Are you wondering what is Bitcoin? You may have heard about Bitcoin on social media or even on your favorite movie or television program. The popularity of Bitcoin is growing every day and is attracting new buyers and traders alike.
What is Bitcoin? Bitcoin is a peer to peer electronic payment system, free from the control of any centralized entity or government, which makes it “decentralized.” Bitcoin allows users to exchange coins electronically amongst each other and every transaction is recorded onto a public ledger (blockchain) that is continuously updated and maintained.
How does it work and why not just stick with Visa? Well, that is something I hope to explain in this article. My goal is to make it easy to understand and I am going to attempt to do just that today. Hopefully, by the end of this guide, you will understand why Bitcoin is so useful and revolutionary.
How Did Bitcoin Start?
Let’s talk a bit about the beginnings of Bitcoin and the people responsible for its creation. You may or may not know that the person responsible for creating Bitcoin is the infamous Satoshi Nakamoto. This man or woman (or multiple people) of mystery is responsible for the creation of Bitcoin.
Satoshi was quite active in the development of Bitcoin until Satoshi decided to hand the project over to other individuals that were active in the early development stages of Bitcoin. In 2010 Satoshi faded away into the sunset. We still have no clue exactly who Satoshi Nakamoto is, but we do know that Bitcoin has thrived since its creation, and we should all be very grateful for the contribution made by Satoshi and the people that assisted him.
“The Times 03/Jan/2009 Chancellor on the brink of second bailout for banks”.
This was the first message encoded into the “Genesis Block” of Bitcoin which occurred on January 3, 2009, and represents the birth of this new technology called cryptocurrency.
The fact that Bitcoin now exists indicates that Satoshi Nakamoto decided the current financial system was a failure and we “the people” deserved an alternative. This alternative (Bitcoin) is unique when compared to the current fiat system we are all familiar with as it has a limited supply, while the US dollar has an infinite supply. Just the very existence of an alternative in itself is powerful and revolutionary. When Satoshi Nakamoto was creating BTC, he saw value in a currency that has a limited supply.
We also have a lot of communication documented showing Satoshi communicating with the developers that were helping to create Bitcoin. People like Hal Finney, Gavin Andersen, Nick Szabo, Craig Wright, Dave Kleiman, and more helped create Bitcoin along with Satoshi Nakamoto. Satoshi Nakamoto got the project up and running and mined 1 million Bitcoin before leaving the project in the hands of the developers he was working with.
The last forum post made by Satoshi was towards the end of 2010. Satoshi seemed to be afraid of being discovered thanks to the attention Wikileaks was attracting to Bitcoin. Satoshi has not made a peep since. Many people enjoy speculating over what happened, yet here we are ten years later we are no closer to the truth. Perhaps Satoshi will forever remain anonymous, which I believe is beneficial for Bitcoin. Bitcoin now belongs to the people.
How Does Bitcoin Work?
Bitcoin only exists electronically, and a Bitcoin can never leave the blockchain which is an electronic ledger that records and stores every Bitcoin transaction. With Bitcoin running on blockchain technology it eliminates the need for a bank to complete transactions between 2 people.
From your computer or smartphone, you can send money anywhere on the globe to anyone that has a Bitcoin wallet. With traditional payment methods, it can take days for a transaction to process through a bank transfer.
For example, I sent $1,000 via bank transfer to join an investment club, and it took five days or longer to process. Furthermore, Banks are also typically not available to perform these wire transfers on the weekends. Bitcoin works at any time of the day, any day of the week. You can send that same $1,000 in minutes with Bitcoin.
This alone makes Bitcoin a superior method of sending currency from point “A” to point “B”.
Bitcoin is immutable and finite. Meaning there will only ever be 21 million Bitcoins minted and no one person nor government has the authority to change or stop it. This gives Bitcoin deflationary qualities and makes it quite different than traditional currencies. A decentralized solution to inflation that is not discriminatory.
The traditional fiat currencies around the planet are inflationary. Which means they lose value over time. Bitcoin is deflationary, which means it has properties that allow it to gain value over time due to various factors and fundamentals.
