What is Bitcoin?
Bitcoin (BTC) is a decentralized cryptocurrency that was fashioned to be a peer-to-peer form of payment. It’s a digital currency built on a blockchain meant to provide online users with a flexible and secure method of sending money. To some people, bitcoin can be defined as a blessing, a hassle-free way to invest. The skeptics too have their definitions. Some call it a scam, a Ponzi scheme, a staggering investment or a bubble about to burst.
Bitcoin is the first altcoin to be made by a group of individuals going by the name of “Satoshi Nakamoto.” This virtual coin can be spent, invested or saved for future use. Like other digital currencies, Bitcoin too is decentralized and thus (majorly) not under scrutiny by governments or any other central authority.
As you may have noticed, the word “majorly” has been used in brackets above thus indicating some level of uncertainty. If you are an avid follower of these currencies, you may be aware that many government authorities are struggling to get all of them under scrutiny. CoinBase (which we will talk about later) is one of the biggest Bitcoin trading platforms that have, on several occasions, been asked by IRS to submit the record of its users for investigation on tax avoidance.
The road to fame
Bitcoin was invented by Satoshi Nakamoto (undisclosed programmers) in 2009 after in-depth research into cryptography. Apparently, the platform’s open-source nature meant the developer did not need to be around (and they did vanish) since the technology is run by its users (decentralization).
BTC and other cryptocurrencies are generated and verified through cryptography. Cryptography is a mathematical process that involves solving mathematical equations. It inherently blends the concepts of computer science as well. The process of coming up with new coins is called Bitcoin mining and requires bulky and powerful computers and a lot of energy.
Bitcoins rise to fame is a journey that was rife with a heck lot of challenges. In the beginning, this currency did not have value at all. It looked more like Satoshi’s plaything. Those who used it 5-6 years ago could exchange a couple of them for a pizza! There were also security concerns, bugs and hacking incidences (like the infamous Mt. Gox).
Is Bitcoin money?
Well, what exactly is money? Money is a medium of exchange, a store of wealth. Money is used in estimating the value of goods, paying debts, and accounting for work done. Anything that is regarded as money must possess the following qualities:
- Must be divisible
- Stable in value
- Easy to obtain
- Durable over time
- And trustworthy
BTC is portable, divisible, can settle debts and it’s definitely a store of wealth. Is it stable, though? Not at all. Bitcoin’s price is always on a roller coaster. If you used this coin to purchase mangoes, their price would half in the next few days, double again and perhaps retreat to the initial point. Assuming every transaction was this wildly volatile, the costs and revenues would switch sides too much making it impossible for people to cut deals.
Is Bitcoin trustworthy?
Let’s go by this; do you trust your fiat currency? Do you trust your banks and credit card companies? Has its purchasing power been constantly the same? It definitely hasn’t. Government-backed currencies suffer inflation. At times, central banks print more than the actual goods in circulation making money useless. This, in some way, is theft by those in power.
If you don’t trust your currency (especially in countries experiencing extreme inflation), Bitcoin may be trustworthy since it is decentralized. But there is a huge setback with decentralized systems; there is no one to cushion you from scams, fraud and bad behavior. The central authorities’ duty is to root out malpractice.If the referee is biased or bribed then trust is lost, and the game would be played just fine without one-provided the players are honest.
If you displace your Bitcoin wallet or password, your coins will be gone for good. Other ways trust is lost is through capital controls, paying out huge amounts in taxes (or organized crimes) counterfeit money, and identity theft. While Bitcoin is not backed up by a physical commodity like silver and gold, it’s still a true contender to be a recognized currency. However, extreme volatility and lack of trust from most individuals makes it look more of a commodity.
What value does Bitcoin have?
This is the question virtually every newbie asks. Well, Bitcoins are considered valuable in the following ways:
- Utility – you can buy goods and services using this currency particularly in places where other currencies are not accepted. Some of the companies accepting this currency are WordPress.com, Microsoft, overstock.com, Reddit, Virgin Galactic, Bloomberg.com and many more.
