What is Bitcoin?

What is Bitcoin?
What is Bitcoin and how does it work?

Definition: Bitcoin is a cryptocurrency, a form of electronic cash. It is a decentralized digital currency without a central bank or single administrator that can be sent from user to user on the peer-to-peer bitcoin block-chain network without the need for intermediaries.

If you want to know what is Bitcoin, how you can get it and how it can help you, without floundering into technical details, this guide is for you. It will explain how the system works, how you can use it for your profit, which scams to avoid. It will also direct you to resources that will help you store and use your first pieces of digital currency. If you are looking for something even more in detail please check out our block-chain courses on bitcoin.

What is Bitcoin in a nutshell

Small wonder that Bitcoin emerged in 2008 just after Occupy Wall Street accused big banks of misusing borrowers’ money, duping clients, rigging the system, and charging boggling fees. Bitcoin pioneers wanted to put the seller in charge, eliminate the middleman, cancel interest fees, and make transactions transparent, to hack corruption and cut fees. They created a decentralized system, where you could control your funds and know what was going on.

Bitcoin has come far in a relatively short time. All over the world, companies, from REEDS Jewelers, a large jewelry chain in the US, to a private hospital in Warsaw, Poland, accept its currency. Billion dollar businesses such as Dell, Expedia, PayPal, and Microsoft do, too. Websites promote it, publications such as Bitcoin Magazine publish its news, forums discuss cryptocurrency and trade its coins. It has its application programming interface (API), price index, and exchange rate.

Problems include thieves hacking accounts, high volatility, and transaction delays. On the other hand, people in third world countries may find Bitcoin their most reliable channel yet for giving or receiving money.

Key Metrics:

What is Bitcoin? [The Most Comprehensive Step-by-Step Guide]

Key Highlights

  • October 31, 2008: Bitcoin whitepaper published.
  • January 3, 2009: The Genesis Block is mined.
  • January 12, 2009: The first Bitcoin transaction.
  • December 16, 2009: Version 0.2 is released.
  • November 6, 2010: Market cap exceeds $1 million USD.
  • October 2011: Bitcoin forks for the first time to create Litecoin.
  • June 3, 2012: Block 181919 created with 1322 transactions. It is the largest block to-date.
  • June 2012: Coinbase launches.
  • September 27, 2012: Bitcoin Foundation is formed.
  • February 7, 2014: Mt. Gox hack.
  • June 2015: BitLicense gets established. This is one of the most significant cryptocurrency regulations.
  • August 1, 2017: Bitcoin forks again to form Bitcoin Cash.
  • August 23, 2017: SegWit gets activated.
  • September 2017: China bans BTC trading.
  • December 2017: First bitcoin futures contracts were launched by CBOE Global Markets (CBOE) and the Chicago Mercantile Exchange (CME).
  • September 2018: Cryptocurrencies collapsed 80% from their peak in January 2018, making the 2018 cryptocurrency crash worse than the Dot-com bubble’s 78% collapse.
  • November 15, 2018: Bitcoin’s market cap fell below $100 billion for the first time since October 2017.

Understanding Bitcoin – What is Bitcoin in-depth?

At its simplest, Bitcoin is either virtual currency or reference to the technology. You can make transactions by check, wiring, or cash. You can also use Bitcoin (or BTC), where you refer the purchaser to your signature, which is a long line of security code encrypted with 16 distinct symbols. The purchaser decodes the code with his smartphone to get your cryptocurrency. Put another way; cryptocurrency is an exchange of digital information that allows you to buy or sell goods and services.The transaction gains its security and trust by running on a peer-to-peer computer network that is similar to Skype, or BitTorrent, a file-sharing system.

Bitcoin Transactional properties:

1.) Irreversible: After confirmation, a transaction can‘t be reversed. By nobody. And nobody means nobody. Not you, not your bank, not the president of the United States, not Satoshi, not your miner. Nobody. If you send money, you send it. Period. No one can help you, if you sent your funds to a scammer or if a hacker stole them from your computer. There is no safety net.

2.) Pseudonymous: Neither transactions or accounts are connected to real-world identities. You receive Bitcoins on so-called addresses, which are randomly seeming chains of around 30 characters. While it is usually possible to analyze the transaction flow, it is not necessarily possible to connect the real world identity of users with those addresses.

 

3.) Fast and global: Transaction is propagated nearly instantly in the network and are confirmed in a couple of minutes. Since they happen in a global network of computers they are completely indifferent of your physical location. It doesn‘t matter if I send Bitcoin to my neighbor or to someone on the other side of the world.

4.) Secure: Bitcoin funds are locked in a public key cryptography system. Only the owner of the private key can send cryptocurrency. Strong cryptography and the magic of big numbers makes it impossible to break this scheme. A Bitcoin address is more secure than Fort Knox.

5.) Permissionless: You don‘t have to ask anybody to use cryptocurrency. It‘s just a software that everybody can download for free. After you installed it, you can receive and send Bitcoins or other cryptocurrencies. No one can prevent you. There is no gatekeeper.

Where can I find Bitcoins?

First, we would recommend you read this in-depth guide for buying Bitcoin.

You can get your first bitcoins from any of these four places.

  • A cryptocurrency exchange where you can exchange ‘regular’ coins for bitcoins, or for satoshis, which are like the BTC-type of cents. Resources:  Coinbase and Coinsquare in the US & Canada, andBitBargain UK and Bittylicious in the UK.
  • A Bitcoin ATM (or cryptocurrency exchange) where you can change bitcoins or cash for another cryptocurrency. Resources: Your best bets are BTER and CoinCorner
  • A classified service where you can find a seller who will help you trade bitcoins for cash. Resources: The definitive site isLocalBitcoins.
  • You could sell a product or service for bitcoins. Resources: Sites likePurse.

