A Beginner’s Complete Bitcoin Guide
Unless you’ve been living under a rock the past few years, you’ve most likely heard of cryptocurrency, and more specifically, bitcoin.
Bitcoin is a digital currency that was created in 2009. It adheres to the ideas set out in a whitepaper by a mysterious person by the name of Satoshi Nakamoto. Nobody knows who Nakamoto is or if he is one or multiple people.
The most attractive aspect of bitcoin is that it’s decentralized. There is no governing body that controls the monetary supply of bitcoin.
Bitcoin is a cryptocurrency and doesn’t exist in physical form. In this bitcoin guide, we’ll walk you through everything that you need to know about the digital currency. So keep on reading for more!
Why Use Bitcoin?
There are several advantages to using bitcoin. First, you have the ability to buy goods and services anonymously. You can also make international payments easily and cheaply because this currency isn’t tied to any country or laws.
A small business might like Bitcoin because there are no credit card fees involved.
Many people also buy bitcoin as a speculative investment. This means that they buy bitcoin for one price and hope that it will go up in value over time.
Who Is Satoshi Nakamoto?
As if bitcoin wasn’t fascinating enough, the story behind the cryptocurrency has also captivated people all over the world. The name associated with the person or people who released the first bitcoin whitepaper is Satoshi Nakamoto.
Since then, people have claimed to be Nakamoto or have suggested individuals who they think could be him. There is a likely chance, however, that Nakamoto is actually composed of multiple computer programmers acting together.
Many people in the crypto community believe that Nakamoto is based in England, since they tend to post online during normal business hours Greenwich Mean Time.
Because of how disruptive bitcoin is, and how disruptive it can become, it makes sense why the founders of crypto would want to remain anonymous.
And as the original miner of bitcoin, Satoshi might have more than one million bitcoins at their disposal.
The system of bitcoin is made up of a collection of computers. These machines run the bitcoin code, mine for new bitcoins, and store the system’s blockchain. You can think of blockchain as a collection of blocks and there is a collection of transactions inside each block.
All of the machines that run the blockchain have the same list of transactions and blocks and they can transparently see the new blocks that are filled with new bitcoin transactions. This means that nobody can cheat the system and make it seem like they have more bitcoins in their wallet than they actually do.
Any person can see these transactions taking place in real-time, whether they have a computer that mines bitcoin or not. In order for someone to pull off a bitcoin deceit, they would need to control more than half of all of the computing power that makes up Bitcoin.
This means that they would need to take control of thousands of machines all over the world, many of which are heavily guarded.
Even if an attack did happen, the bitcoin miners could just go to a new blockchain.
Bitcoin balances are kept using private and public “keys.” These are long strings of letters and numbers that are linked through the encryption algorithm that was used to make them.
The public key is similar to a bank account number. It acts as the address which is published to the world and can be used to receive bitcoins from other people.
Your private key is like an ATM PIN. You should be the only one who has access to this key because it’s what allows you to use your bitcoins.
You should not confuse the bitcoin key with the bitcoin wallet. Your wallet can be a digital or physical device that facilitates the trading of bitcoin. It’s what allows you to track your coins.
It should be noted that bitcoins are never actually “stored” in a wallet. They are actually stored on the blockchain itself.
Bitcoin is one of the original digital currencies to use peer-to-peer technology to facilitate instant transactions. The companies and people who run the governing computing power (the miners) are in charge of processing the transactions on the blockchain and are motivated by rewards and transaction fees paid in bitcoin.
The more transactions you process, the more bitcoin you earn. The miners are like a decentralized authority that enforces the credibility of bitcoin’s network.
There is a limited number of total bitcoins that can be mined and most of them have already been unearthed. This is one of the main aspects that separates bitcoin from fiat currency.
With a centralized banking system, the money is released at a rate that matches the growth in goods. This is in order to achieve price stability.
With something like bitcoin, the release is set ahead of time in the algorithm and can’t be changed. In a few years, all of the bitcoins will have been mined.
You might think that bitcoin mining sounds like a pretty nice gig. You get to use your computer to solve math problems and you get free bitcoins in return. However, it’s not that easy.
When you mine bitcoin, you need to solve computationally difficult puzzles. You then discover a new block, which is added to the blockchain.
When you mine bitcoin, you add and verify transaction records across the system. For people who add blocks to the blockchain, they will be rewarded with some bitcoin tokens.
