WHAT IS BITCOIN – A COMPREHENSIVE GUIDE
Bitcoin has experienced both incredible growth and bouts of despair since its start in 2009. Bitcoin has grown from a $0.08 per coin assessment in 2010 to a profitable institutional investment asset owned by Tesla, Square, and MicroStrategy, as well as an international commodity recognized by fintech heavyweights such as PayPal and Mastercard. 2020 was a pivotal year for Bitcoin, as it gained widespread popularity and surpassed all-time highs achieved in 2017 before a catastrophic meltdown that knocked out about 80% of its worth.
Bitcoin (and other cryptocurrencies) critiques object to their erratic pricing as evidence that they are a speculative asset at finest, and a gateway for criminal activities (e.g., money laundering) at worst. Bitcoin investors, on the other hand, highlight Bitcoin’s excellent strength and endurance during the pandemic, as well as increased adoption figures, to characterise Bitcoin as digital gold and an unavoidable transformation in how we approach money.
Whatever your thoughts on Bitcoin are, there is no disputing the increased attention and perspective change that has happened as a result of the unprecedented time of worldwide economic policies and the speed of the digital transformation created by the global pandemic. And If you’re reading this, Bitcoin has infiltrated your everyday thoughts, and you’ve chosen to find out once and for all, What Is Bitcoin?! In this post, we will discuss Bitcoin’s humble origins, establish the foundations for how it works beneath the hood, and then explain how you may acquire and use your Bitcoin!
Table of Contents
A BRIEF HISTORY OF BITCOIN
On Halloween 2008, a person going by the identity Satoshi Nakamoto sent out an email to a cryptography mailing group containing a link to an academic article regarding peer-to-peer cash. It didn’t create much of an impression. Nakamoto was unfamiliar with the cryptographic community, and other cryptologists had already presented similar systems. Nevertheless, two months later, Nakamoto published the first launch of the bitcoin software, demonstrating that it was much more than a notion. Anyone with a computer could install and use the program. And people surely did.
Bitcoin was almost exclusively utilised by cryptographic enthusiasts in its early days. A bitcoin was purchased for less than a cent. However, the concept gradually gained momentum. Bitcoin arose in the aftermath of the 2008 economic meltdown, when some people, particularly free-market libertarians, were concerned that the Federal Reserve’s efforts to expand the money supply would bring to uncontrolled inflation.
Before bitcoin gained widespread prominence, Nakamoto vanished from the world wide web. In December 2010, he gave up responsibility for the system to an early member named Gavin Andresen and stopped contributing to the online bitcoin forum. Nakamoto’s identity is still unknown to this day.
WHAT IS BITCOIN?
Because Bitcoin is digital money, there are no coins or notes to mint or produce. It is decentralised since it is not controlled by an administration, finance company, or other entity. Holders of Bitcoins in the network are anonymous—there are no bank numbers, addresses, social identity numbers or other distinguishing characteristics that link Bitcoins to their owners. Bitcoin connects buyers and sellers by utilising blockchain technology and encryption keys. A Bitcoin is “mined” in the same way that diamonds or gold are.
WHAT IS THE MINING OF BITCOINS?
People, or more precisely, incredibly powerful, energy-intensive processors, “mine” Bitcoins to create more of them. There are presently around 16 million Bitcoins in circulation, with only 5 million more left to generate because Bitcoin creators set a limit of 21 million. Finally, each Bitcoin can be subdivided into smaller fractions, with the tiniest proportion being one hundred millionth of a Bitcoin known as a “Satoshi,” named after the inventor Nakamoto. The mining procedure requires computers to complete an incredibly difficult mathematical equation that becomes increasingly difficult over time. When an equation is solved one Bitcoin block is produced, and the miner receives a new Bitcoin.
HOW DO BITCOIN WORKS?
