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Bitcoin is global. During 2017, the price of a single Bitcoin rocketed from $963 to over $19,000. Then, as quickly as it rose, the price plummeted to less than half of that. This guide is available to download as a free PDF.
Download What Is Bitcoin? The Beginner’s Guide to Cryptocurrency now . Feel free to copy and share this with your friends and family.
Bitcoin’s immense value has some people perplexed . How is an entirely digital currency worth more than an ounce of gold? Moreover, why is there so much interest in Bitcoin?
This guide will hold your hand as you enter the world of Bitcoin and cryptocurrencies .
Want to know what mining is? Don’t understand what a wallet is? Unsure if Bitcoin is right for you? Here’s everything you need to know in one convenient article. 1. What Is Bitcoin?
Bitcoin is a distributed digital cryptocurrency. Unlike regular fiat currency, there is no central Bitcoin bank to print and regulate the flow of currency.
Bitcoin is held by users linked together by a central ledger. The ledger is a core Bitcoin feature known as the blockchain What Is Blockchain in Simple Terms and How Does It Work? What Is Blockchain in Simple Terms and How Does It Work? What is blockchain technology and how is it changing the face of the internet? We provide simple answers to your blockchain questions. Read More . The blockchain records every single transaction made using Bitcoin, validating transactions and ensuring the integrity of the network.
The idea of a distributed digital currency isn’t especially new. Bitcoin concepts were discussed in cypherpunk mailing lists long ago. Then in 2009, mysterious programmer Satoshi Nakamoto Satoshi Nakamoto Unmasking, Spotify Echo, Vine Porn, Cortana Leak [Tech News Digest] Satoshi Nakamoto Unmasking, Spotify Echo, Vine Porn, Cortana Leak [Tech News Digest] Bitcoin is (allegedly) unmasked, Spotify acquires The Echo Nest, Facebook (finally) settles on its new News Feed design, Vine bans pornography, Microsoft’s Siri-alike leaks, and LG releases the creepiest commercial of all time. Read More built the peer-to-peer distributed network, making it available to the world. Initial uptake was slow The First Bitcoin Was Mined 9 Years Ago Today The First Bitcoin Was Mined 9 Years Ago Today On January 3, 2009, a person by the name of Satoshi Nakamoto mined the first Bitcoin. And the rest, as they say, is history… Read More . The first Bitcoin transaction was for two pizzas costing 10,000 BTC (a cool $190,000,000 at the high point of 2017).
Bitcoin has since morphed from a fledgling digital currency into an asset or commodity. In fact, Bitcoin somewhat straddles the median. Its use a currency is limited, it is too volatile to be considered a solid asset, and it is traded similarly to regular stocks and shares.
Bitcoins trade in decimal places.
That means you do not have to buy an entire Bitcoin to start using the cryptocurrency. With prices for an individual Bitcoin at times reaching into the tens of thousands of dollars, there are not many who can afford to buy outright. Instead, budding users buy part of a Bitcoin.
For example, you have $1,000 and want to buy some Bitcoin. At the time of writing, $1,000 nets you 0.11 BTC. If the price of Bitcoin rises, so does the amount you have, and vice-versa when it falls.
1.1 Who Uses Bitcoin?
Bitcoin is a currency. Some owners use Bitcoin to pay for services. There are a number of online services that accept Bitcoin (and other cryptocurrencies) in place of regular cash. While Bitcoin started small, some major retailers and international companies now accept it as payment, including Microsoft, Expedia, Newegg, Overstock, and UK company CeX. Furthermore, a vast number of VPN and hosting sites accept Bitcoin.
Bitcoin has also seen heavy uptake on the so-called darknet.
Because Bitcoin is decentralized and with a little effort is also fairly anonymous, some nefarious sites use the cryptocurrency instead of fiat currency. The anonymity and decentralization mean Bitcoin is ideal for places where regular banking is an issue.
For instance, during civil unrest throughout Venezuela, citizens turned to Bitcoin as their regular currency devalued because of massive inflation. Similarly, some African nations use Bitcoin instead of local currency because of the uncertainty in price, while Bitcoin is by-and-large pegged to the US dollar.
The real answer is that anyone who wants to use Bitcoin can. They just need to buy some first.
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2 Using Bitcoin: Pros and Cons
As with most pieces of technology, there are pros and cons to using Bitcoin. I’m going list a few of each, with some short explanations as to my reasoning.
Pros to Using Bitcoin Freedom: Users can send and receive Bitcoin anywhere in the world, irrespective of local currency. Decentralized: There is no central bank to control new Bitcoin. As we’ll explore in a moment, users mine new Bitcoin using computers, meaning the users are in control of the network. Transparent: The blockchain ledger underpinning Bitcoin is available to anyone who wishes to download it ; it currently stands at over 145GB. There are, however, numerous sites that allow us to double-check transactions, while personal information remains hidden.
