Bitcoin for Beginners
Bitcoin is one of those things that in the past several years has created a lot of buzz around the globe.
Let’s start with “currency”
Currency means “money currently in use”. US dollars, European euros, Russian rubles, and the Japanese yen are all government created money known as “fiat currency”. “Fiat” just means an official order or authorization.
For approximately 4,000 years and across the globe, people used shells known as “cowries” as currency. They were beautiful, unique, and could not be manufactured.
Later (almost 2,000 years ago), in and around Egypt, wheat was used as a currency. Wheat, being a common and important part of our diet, was valuable, portable and exchangeable.
Today, governments authorize their bills as legit, and because we have faith in our governments and banks, we use their money. Ultimately, the worthless bills are just an idea backed by confidence.
What about Crypto?
Then you have cryptocurrencies. Crypto – is short for “cryptography”, a computer technology used for securing and hiding information, among other things.
Cryptocurrency is defined as electronic money made with technology to:
• Control how it was made
• Protect transactions
• Hide the identities of its users.
The technology around cryptocurrencies effectively give them the same traits as regular, cold hard cash.
Cryptocurrencies are not made out of thin air. Instead, people have their computers work many hours and expend massive amounts of electricity to “mine” the digital money. They solve mathematical equations.
Bitcoin is the most practical payment method available
Bitcoin is a digital currency that can be used to send and receive money. The transaction can be completed regardless of where the parties involved are located. Apart from that, sending and receiving money using Bitcoin is both cheap and safe – the network makes the middleman obsolete, which in turn lowers the cost of the transaction, and there is practically no chance for the sender to turn out to be a counterfeiter.
When you pay a cheque from another bank into your bank, the bank will often hold that money for several days, because it can’t trust that the funds are really available. Similarly, international wire transfers can take a relatively long time. Bitcoin transactions, however, are generally far faster, and it is done almost instantaneously.
Bitcoin has advantages over other digital currencies
When you look at the list of cryptocurrencies that are currently available in the market right now, it is a long list of them. Bitcoin has gained too much popularity and there is no comparison with other digital currencies. That is why the difference between the value of a Bitcoin and any other currency is very high.
There is no agency or government controlling Bitcoins. All other digital currencies are associated with some owner or group. Decentralization of Bitcoins makes possessors of Bitcoins feel safe and sound. They don’t have to be dependent on any third party or agency while transferring their Bitcoins. Nor do they have to pay large transaction fees. They are also protected against Bank Insolvency.
It is because of decentralization of Bitcoin, that no country can say it is their currency, no matter where the Bitcoins have been mined. As such Bitcoin is called global currency since it doesn’t belong to any one country. So if you invest in Bitcoins, you are not investing in any foreign currency.
Bitcoin Versus The Dollar
Did you know that the American Bureau of Engraving and Printing (BEP) prints billions of US dollars each year?
While it’s true that 70%+ of the notes that the BEP delivers each year are used to replace worn out ones, that still means approximately 30%, or 2 billion notes, were introduced that year!
Because the government creates all of our money, that means they also control it. If any country were in a severe emergency, the government could prevent you from accessing your money. For example, in June 2015, the Greek government froze all banks. They limited everyone to withdrawing only $67/day from their own accounts!
For Americans, this example hits closer to home: if you owe the IRS money and have not paid, they have the right to freeze your bank account and 15-21 days later take your money to cover your debt.
Let’s dig into Bitcoin
The purpose behind bitcoin is to allow one person to directly send money to another. This type of transaction is known as “peer-to-peer”.
In other words, bitcoin allows Alice to pay Bob directly, whether they’re a block away or across the globe. Bob and Alice don’t need to use a trusted third party like a bank or Paypal to process their transaction. As you can see, peer-to-peer transactions are highly efficient.
And unlike US dollars, there are only 21 million bitcoin that will ever exist. Only about 16.7 million of which are available right now. The rest are slowly being created by the users of bitcoin.
Bitcoin was the first widely adopted cryptocurrency, and was created in 2009 by Satoshi Nakamoto. No one knows who Satoshi is. And here’s the kicker: Satoshi disappeared before bitcoin took off.
Unlike fiat money (US Dollar, Euro & other paper currencies), Bitcoin is not regulated by any country. It’s kind of like the official currency of the internet & anyone with an internet connection can own it. This makes it independent of any corporate monopoly because everything about Bitcoin is governed by the huge community of users who are using it.
