Bitcoin and cryptocurrency has been around for more than a decade, but not everyone understands it entirely. In this article, Ezdefi.com will provide an overview about Bitcoin, everything you need to know about this cryptocurrency.
What is Bitcoin?
Bitcoin is a cryptocurrency that has been around since 2008. Similar to other traditional currencies like Euros or Dollars, it can be used to pay for goods and services. However, Bitcoin is decentralized, which means it is not controlled by the government or bank. Also, it is digital currency which is traded online and tracked by blockchains, so you won’t see any physical Bitcoin or Bitcoin bill. In addition, Bitcoin is Pseudo-Anonymous, it is not tied to your personal information.
The story of Bitcoin started from a paper discussing how this cryptocurrency could work by someone with the pseudonym “Satoshi Nakamoto” in 2008. Then a year later, Bitcoin started being traded and mined.
The reason why people are so interested in Bitcoin is because it doesn’t include middlemen and banks with a long list of fees. Also, it doesn’t use your name or personal information in transactions, so your identity will be secure. However, Bitcoin is not entirely anonymous. It can be tracked by government agencies or talented hackers. Bitcoin transactions are randomly made through the peer-to-peer network. When hackers figure out how to connect multiple nodes to the network, they can collect data from them to know where the transaction came from.
How is Bitcoin created?
Bitcoin can be made by mining. The process is similar to digging for gold online. Unlike traditional currencies which are printed and distributed by the government, Bitcoin doesn’t have a central regulator, so not everyone can mine it. To mine Bitcoin, miners need to use a special software to solve math problems. If they solve them correctly, they will get a certain number of Bitcoins.
The amount of Bitcoins available in cyberspace is around 21 million. And you need to make your computer come up with a combination of 64 digits. So it is not easy for a person to make a Bitcoin. Therefore, there have been more and more “mining pools” where groups split their computing power to solve the puzzle. The results afterwards will be divided based on the contribution of each group. Even when you work in groups, mining Bitcoin does not always make you rich because the amount of Bitcoin mined might not be worth the amount you spend on specialized computer equipment.
If you can not mine Bitcoin, you can buy it. Before using your cash, debit or credit cards to buy Bitcoin, you need to create a bitcoin “wallet,” where you store Bitcoins. It is also where your wallet ID is derived from.
What can Bitcoin be used for?
Similar to any traditional currency, Bitcoin can be used to purchase well-natured goods and services. There are some sites that allow payments in Bitcoin, such as Microsoft and some airline sites.
You can also turn your bitcoins into cash via gift cards. If you live in the US, you can use Gyft, eGifter, and GiftCardZen at Amazon, Walmart, and Target. Those usages of Bitcoin are legal.
However, many people are mining bitcoins and then trade them for traditional currency or operate exchanges. These are illegal acts. Also, the most common use of bitcoins is to purchase things on the dark web such as drugs and gambling.
Why is Bitcoin so expensive?
The price of Bitcoin fluctuates wildly. Bitcoin reached its highest price of all time at $19,783 two years ago. At the moment, a single bitcoin is worth $9,227 US dollars. As we mentioned above, Bitcoin has a limited amount, and it is said that there will be no more Bitcoin created after 2040. Therefore, the demand for Bitcoin is extremely high.
In addition, Bitcoin is widely accepted for online payments in recent years. So it is unlikely that Bitcoin’s price would drop in the future. Furthermore, Bitcoin is said to be bought by governments and reserved as gold. That is another reason that keeps its price so high.
Where to store Bitcoin?
As mentioned earlier, you need to establish a Bitcoin wallet to store this cryptocurrency. There are many options for your bitcoin wallet. It can be a software wallet on your computer’s hard drive or you can create an online, web-based service. Another option is a ‘vault’ service that protects your bitcoins offline.
With the first two options, there might be more drawbacks. For example, if you have a software wallet, you need to back up your computer regularly. Online services are ideal for everyday users if they don’t need complete anonymity. However, if you use an online service, you might be attacked by hackers.
Just like notes on your physical wallet that you carry everyday, your Bitcoins will also be in danger if you don’t store them in a safe place. Getting a Bitcoin wallet is one of the most secure ways to store and use Bitcoin. There are some big companies that offer Bitcoin storage devices such as Ledger with its secure wallet named Ledger Nano S.
Things you should know about Bitcoin transactions
Because of its potential, many people want to own Bitcoin. But before investing in this cryptocurrency, make sure you consider these things:
Firstly, it costs a lot of money to mine Bitcoin. If you want to mine Bitcoin, you need to buy a software which costs a couple of thousands dollars.
Secondly, buying Bitcoin is not the same with investing in the stock market, and having Bitcoin is not the same with having cash in the bank. Bitcoin is not regulated by a third party like Wall Street, so it is quite risky and scary.
Thirdly, if you still want to buy Bitcoin and hold onto it as a type of investment, make sure to just spend the money that you are willing to lose. In addition, when buying Bitcoin, you need to check the reputation of the exchanges. And do not buy all of the Bitcoins in one trade. It is wiser to divide the amount and buy every month. Because the price of Bitcoin fluctuates, this ensures that you buy with a higher price.