Privacy: While there are ways to trace Bitcoin transactions back to their source, Bitcoin is largely anonymous. In addition to privacy, Bitcoin transactions protect against identity theft and credit/debit card fraud by using only digital wallet IDs, never your actual details. Supply: There is a finite supply of Bitcoin; only 21 million Bitcoin will ever exist. Several million are already presumed irretrievably lost, increasing demand for the rest.
Meanwhile, Bitcoin is the baseline almost all other cryptocurrencies measure against. Protection: Unlike regular currency, you cannot counterfeit Bitcoin. Sure, there are scams out there to steal Bitcoins, and unscrupulous individuals will try and sell fake Bitcoin, but you cannot actually fake a Bitcoin.
Cons to Using Bitcoin Fees: In the early days, Bitcoin transaction fees were minimal. In December 2017, the average transaction fee peaked at $55, up from November’s high of $19.
Fees could continue to rise, too. While $55 is extremely high and likely involved a large sum of Bitcoin, many balk at general fees. Instability: Price instability makes Bitcoin difficult to use as currency. Many vendors are unwilling to risk their incoming payments decreasing in value by the time it processes. Unlike a regular U.S. dollar, the value of your Bitcoin could disappear overnight, leaving you with nothing (jibes at centralized currency, quantitative easing, and inflation aside).
Refunds: One of the positives of Bitcoin is payment privacy. Unfortunately, is also a downside. If you send money to the wrong Bitcoin address, there is no way to claim it back.
Similarly, if you purchase something using Bitcoin and it never arrives, there is no charge-back function. Competition: Some argue that competition is healthy for the cryptocurrency markets, and I agree. Bitcoin holds the most value and is still the most attractive investment opportunity, but other cryptocurrencies offer more in terms of privacy, security, and functionality. They cost less, and could eventually overtake Bitcoin. Unregulated: Similar to the lack of refunds, some Bitcoin-related scams 5 Common Cryptocurrency Scams and How to Avoid Them 5 Common Cryptocurrency Scams and How to Avoid Them If you’re interested in investing in the somewhat risky world of cryptocurrency, there are a few common scams you should be aware of.
Here’s how to avoid being caught out. Read More are essentially impossible to recover from. Law enforcement can do nothing once your coins are gone, other than commiserating and filing a report. Loss: It is possible to irretrievably lose Bitcoins, be that through destruction, encryption, or similar. Uptake: For most of the reasons above, Bitcoin has low uptake among businesses, and will continue to struggle for many years. In conjunction, Bitcoin is slow to process payments, processing a theoretical maximum of seven transactions per second (compared to regular banking systems like Visa that processes thousands every second). 1.3 What Is the Blockchain?
The blockchain is the revolutionary technology behind Bitcoin and other cryptocurrencies.
The Bitcoin blockchain contains details of every Bitcoin transaction, past and present, recording them as they take place. So how does it work?
Let’s use an example.
You want to send Bitcoin to your friend. When you hit the Send button, your transaction is added to a block.
When your block amasses enough transactions, it broadcasts to every connected node in the network. The nodes “mine” the block, verifying the transactions (as well as collecting transactions fees for their troubles). Once verified, the block adds to the chain, and your funds arrive with the recipient.
Digital currency is simply data.
It is ones and zeroes. One major problem for digital currencies is double spend. That is, users attempting to dupe vendors by spending the same digital currency in two locations. Blockchain technology stops that issue by requiring that the network verifies every transaction.
Once a majority of nodes confirm that the transactions in the block are unique, it is added to the blockchain. Each new block is linked to the previous to ensure a chain of accepted transaction history, thus protecting the network, users, and vendors alike. But the nodes aren’t just doing this out of the goodness of their hearts. No, there is a financial incentive to for nodes to verify the blocks.
Each block carries a reward.
The current block reward is 12.5 BTC. In 2020, the reward will halve, dropping to 6.25 BTC. Approximately five years after that, it will halve again, to 3.
125 BTC. The halving process will continue until the year 2140 when, by most estimates, the Bitcoin mining process will complete. 1.4 What Is Bitcoin Mining?
Mining is another way of referring to, and is intrinsic to, the block verification process. Every ten minutes or so, a block containing pending Bitcoin transactions releases to the network.
The block can contain thousands of individual transactions. Miners compete to verify the transactions contained in the block.
While some people say miners “solve difficult mathematical equations,” that isn’t strictly true. Transactions are verified by matching a 64-digit hexadecimal hash. The first miner to match a hash and verify 1MB of transactions is eligible for the aforementioned block reward.
This system is known as proof of work and, unfortunately for the vast majority of individuals, means it is simply impossible to solo mine Bitcoin.
But why?
Well, it takes a staggering amount of computing power to generate hashes at a high rate. To mine successfully, you need a high hash rate, in turn requiring a huge amount of electricity. This is why there are concerns about the overall power consumption of Bitcoin Bitcoin Mining Electricity Consumption: Where’s All the Power Going? Bitcoin Mining Electricity Consumption: Where’s All the Power Going? The future of Bitcoin is bright — but its energy consumption is terrible. Will Bitcoin mining really consume all of the world’s power by 2020? Read More and other cryptocurrencies. Hash rates are measured in megahashes per second (MH/s), gigahashes per second (GH/s), and terahashes per second (TH/s).