The best thing about Bitcoin is how easy it is to transfer all over the world with very low fees.
For example, transferring any amount of bitcoin from the United States to India or Europe will cost only $2-3 or less.
Your transaction also remains anonymous. Only the sender and the receiver know who is involved with the transaction.
As the world is slowly adopting & accepting Bitcoin, individuals & businesses are saving a lot of money while doing business globally.
What is Bitcoin?
In non-technical language, Bitcoin is a digital currency in which transactions can be performed without the need for a credit card or central bank. It’s designed to enable users to send money over the Internet in a very simple and efficient way.
• Bitcoin is a digital currency. Because it is digital, you can literally backup your money, so, when properly cared for, it can’t be lost, stolen, frozen or seized.
• Bitcoin allows a direct and immediate transfer of value between two people anywhere in the world. No banks, goverments, or organizations control or influence it.
• Bitcoin operates on free, open-source software on any computer or smart phone. There are no start-up, transaction, or usage fees.
• Privacy is enhanced with Bitcoin and it reduces identity theft. Purchases can be completely anonymous.
• Transactions cannot be reversed.
• Bitcoins can be excanged in open markets for any other currency.
Bitcoins are decentralized, purely digital virtual coins exchanged directly between two parties online with no middle man. Unlike modern fiat money, Bitcoin, which has often been called “cash for the Internet,” is not controlled or backed by any bank or central government authority. Bitcoin is a digital currency (cryptocurrency) which is independent of any country or geographical entity & can be used by anyone who is connected to the Internet.
Bitcoins are pieces of computer code – mathematical algorithms, actually – that represent monetary units. There are currently approximately 17 million Bitcoins in existence. In all, only about 21 million Bitcoin will ever be generated through the year 2140. Unlike credit card transactions, Bitcoin transactions, which take place internationally every day, are irreversible; they can only be refunded by the person receiving the funds.
Like the way you store your money in your wallet or a bank, bitcoins are stored in “Bitcoin wallets”. Everything is done electronically & no fiat money (like the US Dollar, EUR, YEN, or any other paper currency) is involved.
To spend or receive bitcoin, you use your Bitcoin wallet. Every Bitcoin wallet can have one or more “wallet address”. This is a unique internet address to ensure the anonymity of transactions which helps keep you safe. You can use a unique wallet address for every transaction you make.
You can install a Bitcoin wallet on your computer or mobile phone. Upon installation, it will generate a Bitcoin wallet address & you can use that address for receiving bitcoin from anyone and anywhere in the world.
How Bitcoin works?
In simple words:
Bitcoin is a peer-to-peer network, a set of protocols (standards for interoperability), client interfaces (called wallets) and a currency that operates on top of all of those technologies. The bitcoin system allows any person to send or receive a fraction of a bitcoin (the currency unit) to another person, anywhere in the world. The bitcoin system operates on the Internet without the need for banks or bank accounts and allows people to send money like they send email.
To start using bitcoin, you need a bitcoin client, or “wallet” application. The bitcoin client allows you to use the bitcoin network, just like a web browser allows you to use the web. There are many different types and makers of bitcoin wallets, for desktop and mobile operating systems and also available as web applications.
In more detail:
Bitcoin works on blockchain technology. The blockchain is a shared public ledger on which the entire Bitcoin network relies. Any confirmed transactions (including newly added bitcoins) are added into blockchains.
When any user initiates a new transaction (send or receive bitcoins), the transaction is verified using blockchains.
Think of this like the physical ledger that is maintained by banks. The only difference is, in this case, it’s maintained by the public & anyone can use the ledger to match a transaction.
Bitcoin uses Public-key cryptography. This system uses two pieces of information to authenticate messages.
When you set up your Bitcoin wallet for the first time, you are asked to set up a private key (also known as a “seed”). This is the most important part of Bitcoin security. The ideal thing to do is to write down your seed keyword on a piece of paper & keep it somewhere safe.
IMPORTANT: Never write down your private key (seed) online & don’t share it with anyone!
Getting started in Bitcoin is actually really easy. Like real life, you have a wallet, well the same applies in the virtual world, and you need a wallet to store your coins. To withdraw your bitcoins or to send and receive the bitcoins you need a bitcoin wallet.
