• bitcoin
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    New to Bitcoin? Here is What You Need to Know to Get Started

    You order a pizza. You pay the delivery boy in cash, and everyone is happy. This simple transaction is possible because of several factors:

    • There is a complete transfer of value; you can’t pay twice using the same bills.
    • You don’t need a third party to verify the transaction.
    • The transaction can be tracked and recorded easily.
    • The supply of currency is limited and regulated by authorities.

    Forms of value exchange take many forms, including cowrie shells and even rocks. However, digital currency such as Bitcoin is a different ball game altogether. It’s worth learning how Bitcoin transactions work in more depth, but for now, this guide will touch on what Bitcoin actually is and how it enables the effective transfer of money digitally.

    Origin of Bitcoin

    Shortly after the market crash of 2008, Bitcoin’s mysterious founder Satoshi Nakamoto released the Bitcoin Whitepaper. The paper set out a blockchain-based system of decentralised cash transfer based on a peer-to-peer network.

    The timing was significant since Satoshi wanted to create a financial system that was outside the purview of any regulatory authority such as banks or government authorities.  That presented unique challenges:

    • The system would have to be trustless. That is, two strangers online would have to be able to transact with the system without the need for a trusted third-party
    • Given how vulnerable digital systems are, the system would have to be foolproof. It couldn’t have people creating “money” out of thin air
    • Protected against double-spending. That means users shouldn’t be able to simply “copy” their money or use the same money to pay for things twice.
    • The ability to transcend the many issues associated with geographical borders and financial jurisdictions

    Satoshi relied on three novel technologies to solve these problems, at the bottom of which is pure math. If you haven’t read our piece on what is blockchain, now would be a good time to do so to gain some foundational knowledge.

    Basics of Bitcoin Technology

    The word “Bitcoin” has two meanings. First, there’s the Bitcoin digital token that can be transferred electronically as a form of payment. The second one refers to the Bitcoin Protocol or underlying technology that powers the network.

    Think about what a transaction is once again. If you’re paying for a $15 pizza, your wallet balance reduces by $15 while the delivery boy’s balance increases by $15. The delivery boy can’t claim that you didn’t pay because there is physical evidence that you did. You don’t need any witnesses or a third party to affirm the transaction.

    If this were a digital transaction, the virtual nature of the currency works through the exchange of transaction data. You have three entities: your wallets as the sender, the recipient’s wallet, as well as the token of value exchange. In this case, that token is a digital block of data.

    This block of data subtracts $15 from your digital wallet and adds $15 to the recipient. It is also timestamped and contains other relevant information such as a unique hash that connects it to the rest of the Bitcoin blockchain.

    This transaction has to be verified before it can be added to the rest of the blockchain. Powerful computers perform the complex calculations necessary to create a new block—that is the process of mining.

    How Does Bitcoin Get Its Value?

    I’m sure you have wondered how a digital token such as Bitcoin gains its value.

    If one Bitcoin token is essentially a block of transactional data, how did it become worth $63,000 at its peak? That is accomplished by associating it with valuable resources like electricity.

    The process of hashing and authenticating new data blocks was made incredibly difficult through the use of complex mathematical functions. The energy and computing resources required to do this imparts value to the data blocks created.

    In the Bitcoin ecosystem, the computer/node/user that first performs this calculation is rewarded with a percentage of the transaction fee. This system incentivises users in the network to participate actively in the creation and verification of new transactions in the ecosystem.

    Peer to Peer Network

    Bitcoin relies on a network of users (peers) to work, stay secure, and be self-regulating. In true decentralised fashion, the source code for the Bitcoin Protocol is open-sourced, which means anyone can inspect and improve the system.

    More importantly, each of the peers on the interlinked network gets to participate in approving transactions. Think of it this way: a fraudster would need to take control of a majority of the nodes in the network before authorising transactions. This is not practical or feasible in many cases, especially in a network like Bitcoin that has millions of active users.

    Public Ledger

    To prevent other users from falsifying transaction information and effectively creating money out of thin air, there needs to be a system of record-keeping. Since there is no central authority for monitoring, Satoshi’s framework gives this capacity to everyone in the network.

    Each data block with transaction information is a record by itself, and the whole chain of all the transactions that ever happened on the network form a blockchain ledger. Each node on the same Bitcoin network has a copy of this ledger so that it can compare and independently verify any new transaction that takes place.

