Bitcoin – A Step-By-Step Guide

Bitcoin – Internet fab or fad? You might have heard of it before, but it somehow slipped your mind. Or you dismantled it straight up as another scam. Until you’ve started hearing about it again in 2017. It was all over the news. On the very first day of 2017, the price of Bitcoin was just under $1,000. Ever since, the virtual coin has grown at an incredible rate. It reached $5,000. Then $10,000. And it even got to a staggering $20,000! We are, of course, talking about the price for a single coin. So the fact that you are intrigued about the mind-blowing evolution of Bitcoin should come as no surprise. The only surprise is why you haven’t gotten into it sooner. After all, it’s money that got you here in the first place. We know. You were confused. You had no idea how and where to start. We hear you. And we’re throwing a hand at you. So, first things, first…

What Is Bitcoin?

In an attempt to cut through the confusion surrounding it, it would be a good idea to have Bitcoin separated into its two main components: Bitcoin-the-token and Bitcoin-the-protocol. The first is a small sequence of code representing the proprietary rights of a digital concept. Generally speaking, Bitcoin is a digital currency used and distributed electronically. The Bitcoin protocol, on the other hand, is a distributed network used to keep a ledger of balances of the token. You will, however, find both of them are called “bitcoin”.

The protocol allows users to send payments to one another without having to go through a payment gateway or any other form of a central authority. Bitcoins are therefore not printed, but generated by computers across the planet with the help of free software. Bitcoin is the first example of today’s “cryptocurrencies” – a class of assets that features a few of the features of traditional currencies. Their verification is completed via cryptography.  

The amount of Bitcoins is limited to 21 million – this is the maximum number that can be created.

Who Are The Creators Of Bitcoin?

Bitcoin was first presented to the public almost a decade ago, in 2009, as an open-source software under the alias of Satoshi Nakamoto. The person or persons behind the alias were a programmer or a group of programmers who wanted to remain anonymous. Many rumors were started around the true identity of the Bitcoin creator, but to no avail.

At some point, Nakamoto claimed to be a 37-year-old male living in Japan. Nonetheless, some people argued his flawless use of the English language and the lack of any Japanese software labeling were proof enough to contradict him. One year after Bitcoin was introduced, Nakamoto left it in the hands of a few of the most prominent members of the Bitcoin community. The creator of the Bitcoin later named Gavin Andresen a lead developer.

According to estimates, Nakamoto owns one million Bitcoins, which is the equivalent of  approximately $3.6 billion as of September 2017.

Who Has Control Over Bitcoin?

Gavin Andresen began his “reign” over Bitcoin by focusing on its further decentralization. His main goal was for the Bitcoin to continue to exist autonomously, even if something tragic would happen to him. Most people find Bitcoin so advantageous thanks to its incredible independence from the often time dreaded banks, corporations, and world governments.

Since there isn’t a single authority than can interfere into Bitcoin transactions worldwide, there are no transaction fees involved. Each transaction is stored in a massive distributed public ledger known as the Blockchain. This ensures a high degree of transparency for each transaction. Users have total control over their finances.

How Does Bitcoin Work?

Bitcoin owners only see the amount of Bitcoins in their wallets, as well as their personal transaction results. As mentioned before, the Bitcoin network shares a public ledger called the “blockchain”. This contains every transaction that has ever been processed. All of the digital records associated to each transaction are combined into “blocks”.

If a person attempts to change even a single number or letter in a block of transactions, it will create a domino effect on the following blocks, affecting them as well. Since it is a public ledger, any fraud attempt or unintentional mistake can be immediately noticed and fixed by anyone.

The wallet of each user can accurately check the validity of every single transaction completed at some point. The authenticity of a transaction is safely guarded behind digital signatures that are tied to the sending addresses. A Bitcoin transaction may take a few minutes to process, due to the verification process. This time frame also depends on the trading platform that is being used. Each block takes around ten minutes to mine, according to the original Bitcoin protocol.