A “wallet” is basically the Bitcoin equivalent of a bank account. It allows you to receive bitcoins, store them, and then send them to others. There are two main types of wallets. A software wallet is one that you install on your own computer or mobile device. You are in complete control over the security of your coins, but they can sometimes be tricky to install and maintain. A web wallet or hosted wallet is one that is hosted by a third party. They are often much easier to use.
You can create your own wallet anywhere like computers, smartphone, online wallets etc. You can create unlimited bitcoin address for various purpose for free of cost.
To receive bitcoin, you need a bitcoin “address”, which is a bit like an email address or bank account number. If someone knows your bitcoin address, they can send you money, but cannot do anything more, not even identify who you are or where you are.
Therefore, you can freely share your bitcoin addresses with anyone without fear or security risk. Once you have a “wallet,” it can create any number of bitcoin addresses for you, even one per transaction. Give those addresses to anyone you want to send you bitcoin. Bitcoin addresses are created by your wallet and do not need to be registered with anyone, or linked to your identity or email address. They can be used immediately to receive money from anyone and become part of the network once they have some bitcoin sent to them. Bitcoin addresses always start with the number “1” and they look like a long string of number.
Your wallet also allows you to send bitcoin to another bitcoin address. If a friend of yours has a bitcoin address, you can ask them to email it to you, or they can show it to you in the form of a barcode (QR code) that your mobile bitcoin wallet can easily scan with its camera. Once you have an address to send bitcoins, you can then use your wallet to create a “transaction”, which is like writing a check. You tell your wallet which address should receive the bitcoin (your friend’s address) and how much bitcoin you want to send.
You can send a whole bitcoin (example 1 BTC) or a small fraction of a bitcoin (for example 0.001). When you send bitcoin, your wallet will also calculate a small fee that is paid to the bitcoin network in order to process your transaction (0.00001BTC). Hit send, and your friend will see their wallet receiving bitcoins, in a matter of seconds. Within 10 minutes the transaction will “confirm” (like a check “clearing” in your bank) and your friend can then spend it.
Bitcoin transactions are “push” transactions, meaning that you are always in control of your wallet. No one can “deduct” bitcoin from your wallet, you have to explicitly sign a transaction to send it out. This makes bitcoin much safer than credit cards when shopping online, as your transaction only authorizes a single payment and never reveals your private identity.
The real innovation is blockchain technology
A blockchain is a decentralized and distributed ledger that can be accessed by many different parties simultaneously. When a transaction is completed, it is recorded on a “block.” When a block’s memory is full, it is added to the end of the blockchain, always in successive order. It then becomes part of the permanent database of transactions of the blockchain. For the purposes of bitcoin, the blockchain records transaction details, like the amount and time, but not personal details of the parties involved.
The blockchain is monitored by computers connected to the network called nodes. A node receives a downloaded copy of the blockchain upon joining the network. When a new transaction is recorded, each node is able to independently record and verify it. Once information is recorded in a block, it cannot be altered unless the entire network agrees to the change.
Bitcoin is almost unhackable
SHA256 is a special type of mathematical function which is really easy to solve in one direction but is very hard to solve in reverse. At least the only known way to solve SHA256 is reverse is very hard. It’s extremely expensive to conduct a hack on the network as the computing resources required to do so are immense.
In 2010, an entrepreneur, Wences Casares was very skeptical about Bitcoin and hired a team to hack the system but failed. Since then, he became a big fan of Bitcoin and he is currently the CEO of the Bitcoin wallet Xapo.
How does Bitcoin help an ordinary user?
The unique advantage of that is that no bank or government creates or maintains bitcoin. In other words, banks and governments cannot control bitcoin and so cannot control its users.
No individual or bank is maintaining our transaction ledger. The ledger is available to everyone & transactions are linked to our Bitcoin address.
Unlike normal transactions where we have to enter our personal details, the only thing anyone will see is your Bitcoin wallet address. This ensures anonymity & safe online transactions.
When you make a Bitcoin transaction, your Bitcoin software signs the transaction with your private key. This cryptographic signature is the mathematical mechanism that allows someone to prove ownership.
These are the benefits of owning bitcoin:
• A new way to transact outside of the government.