Furthermore, Bitcoin utilizes a unique process called mining or “Bitcoin Mining”. These miners are responsible for maintaining the blockchain and keeping it secure. They receive transaction fees as rewards for maintaining the blockchain. Additionally, they mine for new Bitcoin, which in layman’s terms is having specialized computer equipment solving complex mathematical equations that would take a human year’s to solve. Upon completion of solving this equation or “block”, the lucky miners that solve the equation are also rewarded with a certain amount of Bitcoin.
The way miners accomplish this is through brute force and a challenging guessing game much like a lottery. The miner/miners that solve the equation correctly first receive the Bitcoin for that particular block. A block is produced every ten minutes approximately. Each block is a string of Bitcoin transactions that is added to the blockchain upon completion of the mining equation. Now that we have a general understanding of how Bitcoin works, let’s take a look at how you can obtain Bitcoin.
How Do You Buy Bitcoin?
Well now you know a bit more about Bitcoin and the rich history involved, you might be asking, “where do I pick up some of this electronic money?” Well, you are in luck because that is what I am about to cover.
Where do you buy Bitcoin? There are numerous ways to purchase Bitcoin these days. I will cover a few of the more convenient methods for newcomers. Let’s take a look at Bitcoin ATM’s first as that is actually how I first got into Bitcoin. You can find a Bitcoin ATM in many places if you live in the United States. However, places like Africa lack when it comes to Bitcoin ATM access.
The Bitcoin ATM I used made me present my identification, and with my I.D. it created a wallet to store my Bitcoin. The Bitcoin ATM I used took my picture and saved it for any discrepancies (if you lose access to the wallet they will ask you to take a picture of yourself holding your identification). Once the initial setup is completed the machine will ask you to insert cash into it, and it will convert the money directly into Bitcoin.
After I purchased the Bitcoin, it became available in less than 20 minutes. The bad thing about a Bitcoin ATM is the fact that they charge exorbitant fees (10% or more!). Even so, they are popular nonetheless.
Another method that is a bit more popular is buying it via an exchange like Coinbase. You can link your bank account or use your debit card to purchase Bitcoin directly from Coinbase. The funds can be sent from Coinbase to another exchange, or it can be stored on Coinbase. This is a straightforward method as it only takes a few clicks and you are the proud owner of some Bitcoin.
Coinbase has its own fees as well so using this method will not rid you of the annoying fees you encounter when buying Bitcoin. Coinbase is one of the most popular exchanges for newcomers. It is not an exchange for traders though. But if you are just getting your feet wet, Coinbase is something you should take a look at.
There is also what is called the over the counter (OTC) method. This is peer to peer. In this scenario, I would meet with someone and buy Bitcoin directly from them instead of through an exchange or Bitcoin ATM. There are many ways to buy Bitcoin OTC, but those that typically buy with this method are looking to buy in bulk at a discounted rate. If you are looking to buy $100 worth of Bitcoin OTC is not for you. If you want $100k worth of Bitcoin, perhaps you should consider this method.
Always exercise caution when buying Bitcoin from anyone you don’t know.
There are escrow services that hold the money until you receive the Bitcoin, and this is highly recommended if you are dealing with a stranger. This industry is impressive, but it is also crawling with scammers so you should be aware that not everyone on the internet is your friend. Remember this rule, “if it sounds too good to be true, it is too good to be true,” and you should be just fine.
How Do I Store My Bitcoin?
There are numerous ways one can store their Bitcoin. Some are very secure, and others are less secure. The different types of Bitcoin Wallets include:
1) Exchange Wallets: This wallet is provided by the exchange you are storing/trading your Bitcoin on. It is a very insecure method of storing Bitcoin.
2) CPU Wallets: A wallet that you download to your device that allows you to store Bitcoin directly on your computer/smartphone. While some consider this method more secure than an exchange wallet, it is still connected to the internet, and therefore it’s vulnerable.
3) Hardware Wallets: A small electronic wallet that connects to your computer’s USB drive and allows you to transfer Bitcoin from a hot wallet (connected to the internet) to cold storage (not connected to the internet). Nano S and Trezor are good examples.