Unlike conventional paper money, such as the pound, Bitcoin is not a physical, unlimited object. The exact opposite is true. Bitcoins are created through a process known as mining. During this procedure, processors from all over the globe (miners) are trying to solve progressively complicated math equations/puzzles at the same time. When a miner solves the equation/puzzle (hash), it combines any pending transactions into a time-stamped record called a block and distributes that onto the shared database or the distributed ledger.
This distributed ledger is made up of many, interlinked blocks that have been verified by the entirety of the Bitcoin system, thus the name blockchain. This information is spread and kept in nodes, which are computers. When this new block is validated, each node’s copy of Bitcoin’s ledger is updated. When this procedure is finished, the network produces a defined number of Bitcoins and awards them to the relevant miner, which is known as the block reward. Surprisingly, the block reward is slashed in half every four years, a much-awaited event called the halving (or halving). This process of checking and balancing is termed as Proof-of-Work.
As more miners attempt to solve this equation/puzzle (Hash cash), the complexity of mining a block climb considerably. As a result, greater difficulty signifies that more computational power is required to mine the same number of blocks. In contrast, as miners quit the system, the mining complexity drops, making it much easier to create more blocks. Satoshi purposefully constructed this rise and fall pattern to control network inflation. The typical block time is roughly ten minutes.
HOW TO GET OR INVEST IN BITCOIN?
There are two primary methods for purchasing and investing in bitcoin. You can either open an account with one of the many specialized digital currencies exchanges now available, or you can purchase it via an investing website that provides the possibility to purchase virtual currencies. While digital currencies were formerly sketchy, uncontrolled businesses, the major exchanges that are now in existence are all authorized and in conformity with current regulations. Some of the most renowned in the United States are:
- Coin base
- Coin mama
- XBT prime
You can also acquire bitcoin via a variety of financial applications and services such as Robinhood, Cash App, and PayPal. Such applications don’t have as many virtual currencies as specialised exchanges, but if you’re interested primarily in bitcoin, it doesn’t make much of a difference. If you do choose to invest in bitcoin, keep the following four points in mind to minimise your risk exposure:
1) YOU NEED TO BUY A BITCOIN WALLET
If you purchase bitcoin through an exchange and intend to keep substantial amounts of the virtual currency, it may be a smart idea to move them to your cryptocurrency wallet. Hardware wallets are compact, disconnected processors that contain the encryption information that manages your bitcoin assets, with popular brands including Ledger and Trezor. There are several types of bitcoin wallets which we will discuss further.
2) INVEST ONLY THAT MUCH WHICH YOU CAN AFFORD TO LOSE
This wise advice extends to any business, but particularly in this case. Bitcoin’s price has moved significantly in its short history and remains to do so, as evidenced by the $3,000 decline in the third week of November 2020. The moral of this story is that your assets may decrease dramatically in the near term, so don’t spend any assets that you could need in a crisis, should you be pressured to sell during one of the many downtrends.
3) CONSIDER TRADING LONG-TERM
Given its unpredictability, it generally pays to participate in Bitcoin with a longer time horizon. It has fared quite well over the last decade, so unless you’d like to engage in day trade, purchasing and storing it may be the best plan.
KEEP A CLOSE EYE ON THE STOCK MARKET
In 2020, Bitcoin has exhibited a growing association with the S & amp; P 500, especially as the present economic environment has driven speculators more toward speculative assets. As a result, it may be beneficial to keep an eye on stocks for warning indicators of an approaching shift in the cryptocurrency market.
HOW CAN YOU USE BITCOINS?
Other than mining, there are many other ways of earning Bitcoins. To begin, you can take Bitcoins as payments for products or facilities. It’s as easy to set up a Bitcoin wallet as it is to configure a PayPal account, and it’s where you hold, monitor, and transfer your electronic currency. They are free and can be obtained through a service such as Coinbase. While this may take longer than it is worthwhile, there are internet sites that will reward you in Bitcoins for accomplishing specific activities. Once you’ve acquired Bitcoins, you can lend them out and collect interest on them. There are even methods to acquire Bitcoins via trade, and Bitcoin futures have recently been introduced as a genuine investment product. Furthermore, you can convert your ordinary currencies for Bitcoins at Cryptocurrency exchanges, the greatest of which is Japan-based Mt. Gox, which processes 70% of all Bitcoin transactions. More than 100,000 establishments embrace Bitcoin as payment for items ranging from gift vouchers to pizza.
