Bitcoin 101 – What It Is and Why You Should Care
You may have heard about Bitcoin and wondered what it really was. There is always a lot of news about this digital currency and especially how it rises and falls in price dramatically at times. Well, here we will give you the complete 101 on Bitcoin.
As we already mentioned, Bitcoin is a digital currency. You may think that there are actual coins available but there are not. These are just fabrications. The original intention of Bitcoin was to send payments anonymously and securely online. This is still true to a certain extent today.
A Decentralized Currency
A number of countries around the world are scared of Bitcoin. It is a totally decentralized currency not controlled by any government or centralized banks. Some countries have actually banned Bitcoin.
A major advantage that Bitcoin has over conventional fiat currencies is that it is not affected by any inflationary or deflationary measures imposed by countries. There is a limited supply of Bitcoin which increases its value – similar to gold.
The Technology Behind Bitcoin
Blockchain is the technology behind Bitcoin. This is a public ledger system that adds to a large chain of confirmed transactions which is where the name blockchain originated from. Anyone can see the entire blockchain for Bitcoin since it began in 2009. This is a lot of data and will grow even larger in the future.
With blockchain technology after verifying a financial transaction you cannot change it. It creates immutable records. This is excellent for security but not so good if you make a mistake with a Bitcoin transaction. There is no turning back after verification and confirmation.
Thousands of computers (nodes) in the blockchain network for Bitcoin validate it all of the time. This means that it is virtually impossible to hack a blockchain network as you would require more processing power than all of the computers that make up the network.
The process of verifying Bitcoin transactions falls to Bitcoin miners. These are individuals, groups, or companies that use high-powered computer equipment to solve the complex cryptographic codes needed to verify each transaction.
Bitcoin miners receive rewards for this work in the form of Bitcoins. With Bitcoins being very valuable these days, mining can be a very rewarding task. The problem is that with the creation of new Bitcoins the number of new ones available falls.
You need a great deal of computer processing power to participate in Bitcoin mining now. A powerful desktop computer is nowhere near good enough. So if you want to be a Bitcoin miner you need to invest in high spec computer equipment (and lots of it), and be prepared to run them 24/7 with the electrical costs that that brings.
Where can you get Bitcoins?
You can purchase Bitcoins in your native fiat currency e.g. US Dollar by using a cryptocurrency exchange such as Coinbase.com. There are fees involved for buying and selling as you can imagine.
A cryptocurrency wallet stores your purchased Bitcoins. The cryptocurrency exchange will provide you with an online wallet and there are other forms of Bitcoin wallet such as a desktop wallet, a paper wallet, and a hardware wallet.
The hardware wallet is the most secure because you do not leave it plugged into your computer or mobile device. An online wallet is the least secure because if you can access it online then so can hackers.