4) Paper Wallets: A piece of paper with your key on it that keeps access to your Bitcoin in your hands as long as you treat the paper wallet like you would your PIN for your bank card.
When you buy Bitcoin, you will need a wallet to store it in. You can use several different wallets to store your Bitcoin. One of the more popular methods is storing Bitcoin on an exchange wallet. While this is quite popular, it is one of the least secure methods. If you are buying Bitcoin and you plan on holding it for a while in hopes of the price to increase you have no business storing this Bitcoin on an exchange.
An exchange wallet is considered “hot” or connected to the internet. The only reason you should store any Bitcoin on an exchange is if you are trading with it. Even if that is the case, I would still recommend keeping it as minimal as possible. Your Bitcoin is valuable, and therefore you need to understand that there are people that are constantly attempting to get their hands on your Bitcoin.
You can also use a wallet that can be downloaded to your computer or smartphone. These are typically referred to as a CPU wallet. This option is widely used as it is considered more secure than leaving crypto on an exchange.
However, it’s still not the most secure in the grand scheme of things. The wallet is on a device that connects to the internet constantly, which makes it a “hot wallet” which means it’s accessible to hackers. Any wallet connected to the internet is less secure than a wallet that is not. Wallets like Electrum and BRD are great examples of these types of wallets. You can download the CPU wallets quite easily if that is a route you wish to take.
Another option is a Trezor or Nano S cold storage wallet. This wallet is a small device that connects to the internet temporarily to receive the Bitcoin you are putting into the wallet, and once the transaction is complete you disconnect the Nano or Trezor hardware wallet, and it is then considered offline which is known as cold storage. Cold storage simply means the wallet is not connected to the internet. These devices typically cost between 60 – 150 US dollars. But the price is well worth it when you consider the security it offers.
Cold storage is one of the most secure means of storing Bitcoin, and it is also convenient. If you need to use the Bitcoin you have on your cold storage you need to move the Bitcoin from your cold storage to a hot wallet that is connected to the internet.
Another option may be considered rudimentary, but it is surprisingly secure if you are smart about it, is the paper wallet option. You can have your private key printed onto a piece of paper, and whenever you want to access the Bitcoin, you own you will need the key (alphanumeric code) to access the Bitcoin.
However, a paper wallet is only as secure as the person that is using it. If you are lazy and allow others to gain access to the paper wallet, your Bitcoin is as good as gone. There are pros and cons to using this option.
A con would be if the wallet were to get wet in a flood or a natural disaster, fire, etc. Anything can happen, so you need to understand that your investment will be gone forever if you don’t take care of the paper wallet.
A pro is the paper wallet is about the coldest a wallet can be. If you are the only one that knows where the key is you really have little to worry about. I’ve even read about some crypto enthusiasts that took things one step further by memorizing their private keys. If you ask me that is the most secure (although impractical) method. If you have a horrible memory like me, I would strongly advise sticking with a hardware wallet.
With Bitcoin wallets, you will have a public key and a private key (not with exchange wallets). The private key should be treated like the PIN for your bank card because it is the only way to access the Bitcoin you own. The public key is what you would give someone if they wanted to send you Bitcoin. Pretty simple, yet very secure.
No matter how you decide to store your Bitcoin, a wallet is a necessity. Just make sure you consider the security risks involved with the wallet you choose to store your Bitcoin in. There will always be people after your Bitcoin. You should also be aware that (Hot) Bitcoin wallets have been hacked on numerous occasions.
Can You Make Money With Bitcoin?
Making money with Bitcoin is certainly achievable. Bitcoin can be traded just like a stock. Therefore you can make money off of it just like any traditional investment. Visiting a crypto exchange would be a great way to get started. I recommend using a more reputable crypto exchange, as the smaller exchanges lack liquidity as well as security.
By using technical analysis from looking at a chart, you can make predictions based on trends and indicators. Trading involves buying some Bitcoin and selling it when you get the desired return. The length of your trade will depend on your desired profit. I suggest doing plenty of research if you want to become a master of the charts!