- Exchange value – you can trade Bitcoin for other currencies on platforms like Coinbase, Gemini, etc.
- Speculation – most people join the cryptocurrency bandwagon with the hopes that the prices of these virtual assets will increase and earn them some profits.
- Scarcity -Bitcoin’s total supply is capped at 21 million meaning its value will keep on increasing for its holders.
Bitcoin and cryptocurrency boom
The evolution of Bitcoin and its crypto cousins have been fuelled by weaknesses in modern forms of currency. The biggest challenge facing modern fiat money is centralization by governments. This means, their supply and demand are solely in the hands of central banks.
Chargebacks and reversals are also synonymous with fiat digital money. If you sell something online and send money through PayPal, Skrill or any other means, the sender will receive the product, and if they are shady, they can request a reversal. You’ll end up losing your product.
Bitcoin comes with the best security that bars reversals and chargebacks. Using private keys as an added layer of protection, users should feel completely safe when using the Bitcoin exchange whether you’re mining new Bitcoins or viewing your wallet.
Benefits of Bitcoin to both merchants and consumers
Fast transactions – Once sent, Bitcoins will take a few seconds, minutes or an hour tops to arrive in your wallet. This is fairly faster compared to other methods of sending money between two countries or continents. Today, there are many other viable alternatives for faster transactions like Ripple, Litecoin, and Raiblocks.
Low inflation – As was described before, fiat currencies tend to suffer every time the governments encounter a financial crisis. They tend to print out more money as a way to stimulate economic growth. This results in the currency losing its purchasing power. As for Bitcoin, there will only be 21 million available-ever! And every time a new coin is mined, the mathematical arithmetic needed to mine the next one keep becoming more complex. Experts believe the last Bitcoin will be mined in 2050.
Super easy to carry – Bitcoin is very easy to carry compared to government-backed currencies. Imagine carrying around one million in any currency; it’s risky. You’ll get sniped at, and your hard-earned money will disappear. Cryptocurrencies, on the other hand, can be carried around in flash disks, memory cards or even a piece of paper without ever attracting the attention of the public.
No taxation – We don’t need to be reminded how important paying taxes is but it’s freaking scary to see huge amounts of your money go into the tax man’s pockets. Sometimes they do a good job in misappropriating those funds. Any transaction we make through dollars, Euros and other government-backed currencies earns a designated tax. However, if you make purchases via Bitcoin, nothing goes into the government coffers. This may change in the future as more governments take steps to tax bitcoin.
Flexible online payments – Like Paypal, Skrill, Neteller, and bank wire, Bitcoin too can be used to facilitate online payments from the comfort of your bed. No need to visit a bank; just send your BTC to the wallet address of your client and get ready to receive your good or services. By using this means, you swerve all the personal details provision as may be needed by most online payment methods.
Minimal transaction fee – Fees and transaction costs are an integral part of most standard wire transfers; whether local or international. Cryptocurrency transactions are not monitored by any authority/middleman and therefore, are charged lowly, if not nothing. Bitcoins will be received by the other party in a matter of seconds, minutes or a couple of hours once Bitcoin miners verify the transaction. However, Bitcoin isn’t a viable option for microtransactions because the fee’s are starting to exceed the microtransaction amounts.
Concealed user identity – Bitcoin guarantees user anonymity. All transactions are discreet unless one unveils his/her personal details to the world for scrutiny. The operations are more like cash exchanges; no exchange of user data required and the transactions can never be traced back to you. Note that no two Bitcoin transactions addresses can be the same. Every business deal comes with its own unique address. In terms of anonymity, Monero goes above and beyond.
No outside meddling – One of the biggest advantages of Bitcoin is the absence of third-party interference. No bank, financial body or governments can disrupt a transaction or freeze an account. This is a strictly peer-to-peer business model that inherently weeds out intermediaries.
