Bitcoin is a technological breakthrough that grew from the outskirts of online forums to one of the most talked about things in “fintech” (financial technology). Originally valued at cents, Bitcoin grew to a staggering value of $20,000 in the span of less than a decade – a feat that no other currency or asset was able to achieve in modern times. To learn more about this tech/financial marvel and the revolutionary technology behind it, you can check out our easy guide to Bitcoin below.
What is Bitcoin, Really?
When people say Bitcoin, they are referring to the original cryptocurrency that was released in 2009 or, perhaps, one of its offshoots. Bitcoin is basically a digital currency that relies on no central authority like a bank or financial institution and it can be used to send and receive cross-border payments on a global scale without worrying about taxes, legal restrictions, transfer fees, etc.
Any transaction of Bitcoin is recorded into a shared public ledger called the blockchain, which is consisted of “blocks” that contain records of each transaction. All transactions are verified and written down into this ledger by “miners” who use specially designed mining rigs to verify each transfer of Bitcoin and get rewarded for doing so with newly-issued Bitcoins.
However, instead of having to trust individuals with accurately doing the verifying work, the whole process is secured by the use of cryptography. Namely, transactions in Bitcoin’s blockchain are validated in blocks by miners. To solve a block, a miner has to solve a complex mathematical problem created by cryptography. Whoever solves a certain block first, gets to verify the transaction and reap the reward.
The beauty of the process is that no one can say for sure which miner will get to verify a certain transaction, so no one can really fake them. This way, the entire element of trust is taken out of the picture, like it was originally intended by its inventor, and the whole process is based on math only.
Who Invented Bitcoin?
The idea of Bitcoin was first proposed by a member of a cryptography mailing list at metzdowd.com who was identified only by the username Satoshi Nakamoto. Nakamoto posted a white paper called “Bitcoin: A Peer-to-Peer Electronic Cash System” on this mailing list in 2008 that outlined the technology and use of Bitcoin and later released the cryptocurrency to the cryptography community.
To this day, nobody knows for certain who Nakamoto is. It can be a man, woman, or a collective of developers hiding behind the username. The mysterious inventor’s identity has been the subject of speculation for years and many early supporters of the cryptocurrency like Hal Finney, Craig Wright, and Nick Szabo have been suspected to be Nakamoto.
How Does Bitcoin Differ from Other Currencies and Electronic Cash Transactions?
Bitcoin isn’t like any other currency or asset. Even if you take away the obvious difference of Bitcoin not being governed by a central institution, Bitcoin still has some notable differences with other currencies and electronic cash transactions.
First of all, Bitcoin transactions are irreversible. If you ever make a mistake and send Bitcoin to a wrong Bitcoin address, it will be lost forever and there’s nothing you can do about it. Even Satoshi Nakamoto himself couldn’t reverse a transaction.
Secondly, Bitcoin can provide you some level of anonymity. In most Bitcoin services and sites that accept it, like Bitcoin Casinos, for example, no one will be able to verify your identity if you use Bitcoin to send money or receive it. If you use a Visa card or your bank account, on the other hand, you will be leaving a trail that can be directly linked to your cards and accounts, which are registered in your name.
And last but not least, Bitcoin can be used to send fast payments to anywhere across the globe, without having to wait for processing times, getting approval from your bank, or paying premium international fees. The same holds true for receiving payments in Bitcoin from anyone.
Where Can I Buy/Sell Bitcoin?
Initially, Bitcoin could only be acquired if you mined it yourself or if you bought it/received it from people who mined it. Mining is still an option today, but unlike the early days, it would take a considerable financial investment into specialized computer hardware to acquire it that way. The more obvious and less time-consuming choice would be to buy it from other holders of the cryptocurrency.
One of the most widely used marketplaces for buying Bitcoin are cryptocurrency exchanges. Major Bitcoin exchanges have thousands of registered buyers/sellers and they let you use special “orders” to automatically buy and sell the cryptocurrency at a specified price or the best available one. However, they also bring some disadvantage to the buyer, especially those who prefer to stay anonymous.
Namely, most Bitcoin exchanges will ask you to verify your identity before they allow you to use “fiat” money (traditional currencies like the Pound, Dollar, etc.) to purchase coins. Furthermore, most Bitcoin exchanges only take a limited number of payment options like credit/debit cards and bank transfers, which might not be the most convenient way of funding for most people.
P2P Marketplaces and In-Person Buying
Another way to buy Bitcoin would be to use a P2P (Peer-to-Peer) marketplace to find a suitable seller and purchase your coins. P2P marketplaces are basically advertisement services that let you post an ad for selling/buying Bitcoin and then specify how you want the purchase process to be conducted and the payment methods you want to use.
P2P marketplaces let you use almost any form of payment, be it a credit card, PayPal account, e-wallet, or a gift card from Amazon. They also let you find local sellers and arrange a buy in-person where you can pay with cash without getting your identity verified. However, if you do buy in-person, make sure to always do it in a public place and learn beforehand how the process should work.
Where Do I Store It?
Bitcoin is stored in virtual wallets, which basically come in two types: offline (cold) wallets and online (hot) wallets. Offline wallets are hardware devices that you can use to keep your Bitcoin in with no access to the internet, for better protection. If you don’t want to make your own hardware wallet, you can buy one with advanced protection from a seller who designs them like Trezor. Online wallets, on the other hand, can be provided by online wallet services, installed via mobile apps, and more.
Since keeping your Bitcoin in a “hot” wallet involves risks of getting hacked, most security experts will advise you to keep a larger amount of Bitcoin (if you have it) in a hardware wallet, which is more expensive. For everyday use, however, it is better that you transfer some small amount (mBTC) to a mobile wallet app or an online wallet that you can use to pay for items wherever you are.