Bitcoin Basics: Crypto for Dummies
Bitcoin has been around since 2009 and is the first form of cryptocurrency. This digital currency has several attributes that set it apart from traditional currencies. Governmental authorities, like central banks, don’t control Bitcoin.
The cryptocurrency is also decentralized, so it’s global. And, anyone with a computer can create a Bitcoin address to send or receive bitcoins in seconds. You don’t need to use personal information to set up an address.
Currently, many businesses accept bitcoin payments ranging from law firms to e-retailers to sports franchises. As a new user, you only need to understand the bitcoin basics to get started. Here’s what to know.
Table of Contents
What Is Bitcoin?
Bitcoin is a cryptocurrency which means it’s a form of digital currency or virtual currency that is created and held electronically on a computer. This type of money is entirely virtual. You can use it to purchase tons of items like regular money.
How Does Bitcoin Work?
People can use bitcoins to perform transactions with other people or merchants without needing a third-party validation, like a financial institution. Instead, payments are validated and cleared within the system via the blockchain.
A Bitcoin is basically a computer file you can store in a “digital wallet” app on a computer or smartphone. A wallet is a set of keys. There are several different forms of wallet─ from QR codes printed on paper to third-party apps offering insurance and debit cards.
Wallets can either be “hot” or “cold.” The main distinction between the two is “hot wallets” are connected to the internet, while the “cold” ones are not. Some people also store their cryptocurrency on external USB drives for safekeeping.
People can send you Bitcoins to the digital wallet and you can send bitcoins (or a portion of one) to others. Each transaction is recorded in a public list known as blockchain. This is how you can trace the Bitcoin histories and stop users from undo-ing transactions or spending coins they don’t own.
Bitcoin is a cheaper, faster payment solution. Transacting using bitcoin is convenient and you can do it at any time. An average transaction is completed in 10 minutes with lower fees. The easy peer-to-peer transfer to remittances come in at under 1%. Individuals and merchants using bitcoins are also not restricted to withdrawal limits.
The cryptocurrency features superior user protection. Bitcoin users are more protected against the downside that may occur to users of fiat currency. This includes skimming and threats of bank failure.
Bitcoin users are in full control of their assets and determine when to retrieve, transfer, and send. While it’s nearly impossible to hack Bitcoin itself, wallets can be compromised. This is why you need to practice proper storage.
Bitcoin is far more transparent than bank transactions. All bitcoin transactions are public, traceable, and permanently recorded on blockchain. The balance linked to each address is also part of the public record. This makes bitcoin transactions more transparent than most monetary systems.
Note that, while all bitcoin transactions are recorded publicly, nobody can link an “account number” to you unless you tell them. Some investors who purchase and hold bitcoin bet that once the currency matures, widespread use and more trust will follow. This will more than likely lead to an increase in Bitcoin value.
How to Buy and Use Bitcoin
Bitcoins are bought online using traditional currencies (like Japanese yen, U.S. dollars, etc.) via private sellers and Bitcoin exchanges. Some of the common Bitcoin exchanges include Coinbase and Bitstamp. However, there are several options to choose from around the world.
Some traders accept bitcoin directly from your wallet. You can pay for goods and services using digital currency. Thousands of large businesses worldwide accept bitcoin payments.
WordPress, Etsy vendors, Amazon.com, Overstock.com are just a few e-commerce businesses that accept bitcoin payments. Reputable brick and mortar retailers like Home Depot now accept Bitcoins in their stores.
Since Bitcoins have quite high prices, they can be divisible down to a “satoshi” which is 0.00000001 of one bitcoin. Several companies have created ATMs that allow users to buy bitcoin using fiat currencies like the U.S. dollar. Other companies have created debit cards that let you convert bitcoin into dollars.
Other Types of Cryptocurrencies
Ether is the virtual currency used to perform smart contracts on the Ethereum network. Unlike Bitcoin, Ethereum offers a platform for individuals to create apps, smart contracts and tokens. Like Bitcoin, Ethereum (ETH) is powered by blockchain technology. Read here if you’re wondering how does Ethereum work.
Another up and coming cryptocurrency is Ripple (XRP). This is basically the cryptocurrency created to be used by financial institutions to make transactions faster. Nicknamed the ‘bankers coins,’ many banks are currently working to adopt it.
What to Consider Before Investing In Bitcoin?
Although it’s not possible for financial institutions and governments to regulate cryptocurrencies directly, they can regulate some third-party wallet providers. This has the potential of altering the dynamics of demand and supply and even limiting their use.
Another thing to consider is your ability to tolerate personal risks. If you understand bitcoin basics, the trade can be extremely profitable. Then again, price swings happen. So, if you think you can financially and psychologically withstand these percentage swings, you should probably give it a try.
Learn About Bitcoins Basic Before Investing
In recent years, financial companies, investors, regulators and the media have been talking about bitcoin. Thanks to the increasing value of bitcoin and other cryptocurrency taxes. A growing number of companies and small businesses are accepting bitcoin payments.
Today, digital currency is growing in value and popularity. The future of cryptocurrency looks bright so it’s wise to invest but make sure you learn about the Bitcoin basics before diving headfirst.
As mentioned, bitcoin is decentralized, eliminating the need for traditional third parties like government authorities and banks to make financial transactions. If you’re new to bitcoin and investing, check out the rest of our blog for financial tips and advice.