WHAT ARE BITCOIN WALLETS AND WHY YOU NEED THEM?
A cryptocurrency wallet, also known as a Bitcoin wallet or crypto wallet, works similarly to a typical wallet, but rather than paper money, it stores proof of your electronic currency. A cryptocurrency wallet contains the public and secret keys needed to purchase Bitcoin or other virtual currencies, as well as providing electronic signatures that authorise each transfer. These electronic wallets can take the form of a gadget, a programme on an application or an online portal, or a service provided by cryptocurrency exchanges.
While many platforms offer or recommend crypto wallets, to purchase or exchange Bitcoin or other virtual currencies, you must have a bitcoin wallet so that the virtual currency may be moved to your custody. The majority of these electronic wallets are password-protected, and many have additional security features like encrypted data, two-factor authentication, and other precautions.
Digital wallets for Bitcoin and other cryptocurrencies are available in a variety of arrangements, each with its own set of advantages and disadvantages in terms of trading convenience and safety. But, regardless of the format, security starts with you: Remember to keep the credentials that provide you entrance to your digital wallet safe. Bitcoin wallets are classified into two types: Wallets with hot or cold storage.
HOT STORAGE DIDGITAL WALLETS
Hot storage Digital currency wallets, such as a phone application, a computer software application, or a digital provider, are instantly connected to the web (thus the term “hot” storage). The excellent thing is that each of these products is provided at no cost. The unfortunate thing is that all of the above pose some kind of potential risk since they are linked to the internet and hence potentially vulnerable to digital stealing.
While bitcoin theft generates news stories, the reality is that exchanges and digital wallet suppliers seem to be improving their ability to combat crypto crime. Despite the increasing popularity of digital currencies, bitcoin theft fell by 57% in 2020, as per a study conducted by Cipher Trace, a blockchain protection and analytics business.
COLD STORAGE DIGITAL WALLETS
A cold wallet is a compact, portable, encoded gadget that enables you to acquire and transport Bitcoin and other virtual currencies. Cold wallets can cost up to $100, however, because the money is kept offline (thus the name “cold”), they are regarded far more safe than hot wallets. Cold wallet service providers include:
- Trezor: This start-up sells compact, key-sized cold wallets for $60 to $200.
- Ledger: Structured in the shape of a thumb drive, Ledger offers cold wallets ranging in price from $60 to $120.
ADVANTAGES OF BITCOIN
ANONYMOUS AND PRIVATE
Bitcoin transactions are fully private and anonymous. Unlike bank transactions which can be recorded and recognised, bitcoin operations cannot be monitored or traced. Only the usernames of the bitcoin wallets to which the money was delivered and received are known. However, it is unknown to whom these addresses belong. It’s similar to how payments to a certain bank account may be monitored, but who owns these accounts is unknown.
FLEXIBILITY IN PAYMENTS
Paying using bitcoins gives you the most flexibility. Bitcoin can be transmitted to anyone, anywhere in the world. There are no intermediates. There will be no public holidays or protests. There are no limits or frontiers. There is no payment cap.
NONE OR VERY LESS PROCESSING FEES
Paying using Bitcoin has very cheap processing fees, and in certain cases, no costs at all. It all relies on the individual’s priorities. If a person wants his/her payment to be processed quickly, he must pay a transaction fee, which is still very little when contrasted to any banking middleman or online wallets.
ITS QUICK AND SWIFT
When compared to traditional banking systems, Bitcoin transfers are extremely rapid. A bitcoin transfer is as quick as an e-mail and can be completed in 10 minutes. It also can be completed instantaneously if they are “zero-confirmation” payments, which means the merchant accepts the danger of processing a payment that has not yet been verified by the bitcoin network.
