what is bitcoin

What is Bitcoin [A Beginner’s Guide to Bitcoin]

(Last Updated On: July 29, 2019)

In the last few years, Bitcoin is one of the most influential things around the financial world. The reasons like Brexit, demonetization in India etc gave it the opportunity to grow like a beast. If you see the historical graph of Bitcoin then you can easily observe that dramatic growth driven by the major economic changes.

Moreover, the Bitcoin world is full of excitement and curiosity. Even today many of us don’t know what is Bitcoin and how does it work? On the other hand, thousands of traders and investors are already skyrocketing their investment through Bitcoin and other Cryptocurrencies.

In 2009 when Bitcoin was released who knew that cryptocurrency would be one of the biggest investment platforms? Often we read in the news that people who fortuitously purchased bitcoins in its infant period and then become sudden millionaires.

Unbelievable but true. Right? That’s the reason behind the excitement and curiosity of people for Bitcoin.

Well, it’s not too late. Trade Analysts says that investing in Bitcoins could give you a huge benefit during 2019-2022.

So, here is the Bitcoin beginner’s guide, where you will learn all the basic stuff related to Bitcoin. These things can help you understand Bitcoin before investing.

The volatility of Bitcoin makes it much more profitable from other tradings platforms like oil and forex. Again, this volatility could ruin the market in no time. So if you play your card well you could get a huge benefit from it.

Benefits of Bitcoin

There are several benefits of Bitcoins. Here I will go through some of them.

High Return on Investment

As you often read that many fortuitous people are becoming a millionaire, you can be one of them by investing in Bitcoins. With High ROI it’s one of the best options for investment today.

Cross-border money-transfer

where Bitcoin will save your hard money.

Let me explain how?

When you transfer money internationally you use services like Paypal, Skrill, Payoneer, Western union money transfer etc. These institutions charge you a big chunk of money in the name of remittance (Transfer fee) as well as currency exchange. With Bitcoins, you can save that remittance fee which is sometimes between 2% to 10%.

Suppose you want to transfer $1000 and the remittance fee is 5% then you have to pay $50. By sending you money in Bitcoins you can save a huge percentage of remittance fee.

Unlike fiat money (US Dollars, Euro etc) Bitcoins and other cryptocurrencies are not regulated by any government so the transfer fee is much lower than other options. Because independent of any corporate/government monopoly the fee is much lower then fiat money transfer.

You just need an internet connected device to transfer your money in the form of Bitcoins. Do you know, transferring any amount of Bitcoins internationally will cost only $2-3 or less?

Anonymous Transaction

Bitcoin transactions are anonymous where only you and the receiver know about the transaction. As Bitcoin is independent of any governing body in the world and fully decentralised by Blockchain technology, the transactions are done in full anonymous mode.

No fear of theft and robbery

Nobody can steal or rob your money if its in Bitcoin format. As Bitcoin is a digital currency, nobody can steal or rob this money from you. You can use online as well as offline wallets to keep it away from the visible world. We will know more about wallets in this guide later.

Note: With the latest information and useful guides, this blog will help you on the way to success in Bitcoins. So, hit the subscribe button to get notified for every new post.

Well, ready to join the crypto-world?

Let’s Begin…

What is Bitcoin?

First introduced to the world in 2009 Bitcoin is released as open-source software. It is credited as the world’s first cryptocurrency. Bitcoin and other cryptocurrencies have not physical existence. They are well defined as a digital currency that only exists electronically.

Bitcoin is a decentralised currency which means it is independent of any country, authority or political institution and available for anyone who has an internet connection.

An organised and simple process works behind Bitcoin where Bitcoin holders can transfer it via a peer-to-peer network. The whole transferring process is tracked in “Blockchain” a giant ledger which records every bitcoin transaction ever made. Each block in a blockchain is made of the data structure as shown in this video >  encrypted Merkle Trees

These data structures are used to trace the fraud or corrupted files. If a file is corrupt or fraudulent in Blockchain it prevents from damaging the rest of the ledger data.

Bitcoin does not rely on a government to print new notes. Instead, the blockchain network made for the Bitcoins handles all the data related to Bitcoins such as when bitcoins are made and how many are produced. Blockchain network also ensures the transactions are accurate keeps track of the location of the bitcoins in the network.

Just as the price of fiat currency depends on the gold stock available in the government’s treasure, the price of Bitcoins depends upon the number of Bitcoins existed in the Blockchain network.

