Cryptocurrency for Dummies: A Beginner’s Guide to Bitcoins
If you have been reading newspapers or magazines from time to time over the last few years, you must have come across such terms as “bitcoin” or “blockchain”. However, it is even more likely that you have not only heard about it but also made some first experiences in the field of cryptocurrency. Whatever your level of knowledge and awareness on the topic is, we will try to explain “what is bitcoin” and how to operate with it in the most simple but clear way.
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What is Cryptocurrency?
To begin with, let us define one of the most used umbrella terms in the field, namely cryptocurrency. This term stands for a virtual currency that is created with cryptography enabling its security. If this sounds puzzling enough, the simplest way to look at it would be as digital money created with the help of code and computers. Given that many such currencies are based on blockchain technology, it is also fair to say that this currency is absolutely organic, meaning not issued by any central authority or body.
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The concept of digital currency is so thought-provoking since it is absolutely decentralized and secure. These two features are enabled through the blockchain technology. One could explain this invention as literally a chain of blocks, where chain represents a public database and blocks stand for the pieces of digital information. This information is a unique feature of the system as it consists of all the transactions that have ever happened, providing a very secure structure for the ledger. In the end, it means that hackers will not be able to break it or hack it.
A Brief History of Bitcoin
This currency probably had the most dramatic ups and downs in its rather short history of just 11 years. It all started in 2008 when the whole world was preoccupied with the financial and economic crisis. That year one of the most breakthrough papers called “Bitocin – A Peer to Peer Electronic Cash System” was published by some mysterious person with the fake name Satoshi Nakamoto.
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After that paper, the software was made public, and the era of mining bitcoin officially began. Obviously, at the very beginning of this phenomenon, the price of one BTC was ridiculously low. There are numerous crazy stories of people paying 10,000 BTCs for only 2 pizzas. However, as years passed by, the popularity of the currency was increasing and reached its climax in 2017 with one BTC valued more than $10,000.
There were also some major events in the period from its inception to the year 2017, which marked the history of bitcoin. Namely, emergence of other currencies like Ether as well as Initial Coin Offering platforms. Although the reaction of numerous governments was rather harsh towards such fundraising platforms, they have shaped the direction for the whole crypto-world. Nowadays, the bitcoin value is extremely volatile and subject to constant changes. Nevertheless, an overall trendline is moving upward.
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Now, let us look at some must-know facts about the digital currency in question. One of the most basic things to know about BTC is that its supply is limited to 21 million coins. Moreover, the more tokens are out there, the more difficult it becomes to produce them. Another astonishing fact is that the price of bitcoin is not controlled by any authorities and is not backed by anything. You can buy bitcoin without any major legal barriers nowadays in a large number of countries and places.
If you are wondering how to buy bitcoin, the answer to this question is also pretty straightforward – through a specially designated exchange platform. To do so, you will have to create a digital BTC wallet on one of the respective websites. Then you are free to choose the method of payment ranging from a credit card to bank transfer. Once the transaction is conducted, you will receive the n amount of the currency to the digital wallet. It is essential to remember that they are not “stored” in your wallet but only accessible through the security key. Given its digital nature, these currencies are not stored anywhere.
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What Does “Mining” Means?
Although it has become very easy to purchase the currency, it has always been much more fun actually to create it through the so-called “mining”. There are many questions bothering enthusiasts in the field nowadays: is bitcoin mining profitable, is bitcoin mining worth it, how to start bitcoin mining, and how to mine bitcoin? Although it is rather difficult to give a yes or no answer, we will try to explain the intricacies underlying bitcoin mining.
To begin with, mining means solving a complex math problem on a high-power computer. The problem is so complex that is it is merely possible to solve it at the computer, and the ones who manage to do it are usually the lucky ones. With enough power and persistence, of course, impossible is nothing. However, nowadays, to extract one BTC, the amount of effort and energy is times larger than it was in the first years of the software.
To start this exciting but very demanding activity, one would usually need very powerful hardware to be able to operate at such a level of complexity. Even with the most powerful ones, it may take months to extract a 1 coin out of the blockchain. Given the volatility of the currency, mining is definitely not the most profitable approach for the short-term benefit. However, keeping in mind the limited number of this virtual medium of exchange it could pay off significantly in the long run.
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Bitcoin vs Dollar
As we all are used to using the dollar as the main payment medium, the question of how is bitcoin used comes across very often. The main differentiating point here is that the dollar is a physical currency issued by the Federal Reserve Bank of the USA, whereas bitcoin is a publicly owned asset, in its way. The dollar has gone through numerous transformations from being backed with gold to having fiat money status nowadays. Up to these days, it remains one of the most trusted currencies nowadays.
This, however, might as well change with the rise of digital currencies, which are 100% secure and decentralized. Nevertheless, it is not a case in our days, and the only thing left is to exchange bitcoin to USD and vice versa and thus being able to profit from the price shifts. To give a bit of context, the bitcoin value today stands at 8,550 US dollars.
Is it secure?
For those wondering “is bitcoin safe enough to use in daily life”, the answer is yes. The technology behind it requires minimum personal data from you to make a transaction. Moreover, once such a transaction is conducted, a check-back is simply impossible due to the system architecture.
Why Do People Want Bitcoins?
People are so amazed and fascinated by BTCs because they give certain freedom of action when it comes to payments. Furthermore, given the price swings of the currency, one can gain some profits by selling or buying coins at the right moment in time. As we all know that once all of the bitcoins are to be mined, it is also interesting to see what would happen to the market cap then. As even with 1 BTC you could become a millionaire.