Characteristics Of Bitcoin

Bitcoin differs from fiat digital currencies in several critical aspects we are going to briefly discuss here:

Decentralization

The creator of Bitcoin had the independence of the network from any governing body at the forefront of his plan. Bitcoin was designed in such a way so that any person, business, or machine that has anything to do with its mining or transaction verification can become part of an ample network. In the unfortunate event of something happening to any part of the network, the money is designed to continue to move.

Anonymity

Banks know the credit history, spending habits, phone numbers, home addresses, and virtually everything under the sun about their clients. It’s definitely not something to bring peace of mind to any bank account owner. A Bitcoin wallet does not have to be linked to any information that can identify you as a person. There is, however, the controversy of terrorists, drug dealers, and other wrongdoers being able to thrive in the relative degree of anonymity offered by Bitcoin.

Transparency

Bitcoin is only relatively anonymous, since every transaction is promptly stored in the Blockchain. By studying a wallet address that has been used publicly, anyone will know much money is found in the wallet. And they solely have to look at the blockchain ledger for this. Nevertheless, it is still almost impossible to trace an address to a person.

So those of you who wish to remain anonymous when completing a Bitcoin transaction can remain out of the spotlight by taking a few precautions. For example, there are some wallets that throw the emphasis on opaqueness and security. You can also use several addresses and avoid transferring large amounts of money to just one wallet.

Fast Transactions

Payments are processed almost instantly via the Bitcoin network. A person on the other side of the globe could receive the money in the blink of an eye, whereas a regular bank transfer would take a few days. Bitcoins are highly portable, which means they can be easily carried and used. You can carry any sum on a flash drive in your pocket, or store it online.

Cryptocurrencies give people freedom to send and receive money with just a scan of a QR-code or a click of an online wallet. It takes little to no time, there are no outrageous fees and the money goes from person to person without any unnecessary intermediates; all you need is Internet access.

Bitcoin Cannot Be Counterfeited

You will get rid of the potential risk of being falsely accused that you never paid someone for a good or service they have provided. Once you have sent Bitcoins to a person, it is impossible to get the cryptocoins back. That is, unless the recipient wishes to send them back to you. Since all payments are guaranteed to be received, there is no room for scams and false claims.

Bitcoins Are Eternal

Since they do not exist in a physical form, they cannot be damaged in any way, like it would normally happen with coins and paper money.

How Can I Get Bitcoin?

First of all, you can buy Bitcoin. Find the coins in different exchanges, or complete transactions with Bitcoin owners using the available marketplaces. You will need to set up your own wallet for this. You can use cash, credit and debit cards, or other cyrptocurrencies to pay for your Bitcoins.

You can choose from a number of wallet options, but online wallets and software wallets you can save on your hard drive are the most common solutions. While none of them is entirely safe, you will need them to complete your purchases. You can also opt for a mobile wallet, featuring a huge storage capacity that can carry an entire blockchain. To stay better protected against potential hacker attacks or hardware failures that threaten online and software wallets, you can rely on hardware wallets and paper wallets that use two QR-codes. These codes are not stored in any digital form, which means they are not affected by standard cyber-attacks and regular hardware problems.

You can also get Bitcoin through mining, even though the process is not as simple as it was a few years ago. Back when Bitcoin was first introduced, pretty much anyone with a powerful computer was able to mine Bitcoins. Unfortunately, things have changed and this is no longer possible – or equally easy. The continuously growing popularity of the Bitcoin has stimulated large companies to start using mining-specific devices. So mining has turned into a complicated and timely process. Not to mention the amount of Bitcoins that are still available for mining is constantly decreasing at a drastic rate.

Bottom Line

The blockchain technology has the fascinating ability to completely change the way trading is done, or the way we spend. And even how we connect and interact to one another. Think of it as the dot-com boom reloaded.

Bitcoin might be the pioneer, as well as the most visible representative of the new and often times bewildering technology most of us are still getting acquainted with. But it is definitely not unique. We are talking about more than 1,600 different alternatives to it, and counting more every day. Each comes with its own goal, vision, and smart and capable team behind. Some are excellent, some are average, some are plain bad, and most will probably crash at some point. But they all have in common the desire to revolutionize the financial system, so they are worth looking into.

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