to use and carry. As Bitcoin is fully digital, it is possible to store it online or carry it in a flash drive. Bitcoin gives you the freedom of sending and receiving money by simply clicking an online wallet or just scanning a QR-code. It takes no or little time and you don’t have to pay any outrageous fees. The money will go directly to the recipient without any unnecessary intermediates; you just have to have internet access.
PCI is the abbreviation of Payment Card Industry and it refers to the credit, debit, e-purse, prepaid, POS cards, ATM and other associated businesses. It comprises of all the organizations that process, store and transmit cardholder data. Strict security regulations are implemented and most of the major card brands are part of the industry. When it comes to big companies, having a set of unified rules and regulations can be beneficial, but they don’t usually take an individual’s needs into consideration.
In contrast, when you are opting for Bitcoin, you don’t have to comply with PCI standards, which allows you to expand into new markets where the fraud levels may be quite high or credit cards are not accepted. Thus, users have to deal with lower commissions, administrative expenses can be reduced and new markets can be explored.
Decide your transaction fee
Another indisputable benefit of the Bitcoin network is that you have the option of choosing the transaction fee amount or choose to not pay it at all. The miner receives the transaction fee after they have generated a new block with a successful hash. Usually, the full fee is paid by the sender and deducting it from the recipient could be regarded as incomplete payment. These transaction fees are completely voluntary and simply provide miners with an incentive to ensure that the particular transaction will be included in the new block that’s being generated. This incentive can also provide the miners with an income source.
It can actually bring more money than traditional mining ever could, especially when you consider that Bitcoin mining will completely stop in the future once Bitcoin’s limit is reached. Hence, the cryptocurrency market asks the users to choose between the waiting time and the cost. A higher transaction fee can lead to quicker processing while users who are not in a hurry can save money.
Control and safety
Bitcoin users have full control of their transactions; no one can make a withdrawal from their account without their permission or agreement, something that’s known to happen with other forms of payment. Similarly, your personal information cannot be stolen from the merchant either. It is also possible for Bitcoin users to protect their money with encryption and backup copies. In addition, their personal information and identities are always safe because none of them have to be disclosed for making a payment.
Neutral and transparent
Every single Bitcoin transaction and any information about it is available on the Blockchain for everyone to see. It can be checked in real time, but it cannot be manipulated or controlled because the Bitcoin protocol is encrypted. As the network is decentralized, no one will ever be able to control it, which means it will always remain transparent, neutral and predictable.
Bitcoin has been around for more than a decade. It has achieved substantial growth and has been adopted widely. Bitcoin’s trading strategy guides network is growing stronger with each passing day and it remains the top cryptocurrency in the market in terms of market capitalization.