Purchases that take at least 10 minutes to complete are considered confirmed. Bank card or digital wallet companies also provide immediate authorized financial service, but they normally charge exorbitant fees, which Bitcoin does not. Even though Bitcoin is extremely fast, its transaction costs are quite minimal.
IT DOESN’T ASKS FOR SECURITY INFORMATION
Perhaps the most significant advantage of Bitcoin is this. Nowadays, most digital sales are made with credit cards or debit cards, which require you to input all of your confidential information (username and password, expiration date, and CSV number) into an online form. This is why credit card information is frequently stolen.
Bitcoin transactions, on the other hand, do not necessitate the disclosure of any sensitive information. They, therefore, employ two keys: a public key and a private key. The public key, as the name implies, is visible to everyone, whilst your secret key is kept private. When you execute a bitcoin payment you ‘sign’ it by merging your public and private keys and performing a mathematical equation to these. This generates a certification that shows the transaction was initiated by you.
DISADVANTAGES OF BITCOIN
LEVEL OF ACCEPTANCE
Many individuals are still unfamiliar with Bitcoin. Nearly every day, more businesses take bitcoins, but the database is still tiny and has to increase to profit from market dominance.
Bitcoin values are extremely volatile and fluctuate at a rapid speed. Speculative investors want to reap the benefits of it, but true investors consider it too dangerous, hence no one invests in Bitcoins.
ONGOING DEVELOPMENT AND PROGRESSION
Bitcoin software is still in constant development, with several features that are still missing. New technologies, functions, and solutions are being created to make Bitcoin more safe, efficient, and approachable to the general public. Most of these are still not eligible for public consumption. Most Bitcoin firms are still in their early stages and do not provide insurance.
If you misplace your bitcoin wallet, you will end up losing all of your bitcoins. You will never be able to recover it, and it will be gone forever until you have backed up the wallet with a recovery password code. This recovery phrase code can be used to retrieve the amount of a misplaced bitcoin wallet. In the event that a credit card or debit card is lost, we may contact the retailer to deactivate the card and demand a new one; however, because Bitcoin is decentralised and no one has authority over it, there’s no one to contact.
Bitcoin is embarking on a financial and technical transformation, allowing anybody to seize control of their wealth and avoid dangerously corrupted institutions of public governments and costly middlemen. Since the advent of blockchain technology, several more cryptocurrency initiatives have sprung up to meet a variety of requirements. Some, such as Bitcoin Cash, are the direct result of changing the Bitcoin Core source (BCH). Others, such as Ethereum, are created from the bottom up to exploit the blockchain principle in novel ways (ETH). All ventures, whether explicitly or implicitly, owe it to Bitcoin for sparking the digital currency movement.
Bitcoin has been the top-performing investment option over the previous decade, providing asymmetric exposure that has allowed investors to avoid the depreciation of paper money and secure their money with a deflationary asset. Bitcoin is rare, fungible, resilient, versatile, and portable, and its acceptability is growing. As part of its developing network effects, it offers speculation, financial, and business use applications and is as simple to use as any mobile application.
FREQUENTLY ASKED QUESTIONS
IS BITCOIN SAFE AND SECURE?
Yes, Bitcoin is a viable investment. So much so that publicly listed firms such as MicroStrategy and Tesla have made billions of dollars in Bitcoin investments.
WHAT IS THE PURPOSE OF BITCOIN?
Bitcoin was developed to allow people to transfer money over the internet. The digital currency was designed to be a non-centralized payment system that could be used in the same way that existing currencies could.
HOW LONG DOES IT TAKE TO MINE 1 BITCOIN?
It takes about 10 minutes to mine one bitcoin, irrespective of how many miners are there. All else being equal, mining a bitcoin would require 72,000 GW (or 72 Terawatts) of energy at 600 seconds (10 minutes) using the typical power utilisation reported by ASIC miners.