Here’s Bitcoin mining comes into place.

What is Bitcoin Mining?

Just as countries mine (or Buy) gold to increase the stock, Bitcoins and other cryptocurrencies are also mined. But its totally different from traditional mining.

It is digital mining which needs computational power of the computer and ultimately electric energy.

Let me clear it.

In Bitcoin mining, the miner (computer) is being served unsolved blocks (puzzles) by the blockchain. When the mining computer solves that block by using the computational power, it will be rewarded by Bitcoins.

Seems very easy?

Well, actually not. Because The total supply to ever will be created is capped at 21 million bitcoins where 17 million of them are already mined. Now you can imagine how much computational power we need to mine Bitcoins today. The mining difficulty rate for Bitcoin is so high today.

That’s the reason behind that so much price of Bitcoins.

Now let me explain in detail how Bitcoin works?

How Bitcoin works?

There is a ruthless verification process which works behind the whole mechanism of Blockchain network. You can tell it Bitcoin’s most appealing feature.

The constant verification process minimizes the risk of fraud in the network. As you know that Bitcoin is decentralised,  miners which you can tell volunteers, work constantly verifying and updating the blockchain. When a specific amount of transactions are verified, the block is solved and miners rewarded by Bitcoins. After then another block is added to the Blockchain and business continues.

Bitcoin Transaction Explained

It’s not as difficult as you think. We are already doing a similar kind of transactions in our daily life using net banking, debit/credit cards, UPI apps and other online payment solutions.

For example, you want to buy a coffee. You go to a Bitcoin enabled cafe and pay with Bitcoins by using Bitcoin wallet in your mobile. You just need the Wallet address of the coffee shop owner or a QR code of the wallet which you can find in your wallet app.

Now just scan the QR code or write down the Wallet address of the coffee shop owner and send payment in Bitcoins.

That’s it.

How to Store Your Bitcoins: Bitcoin Wallets

ow you already know that Bitcoins are stored in crypto wallets, its time to know the whole process of storing Bitcoins in Wallets.

First, you need to be aware of some useful definitions/terms before jump into storing cryptos.

  1. Exchange platforms – If you have traded in forex then you would be familiar with crypto exchanges. Exchanges are the platforms from where you can buy BItcoins and other cryptocurrencies by paying dollars and other fiat currencies. You can also exchange other cryptocurrencies with Bitcoins
  2. Wallets – Wallets are just like banks where you store your money. But apart from traditional banks crypto wallets provide more freedom. Such as you can buy a hardware wallet like LEDGER WALLET and save your Bitcoins offline in that Pan drive type device. Or you can also use online wallet platforms which can be accessed from anywhere in the world through the internet.
  3. Public Cryptographic Key – Public cryptographic key or Wallet address is used to receive money(Bitcoins) from others. It’s just like a bank account number which is needed to receive money in an account.
  4. Private Cryptographic Key or Private key – Private cryptographic key is a safeguard for your Bitcoins which when someone has access, can transfer (steal) your cryptocurrencies.

Now you are aware of the term used in Bitcoin transactions, let us discuss Bitcoin wallet better.

There are five types of Bitcoin Wallets,

  1. Exchange platform Wallets
  2. Wallet platforms (online)
  3. Hardware Wallets (Offline)
  4. Cold storages.
  5. Paper Wallets

Exchange Platform Wallets – Exchange platforms are used to buy/sell Bitcoins and other cryptocurrencies. To buy/sell you have provided with temporary wallets inside the platform where all the cryptocurrencies are saved after buy/sell. Some exchanges do not have wallets though most of them have their own.

After the trade, you can transfer that money to your own wallets whether its hardware wallet or any online wallet platform.

Note: Do not save your money in exchange wallets as they are not as much secure as dedicated wallet platforms. After every trade, immediately transfer your Bitcoins to your Wallets or you could lose your money.

In 2014 Tokyo-based MtGox crypto exchange hacked and over $350 million suddenly disappeared from the platform. It does not mean that Bitcoins have vanished but someone had stolen those Bitcoins from the platform just like a bank robbery.

Online Wallet Platforms – Online wallet platforms are internet based wallet providers where you can save your Bitcoins on their server. These wallet platforms are extremely secure and it’s impossible to hack their server. When you create an account with those platforms you have been provided by the wallet address and a private key.