The cons of Bitcoin
Despite all the bells and whistles you’ve heard about Bitcoin, there is also a not-so-appealing side of it. Here are a few cons of this pack leader:
Extremely volatile – Before 2017, Bitcoin had a history of rising over several months and then slumping by 20-50% in days. Well, in 2017, Bitcoin has been climbing charts like it was racing to win the most coveted award. Since it is traded 24/7, its price is bound to change. All it takes is news about a hacking incident, impending government regulation or clampdown to bring the price downwards. Some of the major incidences that adversely affected Bitcoin’s price since its inception are Mt Gox hack (2011), China’s ban on ICOs and all cryptocurrencies (Sept 2017, Bitstamp hack ( Jan 2015), China banning institutions from accepting Bitcoin(Dec 2013) and many more.
Slowing transaction speeds – Before its fork that saw the birth of Bitcoin cash, Bitcoin’s transactions were getting slower by the day. In order to get your transaction expedited, you were expected to pay a few more coins in fees which eventually made its charges costlier than those of other cryptocurrencies. Currently, there are plans afoot to increase Bitcoin’s size on the blockchain to increase transaction speeds.
Transactions are not reversible – Unlike bank wire, Bitcoin transactions, once executed, cannot be reversed. This means if you send your coins to a wrong address, they are gone forever unless the recipient decides to send them back. There are also individuals who have reported losing their BTCs via hacking, phones getting stolen and computers getting infected by viruses.
Make sure you buy your Bitcoins using the safest wallets and research on the best methods of backing up your money so you don’t lose it.
Golden rules to observe when buying BTC
To keep yourself safe from losing your investment, observe the following rules:
- Check the sellers’ credibility – it doesn’t matter whether the transaction is happening online or offline, you need to validate the buyer’s reputation by taking a look at their profile.
- Document everything – Bitcoin transactions are untraceable. You may need document everything so that in case of fraud, you can present hard evidence.
- Wait for confirmations – when dealing with individuals, it important to wait for one confirmation at the least before dispatching payments. For large transactions, you can wait for up to 6 confirmations.
- Use escrow service when in doubt – to avoid sending your money and not getting what you paid for, use escrow service. They will hold your money until you receive what is owed.
- Keep your money away from exchanges – once you buy Bitcoins from an exchange platform, move them to a private wallet right away. Accounts get closed, frozen or hacked, and this can result in loss of ones Bitcoins.
Ways to acquire Bitcoin
There is a lot of hype, speculation, and what-have-yous doing the rounds about Bitcoin to the extent that it’s virtually impossible to read or hear about them all before you can start trading. Sure, doing your homework prior to investing is important but once you’ve read a guide like this (and already knows Bitcoin is doing great) you may be interested in knowing how one can get a pie of this disruptive technology. Here is how you can get some Bitcoins:
Mining – You can get Bitcoins as a reward through mining. Just like mining any other precious minerals, Bitcoin mining is a tedious process as it involves solving extremely complex mathematical theorems. Besides countless hours spent decoding arithmetic equations, a lot of energy is spent as well. This is actually one factor that’s making Bitcoin attract negative press.
You also need bulky and powerful computers to do his job. An ordinary computer can take a year or more just to harvest one BTC. For faster code-cracking, it’s advisable to join a pool of other minors and get the privilege to share some of the most efficient resources. Doing this will help you narrow down mining costs as well.
Buy it from Exchanges – Since Bitcoin mining is nearly impossible to newcomers, the next and most common method of getting this currency is buying it from exchange platforms like CoinBase, GDAX, Gemini, BitStamp, CoinMama, CEX.io, Localbitcoins, Bittrex, Kraken, Bitsquare, Poloniex, Coinhouse and many more. These platforms operate differently and have varying charges as well as sign up rules. You need to do a thorough research on each of them and pick the one that ticks all your boxes.