In the early days of Bitcoin, it was possible to mine using a regular CPU. Now Bitcoin mining requires specialized hardware: either high-spec GPUs contributing to a mining pool (more on this later) or an ASIC miner. Bitcoin Mining Difficulty
To stick to the mining algorithm and block halving timeframe, the Bitcoin network aims to release a new block every ten minutes. But if there are more miners, there is a higher chance of someone matching the correct hash in a shorter timeframe. That’s where mining difficulty comes into play.
As the total hash rate power increases, so does the difficulty level of the mining process.
After every 2016 blocks, the network difficulty changes. If the block discovery time is less than 10 minutes and the hash rate high, the difficulty level increases. If the block discovery process takes longer than 10 minutes, the same protocol decreases difficulty.
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5 What Is a Bitcoin Fork?
Another common Bitcoin term is fork . Unlike the fork you eat with, a cryptocurrency fork is more akin to a fork in the road . Bitcoin (and other cryptocurrency) forks take place for many reasons, but usually boil down to: Differing ideals and approaches to the original coin implementation A major issue or security fault with the technology behind the coin
Forks are also soft or hard. A hard fork typically introduces a radical change to the existing protocol, usually creating an entirely new cryptocurrency in the process.
Some major hard fork examples include: Bitcoin XT : One of the first notable hard forks, Bitcoin XT aimed to boost the Bitcoin network to 24 transactions per second by increasing the block size from 1MB to 8MB. SegWit : Seg regated Wit ness reduces the size of each Bitcoin transaction, in turn allowing more transactions per block, which allows for faster and cheaper transactions. Technically a soft fork, SegWit mobilized other developers to complete their own hard forks. Bitcoin Cash : One of the most controversial hard forks, Bitcoin Cash split from the “main” branch to protect against future changes. (Indeed, Bitcoin Cash is undergoing its own hard fork in 2018.) Bitcoin Gold : Aimed to restore mining functionality to GPUs rather than specialized mining equipment.
Certain forks have seen the price of a single Bitcoin surge as investors and speculators pile in.
Newly created Bitcoin-based currencies have no set initial value, either. 2. How to Buy Bitcoin
So now that you know the basics of Bitcoin, it is time to buy some. 2.1 Where to Buy Bitcoin?
There are several trusted and secure places to buy Bitcoin.
There are also a vast number of places that are not trusted and are thoroughly insecure. Here are the three most secure places to purchase your first Bitcoin.
Coinbase
Coinbase is one of the biggest Bitcoin currency exchanges. It brokers the exchange of the fiat currencies of 32 countries into Bitcoin, (as well as Bitcoin Cash, Ethereum, and Litecoin). In November 2017, Coinbase reported some 13 million active users. However, this was before the price of Bitcoin soared in December, allegedly adding up to 300,000 users per day at its peak.
User numbers aside, Coinbase makes purchasing Bitcoin extremely easy. All you need is your bank account details and an account.
Coinbase understandably restricts initial purchase limits until the user verifies their account using a phone number or photo identification.
Coinbase transactions are, for the most part, extremely fast. In the US and some EU countries transactions using debit or credit cards process immediately, and you’ll receive your Bitcoin instantaneously. LocalBitcoins
LocalBitcoins is a site of peer-to-peer Bitcoin vendors, spread throughout the world.
Unlike the majority of other Bitcoin/fiat currency exchanges, LocalBitcoins is decentralized, like the currency itself. Prices change as the market fluctuates, and sometimes there is a chance to buy Bitcoin at slightly lower prices than usual.
The biggest bonus to LocalBitcoins is the range of available payment methods. Most other sites restrict payments to verified bank accounts and credit cards.
LocalBitcoins allows payment using Amazon gift card codes, Western Union, PayPal, cash in person, Google Wallet, and more—so long as the seller has the option listed. LocalBitcoins is currently active in 249 countries around the globe.
In addition, you need very little personal information to purchase Bitcoin using LocalBitcoins. The website doesn’t demand heaps of information and, depending on your payment choice, only the vendor will see your account details. Gemini
Gemini is one of the most secure fiat-to-cryptocurrency exchanges available to those new to Bitcoin. One of the biggest positives to using Gemini is the FDIC-insured deposit scheme. Furthermore, Gemini is licensed and registered in New York and is operated by Bitcoin billionaires Tyler and Cameron Winklevoss (AKA the Winklevoss twins).
Gemini is well-respected throughout the crypto world.
Aside from offering insured holdings, digital assets are put into cold storage to maintain security and, unlike many other large exchanges, Gemini actually has decent customer support. Better still, if your order is big enough, Gemini will offer a price discount. Other Options for Buying Bitcoin
These three are by no means the only fiat-to-Bitcoin exchanges. Here are a few more you might consider: .