The wallet address or public key is used to revive Bitcoins in your wallet and the private key is used as a safeguard for your wallet.

You need to protect the private key or your wallet can be hacked. However, these wallet platforms such as Coinbase and Exodus are extremely secure if you need extra security then go for Hardware wallets.

Hardware Wallets – A hardware wallet is a USB device where you can save your Bitcoins and other cryptocurrencies. There are two companies which provide hardware wallets – Ledger and Trezor.

You can save your crypto money in these offline hardware wallets for extra security. As these wallets are not directly connected to the internet, the chance of theft is minimised to the level of impossible.

Cold storages – These wallets are used by cryptocurrency exchanges who time to time need a huge amount of currency to run the trade seamlessly. Cold storages are similar to hardware wallets which are saved in offline computer systems and time to time used when the exchange goes out of stock.

Cold storages are also used by the influential Bitcoin holders called whales who own a huge amount of Bitcoins. they cold store their Bitcoins for a certain amount of time and release them whenever they want to influence the market price. I will write a whole article on Bitcoin influencers in future which can help you to forecast the price of the Bitcoin for maximum benefit.

Well, those are the four types of Bitcoin wallets. In my opinion, the most secure wallet is Hardware Wallet. It needs some extra cash to buy it but if you want to start your career in Bitcoins then you need at least one.

Try Ledger Nano Hardware Wallet

Paper Wallets – paper wallets are non-other then keys written in a paper for a backup. But I personally do not recommend you to write the keys on paper as it is risky when goes in the wrong hands. You could lose your coins if someone knows the keys.

How does Bitcoin help us? Why Should You Use it?

By trade analysts and even governments, Bitcoin is considered as a strong alternative to the fiat currencies. It’s going to become our future in the monetary world.

There is a verity of reasons why Bitcoin is hailed as the future of the world and why you should use it?

  • Decentralised nature gives power back to the people – Do you remember the biggest financial crisis of this millennium? It’s 2008 when that financial crisis happened which threw a big impact on the world economy. Year after than Bitcoin was born which drew the attraction of people with no time. Bitcoin won the hearts of those people who viewed the government with suspicion. The decentralised nature gave the power to the Bitcoin at that time. And then Bitcoin skyrocketed. The freedom from the government rules and policies made it heaven for investors.
  • Freedom – The cross-border freedom make it the most favourable currency for those who don’t want to pay huge fees and extended bank delays for the transactions.
  • Privacy and Security – As Bitcoin transaction is not tied to one’s personal information the identity of the users aren’t as exposed to threats which is very common term today called “Identity Theft“.
  • Low Transaction Fees – For money exchange, we have to pay a large chunk of money as an exchange fee, bank fee etc. But for exchanging cryptos you just pay a little commission which is very less as compared to the fee taken by the big companies like Paypal etc.

These are just a few benefits of using Bitcoins. The actual list of benefits is fairly big.

Well, have I convinced you to buy your first lot of Bitcoins?

If yes then its time to explore some markets where you can buy BItcoins.

How to Buy Bitcoins?

In early days there were a lot of difficulties in finding a trustworthy place to buy the cryptocurrencies. But with the evolution and increased demand, numerous new companies have born to help us easily purchasing Bitcoins and other cryptocurrencies.

There is an endless list of cryptocurrency exchanges funded by venture capitalists where you can buy Bitcoins in exchange for fiat currencies or other cryptocurrencies. But what I use is,

Binance

Located in Shanghai, Binance is one of the most trustable cryptocurrency exchange. According to Wikipedia, Binance is considered as the biggest cryptocurrency exchange in the world in terms of trading volume. You can buy and sell 100 different cryptocurrencies in the Binance platform.

Its also provides separate online wallet facility for Bitcoin holders.

Join Binance

Changelly

It’s the second crypto exchange which I always recommend to the readers. Changelly has attracted over 2M registered users from around the world and earned a good reputation among users.

It’s born in 2015 and since then it’s growing like a beast. Today its monthly turnover of around 60K BTC.

Join Changelly

Disadvantages of Bitcoin

Though Bitcoin is full of advantages it does still pose some significant disadvantages which I think you need to know before using this money.

Grey Legal Area – Since its a decentralized currency and no any government has poses it, its not legal in many countries. Governments don’t want to lose their hard taxes that’s the main reason Bitcoin is not legal in many countries. Due to the decentralization, Bitcoin is used in trading illegal goods and services. So it’s considered as an illegal currency in many countries. But the fact is, countries like the United States and China have invested in it at some capacity.