Trading is a fantastic way to make money with Bitcoin, but it’s not the only way. Some people simply buy Bitcoin and hold onto it long term. These people are expecting Bitcoin to give them an excellent return on their investments. Both methods are widely used, and I see advantages to both.
Another way you can make money with Bitcoin is by mining it. Picking up a mining rig may cost you a few grand but the potential you have there is enormous. This mining equipment can run 24 hours a day, seven days a week. Unlike the banks that close on certain days Bitcoin never sleeps.
With a small rig, it may take a while to get your hands on a full Bitcoin. With the price of Bitcoin on the rise again mining is gaining even more attention. Many miners I know have bragged about the profits they’ve made over the years; however, most of their success comes from careful planning and investing in mining hardware wisely.
You can also put your Bitcoin up for loans. Some services allow individuals to loan their Bitcoin to people for various purposes. Typically the person lending the BTC charges an interest rate and they make money off of Bitcoin in that fashion. It is one of the lesser-used methods to make money off of Bitcoin, but I feel like it is just not popular enough to get much attention yet.
One thing we all know is people are huge fans of borrowing money. Just look at all the loans made by banks in my lifetime (I am 36 years old) as there are billions, if not trillions wrapped up in these fiat loans.
Moreover, there is an entire industry that makes its living thanks to Bitcoin. From content providers to developers, Bitcoin has created wealth just from existing and giving these websites and writers something to focus on and monetize. When you look at Bitcoin, it’s very common only to see it as a currency, but you should also understand many people are making a living through Bitcoin.
Can You Cash Out Bitcoin?
Whenever I talk to someone interested in investing in Bitcoin the first thing they ask me is, “How do you cash out or pay bills with Bitcoin?” As a crypto enthusiast cashing out Bitcoin into fiat is considered sacrilege, however, I do understand that at this point we still need to rely on fiat for many things.
So the way you cash your Bitcoin out is pretty simple. I use Coinbase to cash Bitcoin out to fiat. My Coinbase account is connected to my Paypal account, and when I sell Bitcoin I transfer fiat to my PayPal. I then transfer from my PayPal to my bank account.
It typically takes no longer than 8 hours (weekends and holidays excluded) Coinbase also offers direct to your bank account deposits where you eliminate the entire Paypal step. But it typically takes 3-5 days if you use this method. This is among the easiest options to convert Bitcoin to fiat.
There are also Bitcoin ATM’s you can visit that offer cash for Bitcoin. Just make sure if you do sell Bitcoin back into fiat you keep track for tax purposes. This is important. Cashing out Bitcoin may be necessary at times, but I don’t recommend it.
A guy spent over ten thousand Bitcoin on a pizza around ten years ago. That pizza now costs 53 million dollars! Just remember that when you are cashing out that Bitcoin!
Are There Different Types Of Bitcoin?
Bitcoin has many competitors in the space that have many advantages and disadvantages. Litecoin is one that is very similar to Bitcoin and is attractive to many people due to the speed at which Litecoin transactions take place.
With Litecoin being faster than Bitcoin, many people use it to transfer funds from one exchange to another. Litecoin has also been around for 8 years (approximately) so it has proven itself when compared to many competitors. The one downside to buying Litecoin over Bitcoin is Litecoin lacks the liquidity that Bitcoin currently enjoys. You should consider this when investing in any of Bitcoin’s competition.
Litecoin is very similar to Bitcoin except block times are 2.5 minutes instead of 10 minutes. The supply is also higher (84 million for Litecoin vs. 21 million for Bitcoin) Litecoin uses the same code Bitcoin uses, but it’s not considered a “fork” as it started a brand new chain instead of just “forking” from Bitcoin.
You also have coins like Ethereum. This coin is much different than Bitcoin. While Bitcoin is a currency designed to be a peer to peer electronic cash exchange system, Ethereum is designed to be a platform to create “DAPPS” (Decentralized applications). You can create “DAPPS” on the Ethereum network and also employ smart contracts which are a contract that needs no third parties involved to execute. They are based on the idea that as soon as the obligation stated in the contract is done they funds automatically change hands.