The reward is halved every 210,000 blocks. In 2009, you would have received fifty new bitcoins for adding a new block. In 2020, you would have received around six bitcoins.
Bitcoin miners invest in heavy-duty computer equipment which they run around the clock.
All kinds of hardware can be used to mine bitcoin. Certain powerful computer chips and graphic processing units (GPUs) can be utilized to help expedite the process.
How to Buy Bitcoin
There are a lot of bitcoin advocates who think that cryptocurrency will be ubiquitous in the future. Many people who support bitcoin feel that it facilitates a much speedier and cheaper payment system for transactions across the world.
While it’s not backed by any central bank or government, bitcoin can be exchanged for trading currencies. In fact, its exchange rate against the dollar is what attracts a lot of potential traders and investors who like to bet on currencies.
One of the biggest reasons for the boom of digital currencies like bitcoin is because they can act as a strong alternative to national fiat currencies and standard commodities like gold.
In 2014, the IRS noted that all digital currencies, including bitcoins, would be taxed as property instead of as currency. So the losses or gains from bitcoins that are held as capital will be realized as capital losses or gains.
Bitcoins that are held as inventory will incur normal losses or gains. The sale of bitcoins that you bought from another person or mined yourself, or the use of bitcoins to buy services and products, are examples of transactions that the government can tax.
As with all other kinds of assets, the idea of buying low and selling high should be applied to bitcoins. The best way to get more of the currency is by buying with a bitcoin exchange.
However, there are also many other ways to own and earn bitcoins.
Choosing an Exchange
When you sign up for a cryptocurrency exchange, you will be able to hold, sell, and buy cryptocurrency. It’s usually best to use an exchange that lets users withdraw their money to their own personal wallets for safer storage. There are a lot of brokerage platforms and exchanges that don’t allow this, however.
Some exchanges will let you remain anonymous. They won’t require you to enter any personal information. An exchange like this is usually decentralized, so there is no central point of governance.
Basically, these kinds of exchanges don’t have a CEO and they’re much harder to track down if you have legal issues.
While criminals prefer to use these kinds of exchanges, so do political dissidents and refugees. The most popular exchanges, however, are not decentralized. They are structured more like standard corporations.
When you’re creating an account on a crypto exchange, it’s important that you utilize safe internet practices. This means that you should use a password that is unique and long and you should also make use of two-factor authentication.
Types of Risks Associated With Bitcoin Investing
Bitcoin wasn’t designed to be a normal equity investment and you can’t buy shares of it. However, some speculative investors are drawn to the currency’s volatility, especially because it has spiked in value a number of times over the years.
Many people choose to buy bitcoin as an investment instead of using it as payment.
Digital currency is still in its infancy and bitcoin doesn’t have a long-term track record. Investing in bitcoins is one of the riskiest investments that you could make. But it can also be extremely lucrative.
Most people who own and use bitcoins have not earned their tokens by mining them. Instead, they sell and buy bitcoins on crypto exchanges. These exchanges could end up getting hacked, or suffering from glitches and malware.
If a criminal gains access to a person’s computer hard drive and steals their private encryption key, they can easily transfer the stolen bitcoins to a different account.
By taking your computer off the internet, or writing down your key instead of storing it on your computer, you can more easily protect your digital wallet.
Hackers can also attack bitcoin exchanges. This allows them to access thousands of accounts and wallets.
The bitcoin community learned this the hard way when one popular bitcoin exchange, Mt. Gox, had to close down after millions of dollars worth of bitcoins were stolen in 2014.
All bitcoin transactions are irreversible and permanent. It’s like dealing with cash. It’s not like when you are a victim of credit card fraud and can be reimbursed.
Once the money has left your account, you likely won’t be able to get it back.
Easy to Lose
There are numerous horror stories that you can find online about people who accidentally threw out the hard drive that contained their private key. In fact, one man in England accidentally trashed several hundred million dollars worth of bitcoins.
This isn’t just embarrassing but incredibly upsetting and can lead to a lot of distress.
With that said, there are some bitcoin recovery services that you can use to recover lost bitcoins in certain situations.
The Importance of Using This Beginner’s Complete Bitcoin Guide
Hopefully, after reading that above bitcoin guide, you now have a better idea of what bitcoin is and how it works. As we can see, there are a lot of reasons to take part in the bitcoin revolution. However, there are also a lot of potential risks, as well.
Because of this, it’s important that you understand why you’re getting involved in bitcoin and find out how you can take part as safely as possible.
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