And the biggest fact is, governments are unable to criminalize Bitcoin.

Hacking of exchanges – We have discussed exchange hacks above. The biggest exchange hack was 2014 Tokyo-based MtGox crypto exchange hack with over $350 hacked in a sudden. Today exchanges are much more secure but the problem is still there. The truth is, exchanges are open for peoples and can be hacked still.

Liquidity – It’s a fact that Liquidity of Bitcoins is much more than fiat currencies. However, there are very few chances that Bitcoin’s price would plummet but it can happen. As investors continue to invest in the Bitcoin market the risk of liquidity is negligible as you can see always be a buyer for Bitcoins waiting in a cue.

Volatility – As it is a decentralised currency, there is no backbone which takes care of its price. All depends upon the whales (market capitalists). they have the ability to affect the price of Bitcoin by buying and selling them in a large amount. When you see the historical graph of the Bitcoin price. you can see what am I saying.

Lack of adoption – Due to the volatility of Bitcoin, many businesses are not ready to adopt Bitcoin as a form of payment. However, in future with Increased consumer adoption and price stability, it can be an alternative currency for daily payments.

lack of awareness – there is another disadvantage of Bitcoin is people are not aware of this kind of currency and avoid to use it which limit it within internet freaks. We need to spread the awareness to make it an alternative to the fiat currencies.

What is the History of Bitcoin?

Bitcoin is invented by Satoshi Nakamoto in 2009. Satoshi claims to be living in Japan and born on April 5th, 1975.  But there are many other speculations about Satoshi including he is actually either group of programmers or an individual programmer. many say that that group of programmers scattered around the united states and Europe.

Nakamoto has created the first blockchain for Bitcoins and he is also known as the first person who solved the double spending problem. Satoshi Nakamoto is a mystery as no one claimed on the Identity of Nakamoto.

But even after that mystery, Bitcoin became the most costly crypto coin and continue to increase its popularity among the individuals, businesses, and even governments.

Here is the historical graph of Bitcoin which itself is the evidence of that increasing popularity over time.

Credit: 99Bitcoins

here in this graph, you can clearly see that the price was skyrocketed after May 17. When we observe the early days of Bitcoin we can see that the early adopters of this currency were technical people like programmers. But with time, not technical and little tech savvy people also adopted Bitcoins and the popularity increased.

The popularity fueled the chain reaction and on May 17 the price of Bitcoin Boomed. After then it’s continuously increasing.

Bitcoin for Beginners: Common Words

To start with Bitcoin you need to know some common words that you encounter in everyday life when dealing with Bitcoin.

  • Bitcoin Address
  • Bit
  • Block
  • Blockchain
  • BTC/XBT
  • Hashrate
  • Double Spend
  • Confirmation
  • Cryptography
  • Private Key
  • Mining
  • P2p
  • Wallet (Hardware, Software, Mobile wallet)

Bitcoin Terms You Should Remember

  • Satoshi: Sub-unit of Bitcoin. 1 bitcoin (BTC) = 100 000 000 Satoshi
  • Altcoins: Alternative cryptocurrencies other than Bitcoin. Like Ethereum, Litecoin, Monero, etc. Read Top 10 Cryptocurrencies of The Future
  • Bitcoin: Represents the concept of Bitcoins when we talk about it. Note: First letter is capital here.
  • bitcoin: Represents the unit of Bitcoin. Here “b” is not capitalised.
  • BTC: Short form of Bitcoin commonly used in exchanges.
  • Mining: The digital mining process for Bitcoins where computer’s computational power is used to mine Bitcoins.

Useful Bitcoin Resources

Here are some useful resources related to Bitcoin which can help newbies to grow.

Conclusion

Bitcoin is still growing and considered as a young currency. Still, it is adopted by millions of people and the number is growing day by day. In the near future, the Bitcoin market will continue to grow as more people learn about its fundamental technology.

I think the future of Bitcoin and other major cryptocurrencies is bright and one will invest in those get a good ROI. The success of Bitcoin reflects in the government steps that many governing bodies are adopting Bitcoins as well as launching their own cryptocurrencies like Lapo coin by the Swiss government.

Bitcoin will change the future by heavily influence the fiat-based world.

Here I want to say just three words.

“Cryptos are coming”

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