You can also buy Bitcoin from offline sellers within your region. While this is the most trustworthy method, it’s advisable to tag a friend or two alongside just in case things take a different turn. Local transactions should happen in broad daylight and far away from empty streets and corners.
Several ATMs issue out Bitcoins for cash. This method is secure and private but the fee imposed is pretty exorbitant. Some ATMs can charge as high as 20% on each purchase.
Participate in an activity – You don’t need to draw out hard cash to get started. Considering that most noobs are skeptical and would like to get their feet wet first before spending their money, doing an activity for some free bitcoins can be a relief. What are these activities?
Complete tasks on websites – Some sites reward you with very small tokens of Bitcoin every time you visit their site. You may be required to stay on the website for a designated time, click some ads, and watch some clips or anything that makes their website active. Remember, you are earning at the expense of your time; there are no freebies!
Get your income in Bitcoins – If your employer or client accepts or deals with Bitcoin, you can talk to them about getting your payments in the form of Bitcoin rather than fiat currency. You can then trade these coins for profits or “hodl” them for a long haul when the prices are sky-high.
Note: You can also get free Satoshis by playing video games, watching videos, reviewing books or doing surveys. If all this is wearisome, then set aside a small portion of your money (that which you can afford to lose) and get afoot with trading.
Getting a Bitcoin wallet
Before you can get any cryptocurrency, you need a wallet. It operates ordinary wallet only that it stores digital money. A typical wallet comprises a string of 25-36 texts that look like this: 1ExamPleofBit1AdDr3sSwV5tsUgaMf6hdxs. There are several types of wallets; cold storage, online wallets, offline types and those you install on a mobile phone, laptop or desktop and in your brain. We have an article dedicated to the best bitcoin wallets to give you more information and resources.
Setting up a wallet is as simple as downloading it on your mobile phone as an app and launching it. For desktop and laptop users, you’ll need to download the software setup and run it.
Features of the best wallets
- Able to create multiple addresses for sending, and receiving Bitcoins
- A lightweight wallet that syncs within a short time
- Stores your coins offline
- Can back up and encrypt your Bitcoins
- Simple user interface
Keeping up with the Bitcoin trend
Nothing, at the moment, is as volatile as cryptocurrencies are. A small event in the market can cause prices to spike with shocking magnitudes. Early September of 2017 is one historical moment where Bitcoin prices plunged spectacularly. When China announced it would withdraw from cryptocurrency trading and banned all ICOs, a lot of newbies went into a FUD (fear, uncertainty & doubt) investing.
They emptied their cryptocurrency wallets as prices plummeted from $5000 to somewhere near $2000 mark. By keeping abreast with market happenings, such events can help you make an informed decision. Going by the current fantastic performance of BTC, one would agree that September was the best time to “buy the dip.”
Other cryptocurrencies have come along since Bitcoin entered the mainstream. Digital currencies such as ethereum and litecoin have grown in popularity over the last few months.
Basically, every site on the internet that deals with cryptocurrencies updates their site with news of current events on this niche almost every other day. Even those platforms you sign up for wallets or for trade do provide news articles to their users so they are able to make informed decisions. Nevertheless, the simplest way to read news about Bitcoin is to search the word “Bitcoin” or “cryptocurrencies” on Google, Yahoo or Bing and utilize the “news section” to get only the recent happening in the crypto world.
Bitcoin and the Bitcoin network as a whole have undeniably gone through a lot of challenges from negative press, government threats, to attack by hackers but one thing remains crystal clear; this digital currency is the most admired and sought after besides other currencies like USD, EURO, Yen, Krona and other commodities like Gold and Silver.
According to predictions from well-known economists and financial market gurus, Bitcoin will be worth more than $40, 000 by mid next year. There are also predictions that this currency will be an accepted mode of payment for many businesses in 2018 and beyond.