Bitcoin is a worldwide cryptocurrency and digital payment system called the first decentralized digital currency, as the system works without a central repository or single administrator. It was invented by an unknown person or group of people under the name Satoshi Nakamoto and released as open-source software in 2009. The system is peer-to-peer, and transactions take place between users directly, without an intermediary. These transactions are verified by network nodes and recorded in a public distributed ledger called a blockchain.
A Step-By-Step Guide To Bitcoin For Beginners
What is Bitcoin?
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.
Where can I find Bitcoins?
First, we would recommend you read this in-depth guide to buying Bitcoin.
To get started quickly, 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. Resource: Binance.
- 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 is LocalBitcoins.
- A broker where you can hold a speculative position on a currency pair like BTC:USD to leverage your returns with trading. Resource: ThinkMarkets
Here are the top three exchanges where you can buy Bitcoin:
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.
How can I store my bitcoins?
There are three different applications that you could use.
- Full client – This is a like a standalone email server that handles all aspects of the process without relying on third-party servers. You can control whole transactions from beginning to end by yourself. 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 stores your 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.
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 like 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.
Example of a Bitcoin transaction:
Person A wants to use Bitcoin to buy pizza from Person B. Person A send their private “key,” a private sequence of letters and numbers, which contains the source transaction of the coins, amount, and Person B’s digital wallet address. That “address” would be another, this time, the public sequence of letters and numbers. Person B scans the “key” with their smartphone to decode it. At the same time, Person A’s transaction is broadcast to all the other network participants (called “nodes”) on their ledger, and, approximately, ten minutes later, is confirmed, through a process of certain technical and business rules called “mining.” This “mining” process gives Person B a score to know whether or not to proceed with Person A’s transaction.
What is Mining?
Mining, or processing, keep the Bitcoin process secure by chronologically adding new transactions (or blocks) to the chain and keeping them in the queue. Blocks are chopped off as each transaction is finalized, codes decoded, and bitcoins passed or exchanged.
Miners can also generate new bitcoins by using special software to solve cryptographic problems. This provides a smart way to issue the currency and also provides an incentive for people to mine.
The reward is agreed-upon by everyone in the network but is generally 12.5 bitcoins as well as the fees paid by users sending transactions. To prevent inflation and to keep the system manageable, there can be no more than a fixed total number of 21 million bitcoins (or BTCs) in circulation by the year 2040, so the “puzzle” gets increasingly harder to solve.
What do I need to know to protect my Bitcoins?
Here are four pieces of advice that will help your bitcoins go further:
- As you’d do with a regular wallet, only store small amounts of bitcoins on your computer, mobile, or server for everyday uses, and keep the remaining part of your funds in a safer environment.
- Backup your wallet on a regular basis and encrypt your wallet or smartphone with a strong password to protect it from thieves (although, unfortunately, not against keylogging hardware or software).
- Store some of your bitcoins in an offline wallet disconnected from your network for added security. Think of this as a bank, while you, generally, keep only some of your money in your wallet.
- Update your software. For added protection, use Bitcoins’ multi-signature feature that allows a transaction to require multiple independent approvals to be spent.
Spending some time on these steps can save your money.
We recommend the Nano Ledger S – Hardware Wallet
Nano Ledger S is just as secure as the other two hardware wallets. It is popular because of its relatively low price of $65 compared to its competitors. Being smaller than KeepKey, it is more portable and easier to carry around. It is a hardware wallet that comes at a very competitive price.
What else do I need to know?
Protect your address: Although your user identity behind your address remains anonymous, Bitcoin is the most public form of transaction with anyone on the network seeing your balances and log of transactions. This is one reason why you should change Bitcoin addresses with each transaction and safeguard your address. You can also use multiple wallets for different purposes so that your balance and transaction history remain private from those who send you money.
Your confirmation score: As said, you receive a confirmation score of about 10 minutes before you make your purchase. Different wallets have their own reading.
Government taxes and regulations: Government and local municipalities require you to pay income, sales, payroll, and capital gains taxes on anything that is valuable – and that includes bitcoins. The legal status of Bitcoin varies from country to country, with some still banning its use. Regulations also vary with each state. In fact, as of 2016, New York state is the only state with a bitcoin rule, commonly referred to as a BitLicense. Zero is the least with the number 3 being the most reliable for average bitcoin transfers. If you’re sending or paying for, something valuable, wait until you, at least, receive a 6.
What are the disadvantages of Bitcoin?
Bitcoin got off on the wrong foot by claiming an apocryphal person (or persons), Satoshi Nakamoto as its founder. Nakamoto has never been found.
Regarding more practical concerns, hacking and scams are the norms. They happen at least once a week and are getting more sophisticated. Bitcoin’s software complexity and the volatility of its currency dissuade many people from using it, while its transactions are frustratingly slow. You’ll have to wait at least ten minutes for your network to approve the transaction. Recently, some Reddit users reported waiting more than one hour for their transactions to be confirmed.
Scams to watch out for
The four most typical Bitcoin scams are Ponzi schemes, mining scams, scam wallets and fraudulent exchanges.
- Ponzi Scams: Ponzi scams, or high-yield investment programs, hook you with higher interest than the prevailing market rate (e.g. 1-2% interest per day) while redirecting your money to the thief’s wallet. They also tend to duck and emerge under different names in order to protect themselves. Keep away from companies that give you Bitcoin addresses for incoming payments rather than the common payment processors such as BitPay or Coinbase.
- Bitcoin Mining Scams: These companies will offer to mine outrageous amounts of bitcoin for you. You’ll have to pay them. That’s the last you’ll see of your money (with no bitcoins to show for it, either).
- Bitcoin Exchange Scams: Bitcoin Exchange Scams offer features that the typical bitcoin wallets don’t offer, such as PayPal/Credit Card processing, or better exchange rates. Needless to say, these scams leave you in the hang while they syphon your dollars.
- Bitcoin Wallet Scams: Bitcoin scam wallets are similar to online wallets – with a difference. They’ll ask you for your money. If robbers like the amount, that’s the last you’ll see of your deposit. The address, in other words, leads to them, rather than to you.
Of all of these, wallet scams are the most popular with scammers managing to pinch millions.
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.
Top 3 Brokers To Trade Bitcoin