This is very useful and eventually can be used from everything to writing an article on the internet to a sports bet. If you bet a team is going to win and they do, the smart contract will figure that out and dish the winnings out to the victor.
There are even some very interesting conversations in some of my circles where we discuss using cryptocurrency like Ethereum to do the majority of tedious government work that could be delegated to a smart contract system. This could eliminate the unnecessary burden of thousands of unneeded government employees while lowering taxes at the same time.
Comparing Ethereum to Bitcoin is like comparing gold coins to a smartphone. Bitcoin and Ethereum both have similarities such as they are both mined. But Ethereum is not meant to be a currency as much as it was created to create “DAPPS” and smart contracts. That does not mean there isn’t money to be made with Ethereum.
Now there are numerous “hard forks” that stem from the Bitcoin blockchain; A “hard fork” is when a cryptocurrency goes from one chain to 2 chains. A great example is that of Bitcoin and Bitcoin Cash. Some of the developers that were working on Bitcoin decided they wanted to change some of the fundamentals that Bitcoin had employed from the start. Some developers did not want to change Bitcoin at all.
This resulted in a “hard fork”. The devs that wanted to change Bitcoin created another chain from the Bitcoin blockchain. Except they added in certain changes such as 8 MB blocks instead of 1 MB blocks. This happened in mid-2017.
Bitcoin cash, for instance, utilizes bigger blocks then traditional Bitcoin does which in turn lowers transaction fees. Bitcoin Cash sacrifices decentralization for speed and lowers costs. There have been 105 forks from the original Bitcoin blockchain.
Thirty-one of those hard forks are considered historic because they are no longer in use. But 74 forks are still alive. There are currently 2100 coins (Approximate) listed on the CoinMarketCap. So there are a lot of other coins out there. These 2100 coins do everything from storing files securely, to providing a truly anonymous VPN (Virtual Private Network). The possibilities of cryptocurrency are infinite.
At the end of the day, there is only one Bitcoin. Bitcoin is a work of art. Some people like the forks and imitations that have popped up over the years, however when it’s all said and done, none of them would be here if it weren’t for Bitcoin.
Will Bitcoin Take Over The World?
Bitcoin is a universal currency that is simple and easy to use by anyone, anywhere on the globe. A currency that is not limited arbitrarily by borders has a lot of value. Having the ability to use Bitcoin in any country you visit saves you from having to change money at the airport or banks etc.
I remember visiting Scotland, and it was a royal pain having to change currency when I was running low on local money. Bitcoin solves issues like this by being a global currency that is not under the control of any centralized government. There are thousands upon thousands of places that accept Bitcoin, and the numbers are growing daily.
As far as being fungible Bitcoin is a shining example of the word. From buying a T-shirt online to sending your family members in the Philippines some funds so they can get by, Bitcoin is a one-stop-shop. It’s not only money, but it also has a lot of utility as well. The network can eliminate places like Western Union and their high fees. Western Union is already looking for a way to remain relevant in the age of Bitcoin. If you think about it, Western Union is reminiscent of taxis in the age of UBER. Bitcoin is superior in every way.
Every single day that passes is another day Bitcoin succeeds, and the network grows. With the first recorded purchase being a pizza that cost 10,000 Bitcoin at the time, Bitcoin has come a very long way as a currency.
Your Bitcoin can be as secure as you want it to be. Unlike paper money that can be physically taken from you, Bitcoin avoids situations like this by only existing electronically. If you keep your funds in cold storage (ledger wallets) you have ultimate protection over your money. This type of security is unmatched in all of human history. Not even the banks can protect your money that well. These are just a few advantages of Bitcoin over paper money.
When you send Bitcoin to someone, there’s a lot happening that the average user is unaware of that they really don’t even need to understand for it to work however what happens behind the scenes is intriguing.
The more people that start using Bitcoin, the more likely it will be a success. It still has a long way to go before it can truly compete with the likes of the US dollar, but I can foresee a bright future for Bitcoin. Just having access to an alternative over the massively inflated US dollar is powerful and revolutionary. Money is a massive part of all of our lives and we all deserve Bitcoin.