What is Bitcoin?
That is what we will answer in this introductory guide to bitcoin.
Some millenniums ago, trading was done through the barter system.
The early man exchanged goods and services through the barter system whereby one type of good or service was exchanged for another.
Then, it evolved to coins before cash was introduced as well. In the 20th century, the card system was introduced which has been gradually taking over cash and welcoming a cashless society.
However, as of recent times, we now have the cryptocurrency, one of which, is bitcoin.
What is bitcoin?
Bitcoin is credited to be the first cryptocurrency in the world.
A cryptocurrency is a form of electronic cash, a digital currency that is transacted directly from user to user or peer to peer.
The major attraction of bitcoin is the fact that it is decentralized, that means the transaction is done without intermediaries; no central bank needed to regulate transactions.
Bitcoin is said to be invented in 2009 by an unknown person or group of persons that goes by the name, Satoshi Nakamoto. It is also said bitcoin emerged after big banks were accused of misusing borrower’s money by Occupy Wall Street and this is the reason why transactions are done without intermediaries.
How does bitcoin work?
Bitcoins are created through a process of mining, which is basically a reward for volunteers, who are called, miners. The miners solve mathematical puzzles to win bitcoins.
The miners also constantly verify and update transactions through a public distributed ledger system known as, blockchain.
After a specific amount of transactions are verified, a new block is added to the blockchain and the cycle continues.
Bitcoin is reminiscent of the barter system because bitcoin can be exchanged for goods, services, and even other currencies. In this case, however, goods and services are not being exchanged but goods and services for bitcoin. In simple terms, when you need to buy a particular good, instead of paying cash for it or using your card, you can pay from it using your bitcoin wallet.
The bitcoin wallet is a software-generated collection of your bitcoin addresses. It could be likened to a bank account. A bitcoin address is a string of alpha-numeric characters that confirms that a certain address belongs to you. The address is used to send a message to the miners, who are in charge of verifying and updating transaction, to send coins to a new address indicated by you.
What is Bitcoin Used for?
You can use bitcoin for particularly anything because it is a currency and currencies are used as a means of exchange to get goods or services. But you can use bitcoin further to get physical currency; all you have to do is sell your bitcoin for actual currency. So in this case, some of the people who use bitcoin use it as a form of investment.
They get bitcoins at a lower price and sell later when the value of bitcoin increases. Although bitcoin is now very popular, not everybody or company transact with bitcoin, so if you want to transact with certain companies now, you will have to use the physical currency. However, there are others that accept bitcoin for transactions.
Companies like Microsoft, Dell, Overstock, Expedia, Etsy, CheapAir, PizzaForCoins, OKCupid amongst others trade in Bitcoins.
What is Bitcoin mining?
As stated above, miners are volunteers who compete to be rewarded bitcoins. They solve mathematical puzzles and the winner gets bitcoins created for them. Miners are not actual humans bent over and working vigorously to solve the puzzles; hardware is used for bitcoin mining.
Everyone on the network agrees on the reward but generally, it is usually 12.5 bitcoins in addition to the fees they get from users sending transactions. Miners are also in charge of making the system works because they are in charge of verifying and updating the blockchain.
In simple terms, once a transaction is logged in by a user, they verify and confirm the transaction to make sure the bitcoin is sent between users and also add the transaction to the blockchain, the public distributed ledger. This whole process is called Mining. The process of mining or mathematical puzzle is becoming increasingly complex to solve and it is also becoming more competitive, so entering the race will require adequate computing knowledge and the necessary capital to fund the processes.
How to open a Bitcoin account?
Opening a bitcoin account is very simple, as simple as opening an account online. Opening a bitcoin account confers on you a bitcoin wallet, where you keep your bitcoin addresses. A bitcoin address is proof that a certain number of bitcoins belongs to you.
The wallet can be kept offline or online; it is either kept in a physical device, software or web account. There are a number of paid web-based wallet options as well as free options; depending on which you prefer.
However, because your private key is like the lifeline to your coins, you should read reviews before going with one because when you use a web-based option, you automatically give a third-party access to your private key.
- When you go to any of the bitcoin exchange websites or web-based wallet option, click on ‘get wallet’ or ‘get new wallet’ or any of the variances.
- Enter your email address and password (the one you are likely not to forget).
- Read the terms of service thoroughly before agreeing to it.
- Click on get started and the wallet is automatically generated.
- You can now generate bitcoin address by requesting for it. Also, you will need an exchange account to buy coins.
- Once you have bitcoins in your address, you can proceed to send bitcoins by clicking ‘send.’
The bitcoin app is the web-based alternative of the bitcoin wallet. The bitcoin wallet is almost operated as a bank account; it is the software from where you can receive, store and send bitcoin. However, unlike a bank where cash is kept, the bitcoin wallet contains bitcoin addresses, which is simply a string of alpha-numeric characters that confers the ownership of a certain number of bitcoins on you.
As mentioned above, your wallet can be kept offline or online. Offline can be in a physical device like a paper or a hard disk where your private key (bitcoin address) is written. The online alternative, however, will be using web-based options that either comes free or paid.
The app can also be likened to bank apps where you do banking transactions without visiting the bank. With the bitcoin app, you can make transactions (buy and sell bitcoins).
How Safe is Bitcoin
Bitcoin is safe because it is decentralised and the miners verify transactions before confirming, so it is relatively safe. However, there is nothing that is totally safe. There are risks associated with bitcoin as well, especially as it relates to protecting your private key.
The bitcoin addresses consist of the public key and the private key. The public key is like your account number that you can share with others to send coins with you. The private key, on the other hand, is like your pin, that you have to protect because if it gets to the wrong hands, it can be used to transfer your bitcoins. You save your bitcoin addresses in a bitcoin wallet.
Both the offline and online bitcoin wallet have their merits and demerits. The disadvantage of the offline wallet is that since your private key is stored on a physical device (paper or hardware device), it can get lost easily and you won’t be able to access your coins without them or it can get stolen.
The online wallet also stands the risk of being hacked, the site shutting down or you can stand the risk of falling into the hands of the wrong web-based exchange platform. You can ensure your offline wallet is safe by guarding it with your life and you can protect the online wallet by making sure to read reviews before going with a platform and also backing up your information somewhere safe. If you can do this, then bitcoin is very safe and secure.
How to buy Bitcoin
You can buy bitcoin from exchange platforms online. Be sure to read reviews before using any. The bitcoin exchange platforms are like an online marketplace where bitcoins are traded. You can also get bitcoins directly from a user through transfer. In both cases, you will transfer actual currency to the seller and once the transaction is confirmed, you can get the bitcoins equivalent of the currency.
What is a Bitcoin exchange?
Bitcoin exchange can be likened to a marketplace where goods and services are exchanged for money. In this case, bitcoin is exchanged for good, services or physical currency. This is done through bitcoin exchange platforms, that is basically a bank, but for bitcoins. Bitcoin exchange platforms oversee the process of selling, storing or buying bitcoin.
There are different popular bitcoin exchange platforms online. Some of them include coinbase, bittrex, coinmama, binance and gemini, amongst others. Whichever you decide to use, make sure you do enough research about them and read reviews from other users before making up your mind. Watch out for reputation, consistency, payment methods, security and privacy as well as any other quality that you prioritise.