Caution! Bitcoin is notorious for scams, so before using any service look for reviews from previous customers or post your questions on the Bitcoin forum.

How does Bitcoin work?

Without getting into the technical details, Bitcoin works on a vast public ledger, also called a blockchain, where all confirmed transactions are included as so-called ‘blocks.’ As each block enters the system, it is broadcast to the peer-to-peer computer network of users for validation. In this way, all users are aware of each transaction, which prevents stealing and double-spending, where someone spends the same currency twice. The process also helps blockchain users trust the system. “Unlike traditional currencies, which are issued by central banks, Bitcoin has no central monetary authority. Instead it is underpinned by a peer-to-peer computer network made up of its users’ machines, akin to the networks that underpin BitTorrent, a file-sharing system, and Skype, an audio, video and chat service. Bitcoins are mathematically generated as the computers in this network execute difficult number-crunching tasks, a procedure known as Bitcoin “mining”. The mathematics of the Bitcoin system were set up so that it becomes progressively more difficult to “mine” Bitcoins over time, and the total number that can ever be mined is limited to around 21 million. There is therefore no way for a central bank to issue a flood of new Bitcoins and devalue those already in circulation.”

How can I store my bitcoins?

To see how the system works, imagine someone called Alice who’s trying out Bitcoins. She’d sign up for a cryptocurrency wallet to put her bitcoins in.

The Bitcoin Wallets

There are three different applications that Alice could use.

  • Full client – This is like a standalone email server that handles all aspects of the process without relying on third-party servers. Alice would control her whole transaction from beginning to end by herself. Understandably, this is not for beginners.
  • Lightweight client– This is a standalone email client that connects to a mail server for access to a mailbox. It would store Alice’s bitcoins, but it needs a third-party-owned server to access the network and make the transaction.
  • Web client – This is the opposite of “full client” and resembles webmail in that it totally relies on a third-party server. The third party replaces Alice and operates her entire transaction.

You’ll find wallets that come in five main types: Desktop, mobile, web,paper and hardware. Each of these has its advantages and disadvantages.

How do I buy and sell stuff with Bitcoins?

Here’s the funny thing with Bitcoins: there are no physical traces of them as of dollars. All you have are only records of transactions between different addresses, with balances that increase and decrease in their records that are stored on the blockchain.

To see how the process works, let’s return to Alice.

 

Example of a Bitcoin transaction

Alice wants to use her Bitcoin to buy pizza from Bob. She’d send him her private “key,” a private sequence of letters and numbers, which contains her source transaction of the coins, amount, and Bob’s digital wallet address. That “address” would be another, this time, the public sequence of letters and numbers. Bob scans the “key” with his smartphone to decode it. At the same time, Alice’s transaction is broadcast to all the other network participants (called “nodes”) on her ledger, and, approximately, ten minutes later, is confirmed, through a process of certain technical and business rules called “mining.” 

What are the advantages of Bitcoin?

The best thing about Bitcoin is that it is decentralized, which means that you can settle international deals without messing around with exchange rates and extra charges. Bitcoin is free from government interference and manipulation, so there’s no Federal Reserve System‍ to hike interest rates. It is also transparent, so you know what is happening with your money. You can start accepting bitcoins instantly, without investing money and energy into details, such as setting up a merchant account or buying credit card processing hardware. Bitcoins cannot be forged, nor can your client demand a refund.

It’s small wonder that users call Bitcoin “Money 2.0” or that Bill Gates called it “a techno tour de force.”

Tyler Winklevoss, co-creator of Facebook, summed it up when he said:

tyler-winklevoss: What is Bitcoin? A Step-By-Step Guide For Beginners

“We have elected to put our money and faith in a mathematical framework that is free of politics and human error.”

Rick Falkvinge, Founder of the Swedish Pirate party, predicted that

 

rick_falkvinge: What is Bitcoin

 

“Bitcoin will do to banks what email did to the postal industry.”

 

According to John McAfee, Founder of McAfee,

John Mcafee: What is Bitcoin

“You can’t stop things like Bitcoin. It will be everywhere and the world will have to readjust”

 

Where do I go from here?

Here are various resources that will direct you to best places for-finding wallets, stores that accept bitcoins, exchanges for trading Bitcoin, and Bitcoin news, prices, charts, guides and analysis among other information.

Bitcoin has been through several obstacles recently with the Bitcoin Cash fork and SegWit implementation. Bitcoin, over the last 11 years, has truly disrupted the world’s economy and financial systems. Having said that, this is just the beginning. The Bitcoin revolution still has a lot of miles to go. It is going to super exciting to see where we are going to go on from here.

  • 99Bitcoins – 99Bitcoins supplies video and text tutorial on how to buy Bitcoins with Paypal, Credit Card, debit card and more.
  • Bitcoin.org – Choose your Bitcoin wallet from 12 different mobile, desktop and hardware applications.
  • Coinmap – For bitcoiners who want to spend their BTC at brick-and-mortar locations, Coinmap refers you to hundreds of retailers who accept bitcoin at their physical store locations.
  • Blockchain.info – Blockchain info is the go-to place for checking transactions on the ledger. You can check how much money your wallet contains, or, for that matter, how much BTC is stored at any particular wallet address.
  • Bitnodes – Run by the Bitcoin Foundation, Bitnodes estimates and visualizes the size of the bitcoin network.
  • Wizbit – Wizbit shows all transactions and newly mined blocks in real time on an eye-catching spinning globe.
  • We Use Coins – Weusecoins.com is a list of credible exchanges for trading Bitcoins worldwide or in the U.S.
  • Buy Bitcoin Worldwide – Get help finding a Bitcoin exchange.

 

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