    In other words, initiating a transaction starts a “proposal” to add a new data block to the chain. Each node does independent calculations using its own copy of the ledger. If a majority of the nodes agree that the transaction is legitimate, a new block is added to the chain and the transfer is effected.

    In the case of Bitcoin, this whole process takes about 10 minutes. Because of the mining fee, nodes on the network have an incentive to perform the work required for verification and to produce these new tokens as the case might be.

    Bitcoin Information You Should Know

    With the technicalities out of the way, let’s learn something even more fun.

    • Transacting in Bitcoin is completely anonymous. The transaction data is cryptographically hashed, leaving only a complex string of characters as the sole identifier
    • There will only ever be 21 million Bitcoins created. Currently, only about 5 million remain to be mined
    • Bitcoin has intrinsic value due to the cost of resources required to solve the cryptographic puzzles required to create new tokens
    • Once Bitcoin was accepted by the community, it became a practical form of digital currency.
    • Bitcoin isn’t the only cryptocurrency, but it was the first and still the most popular. Others include Ethereum, Tether, and the Binance Coin. BTC currently accounts for 46% of the industry, which itself is valued at over $2 trillion
    • Bitcoin isn’t just a form of currency. It is a programmable platform where the transactional data block can be codified by the buyer and seller. Other cryptocurrencies such as Ethereum allow the use of conditional smart contracts for even more versatile transactional capability
    • Bitcoin is a legitimate commodity that you can trade-in in the US as well as in many other countries of the world
    • Over 100,000 merchants and big businesses currently accept Bitcoin as a form of payment. El Salvador recently made it legal tender in the country
    • If you lose your Bitcoin, forget your wallet password, or send them to the wrong person, they are unrecoverable.

    How to Use in Bitcoin: Wallets, Trading, and Transacting

    Our “Bitcoin for beginners” guide wouldn’t be complete without showing you how to get involved. However, be aware that the cryptocurrency market is completely unregulated. If you lose your money in the market, there are no redress options available.

    Secondly, the value of Bitcoins and other digital assets fluctuates wildly. If you choose to trade in and with Bitcoin, be prepared to lose your whole investment. Nothing in this guide is to be taken as investment or legal advice.

    With that, you should know that owning and transacting with Bitcoin is now as easy as opening a Paypal account. All you need is a digital wallet to get started.

    1. Open a digital wallet with a service such as Coinbase or org. The wallet is a secure location where you can store your digital currency and is also necessary for trading.
    2. Using your bank or card, buy Bitcoin from a reputable crypto exchange such as Coinbase or Coinmama
    3. From there, you can earn more Bitcoins either by buying more, getting paid in BTC, or trading.
    4. Transferring your Bitcoin, simply use the “Send” options provided by your wallet provider.

    Bitcoin FAQs

    Can I convert Bitcoin to cash?

    Yes. Just like stocks in the stock market, you can sell your Bitcoins to other users and get fiat currency (like USD). There are also financial institutions that can “convert” your Bitcoin into cash and withdraw your money from an ATM. The smartest way is to use a popular exchange with good security such as Coinbase.

    How much is Bitcoin worth?

    The value of Bitcoin has been fluctuating wildly over the years. At the time of writing, its dollar value was more than $33,000. Its first value was $0 and a fraction of a cent after a year. As it gets more popular and becomes widely adopted, the price of Bitcoin will likely continue to rise.

    How do you invest in Bitcoin?

    There are two ways to earn money from Bitcoin. The first is by trading in BTC by buying when prices are low and selling when they’re high. The second is a buy and hold strategy where you buy BTC on a long-term basis and wait for a phenomenal price increase.

    How many Bitcoins exist?

    Satoshi had capped the total number of Bitcoins that can exist at 21 million. At the time of writing, 18,740,806.25 coins had been mined already. It becomes progressively harder to mine new Bitcoins, which is one way to protect it from inflation and other issues.

    How do you mine Bitcoins?

    Mining Bitcoins works in two ways. The most common is to verify and authorise new transactions for the commissions. The second is mining new Bitcoins, which pays 6.25BTC per new block mined. Both methods require significant computing power and electricity to execute the complex cryptographic functions involved, which is how Bitcoin gains its intrinsic value.

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