• A way to gain 100% control over your money, outside the sphere of influence of any organization, government, or bank.
• A new, very volatile investment that has probably made as many fortunes as it has broken.
• The government creates and controls money, known as fiat currency.
• Bitcoin was created as an independent electronic cash, an alternative to fiat currency.
• Bitcoin’s advantages are efficiency, permanency, security and transparency.
Bitcoin can be used to make big and small purchases, it is used widely as an investment vehicle and it provides an opportunity to escape from the financial collapse of some countries.
Bitcoin is limited
In March 2017, The price of one Bitcoin surpassed the price of an ounce of gold for the first time in history.
Gold is rare, Bitcoin is much rare because there is a limited amount of it that can come into existence. By design, a total of 21 million Bitcoins will be created over 100 years according to a logarithmic release function. The number of bitcoins in existence will never exceed 21 million.
With increased usage and wider adoption of Bitcoin, the demand for Bitcoins is always increasing. This is crucial to understand because whenever supply is restricted, and demand is high, the price goes up.
Bitcoin is still not known to majority of people
Although Bitcoin was introduced in 2009, only a small percentage of the world trade in Bitcoin.
Considering all the advantages of trading in Bitcoin, we are still at the beginning era of cryptocurrency. As you can see, there is a huge potential ahead of us.
The statistics show that all this is going on in a positive direction which itself means a clear BUY for this digital currency as a long-term investment.
A prediction made by Jeremy Liew and Peter Smith (the first investor in Snapchat and the co-founder and CEO of Blockchain) states that the Bitcoin network will grow 61-fold from now until 2030 (around 400 million total users). With a huge increase in electronic money transfers, which have almost doubled worldwide over the past 15 years. It’s a huge and growing market for Bitcoin. Both expect the major catalyst for growth will be greater Bitcoin awareness, along with the growing overall market.
Of all the reasons above, it is not late to buy Bitcoin today at all.
Bitcoin is going to be part of our lives
Bitcoin or BTC is the first content type on the Bitcoin blockchain. Think of it like the Internet. Email, as great as it has been, is only one type of content that the Internet can carry.
People were first very skeptical about the Internet and didn’t believe at all that Commerce and business will shift from offices and malls to networks and modems, an instant catalog shopping – just point and click for great deals, and buying air tickets over the network.
See what’s going with our lives now. The Internet was the first, and the most immediately useful, and still used to this day. Most importantly, most people can’t live without it.
Similarly to Bitcoin, it will not be stopped. Governments can’t stop it, institutions can’t stop it, even if the encryption gets compromised, a new algorithm will be put into effect to nullify that attack.
People who invest do not invest in what Bitcoin is now but invests in what it can turn into over te next 5-6 years. Bitcoin is not just an investment – It’s a Movement! A movement to the worldwide financial freedom.
The Future of Bitcoins
There is a myth in certain circles that it is too late to get into Bitcoin. Bitcoin has been proclaimed dead 342 times. It has been labeled a failed experiment. Despite the critics, bitcoins continue to grow in popularity worldwide.
Don’t trust people who say it’s too late to make money from bitcoin. It will never be too late to get into bitcoin. Now is the best time than ever to earn reasonable income online in bitcoin.
Bitcoin is still young. Bitcoin is still in its early phase really so even people joining today or even months down the road can still have the chance to be an early adopter.
Once 21 million Bitcoins have been mined, there will never be any more created. Once that happens, you can be certain that prices will reach levels that are inconceivable as of now; if you hold onto a few Bitcoins (or steadily build up a wealth of Bitcoins) until the day when they have all been mined, you are guaranteed to turn a healthy profit.
The future of bitcoin is very bright, basically because more and more people have started to use bitcoins and as the people increases, we would see more price rise and heading towards main stream of adoptions.
For all the volatility of Bitcoins, one thing is certain: Bitcoins are a currency on the rise. The time to get into Bitcoins has not passed – it’s right now. Smart people always buy in on huge sell-offs and keep holding their coins. The others are always waiting. Stop waiting and buy now.
Bitcoin would be better as a longer term investment. It’s not what it’s worth, it’s what someone’s willing to pay for it. Bitcoin price like gold, oil and other crypto-currencies is based on supply-demand which means:
• Less supply + same demand/more demand = Price increase.
It’s really recommended to start buying now instead of regretting later.