What is Bitcoin?
Bitcoin is a digital currency that lives entirely electronically. It is decentralized, meaning no single entity owns it. It runs on the blockchain and is not printed, but is produced by the Bitcoin protocol. Bitcoin’s explosive growth in price has attracted interest from a wide variety of people, but many are still hazy on the technical aspects that make Bitcoin so great.
What started off as a small collective of crypto innovators and extremely early adopters has evolved into a burgeoning community of people with mixed backgrounds coming from a variety of industries.
This guide will help you understand what makes Bitcoin so special, and developments that have contributed to its growth. If you’re new to the cryptocurrency world, don’t fret. We’ll walk you through everything you need to know in a simple, easy-to-understand way.
The three terms you’ll hear thrown around often when describing Bitcoin include digital, decentralized, and blockchain. Let’s dive in:
Bitcoin is a Digital Currency. This means there are no physical Bitcoins in circulation, and the coin is entirely digital. It is programmed in a way that it is based on mathematical proof, making it an extremely consistent self-auditing and self-validating system.
Bitcoin is Decentralized. Since Bitcoin doesn’t have any central server, no single entity has control over its supply and price. For example, there is no central bank that can pump Bitcoins out in the same way they do with fiat to manipulate the price that arises from the supply and demand.
Bitcoin is Built on Blockchain. Blockchain is essentially a ledger or database that keeps a history of every single transaction that has ever taken place. This makes Bitcoin transactions extremely transparent and verifiable by participants. While there are much more complexities to the blockchain, just think of it is as a ledger used to track transactions.
|Read Also: Blockchain Definition|
People who have bought Bitcoin early on were able to enjoy a sizeable return on their investment because Bitcoin is still in its early adoption phases. There are relatively very few outside forces that are impacting Bitcoin, as the space hasn’t gone through extensive regulatory oversight, or been touched by a derivatives market. Many of Bitcoin’s real-world use cases are still evolving as adoption of this token increases.
What are Bitcoin’s Advantages? The two main features of Bitcoin create a ton of value for people who use Bitcoin.
Autonomy. Since Bitcoin isn’t controlled by a central bank or regulatory authority, your funds can’t be frozen and future withdrawals can’t be prevented. There is also no limit to how much you can withdraw, deposit, or how much is transferred between locations.
Free Access to Information. Since all transactional information is accessible through the blockchain and can be seen on blockchain explorers, users are able to see any pertinent information they want.
How to Buy Bitcoin?
Not only has the Bitcoin development community worked hard to put together a ton of resources and tools to make Bitcoin more accessible, the infrastructure around buying Bitcoin has gotten much more convenient for beginners. Here are a few of the standard steps to get you started:
Set up a Wallet. Wallets can be downloaded online at websites like Blockchain.info. Most exchanges such as Coinbase also come with a wallet native to the platform.
|Read Also: Best Sites to Buy Bitcoin Instantly|
Back up your Keys. An individual’s Bitcoin balance is kept using two keys: a public key (which is similar to a bank account number) and a private key (similar to a PIN number). The keys themselves are actually long strands of numbers and letters. The private key serves as a means to unlock your wallet and make Bitcoin transactions, and you should never give your private key to anyone. The public key is where others can send you bitcoins that will go into your wallet.
Buy Bitcoin. There are a handful of different exchange platforms that serve the purpose of allowing users to buy and sell various cryptocurrencies.
How to Store Bitcoin?
Owning Bitcoin comes with a high degree of responsibility. Leaving your Bitcoin unsecured makes it easy for a malicious third party to swoop your hard earned money. This is why it’s important you understand the variety of security solutions available. Cryptocurrency wallets are programs that store the private and public keys that are used to make blockchain transactions happen.
|Read Also: Best Cryptocurrency Wallets for 2019|
How to Trade Bitcoin?
Once you’ve got some Bitcoin, you can trade it for a variety of different altcoins. In order to do so, you need to move the amount of Bitcoin you want to trade into an exchange that supports your altcoin of choice.
In order to do this, you will need the public key of your exchange wallet. Be sure to copy and paste your address exactly as it appears and verify to ensure you’re sending it to the right address. If you deposit any tokens that aren’t BTC to this address, you will lose them; be careful.
exchanges are online platforms where users can buy, sell, and exchange other cryptocurrencies. These transactions can be done with fiat currencies or cryptocurrencies, depending on which exchange is being used. When evaluating an exchange, investors should look out for the exchange’s reputation, fees, and payment methods. Some of the most popular, well-respected exchanges include Coinbase, Bittrex, and Poloniex.
Transfer fees between tokens vary on the urgency of the transaction and type of token. For example, Bitcoin usually tends to have much higher fees than Litecoin. In high volume hours, Bitcoin fees will be much higher than usual.
|Read Also: Best Cryptocurrency Exchanges for 2019|
Most exchanges come with a live ticker chart showing the current price charts and the Bid/Ask spread. Be sure to familiarize yourself with these to understand the direction of prices. Each exchange come with different exchange fees, and it’s important you know these ahead of time.
Trading fees usually hover around between .1% to .025%, but can be significantly higher depending on the exchange. These exchange fees serve to reward the exchange for providing the service of facilitating the transaction between users and are set by the exchange.
How Bitcoin Transactions Work?
Bitcoin transactions may seem complex, but they are fundamentally easy to understand.
Remember, the blockchain is essentially just a giant ledger that keeps a record of every transaction. If Mike sends Ike a few Bitcoin, the transaction is noted with three pieces of information: the input (which Bitcoin address sent coins to Mike in the first place), the amount (let’s say 2 BTC), and the output (Ike’s public address meaning his public key).
When Mike sends BTC to Ike, he signs off on this transaction using his private key. This lets the ledger know the transaction has been approved, and that the source of the coins and the amount are legit.
|Read Also: How to Transfer Cryptocurrency|
Now, you may have been thrown off by the word “mining”. This term refers to the transaction verification process. “Miners” are people running Bitcoin mining programs on their computers or rigs. These programs run mining algorithms to solve a math problem, which is what it takes to verify the transaction. Currently, the Bitcoin method of verification is Proof-of-Work.
Miners receive transaction fees, as well as the potential to actually “mine” Bitcoin, which serves as a reward and incentive for miners.
Bitcoin Hard Fork
You may have heard of different types of Bitcoin floating around, such as Bitcoin Cash and Bitcoin Gold. While this might come off as confusing to some, think of it like a new version being released in addition to the existing one.
A “hard fork” is essentially a fork of the existing blockchain, meaning the new token considers all transactions up until the point of the fork as vali. Every following transaction on the new chain is unique to the forked currency. A hard fork isn’t backwards compatible, meaning that the new blocks/transactions cannot operate on the old version of the protocol.
|Read Also: What is a Hard Fork|
An interesting thing to note is that some exchanges and wallets support the forking by honoring people who have BTC at the time of the fork with an equal amount of the forked coin. For example, if you had 10 BTC at the time of the Bitcoin Cash fork, you’ll have a total of 10 BTC and 10 BCH once the fork has been completed.
Whenever Bitcoin hard forks with substantial support on the forking side, there is some sort of fluctuation in the price.