You may have heard about Bitcoin (digital currency) and wondered what it really was. There is always news about this digital currency. 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 physical coins available, but there are not. If you see a picture of a coin is just a fabrication. The original intention of Bitcoin was to send digital payments anonymously and securely online. This is still true to a certain extent today.
A Decentralized Currency
Several countries around the world are scared of this new digital currency. It is a totally decentralized currency not controlled by any governments or centralized banks. Some countries in the world have actually banned Bitcoin.
The significant advantage over paper money is that it is not affected by any country’s manipulative measures. There is a limited supply of Bitcoin, which increases its value – similar to gold.
The Technology Behind Bitcoin
Blockchain is the technology behind the digital currency. It is a public ledger system that adds to a large chain of confirmed transactions, where the name blockchain originated. 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 any 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. You would require more processing power than all of the computers that make up the network.
The process of verifying digital currency transactions falls to the 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 precious these days, mining can be an enriching task. The problem is that with the creation of new coins, the number of new one’s available falls.
You need a great deal of computer processing power to participate in digital currency 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 specific computer equipment (and lots of it) and be prepared to run them 24/7 concerning the electrical costs.
Where can you get Bitcoins?
You can purchase Bitcoins in your native fiat currency, e.g., US Dollar, using a cryptocurrency exchange such as Coinbase.com. There are fees involved in buying and selling, as you can imagine.
A cryptocurrency wallet stores your purchased coins digitally. The cryptocurrency exchange will provide you with an online wallet for your coins. There are other Bitcoin wallets, such as a desktop wallet, a paper wallet, and a hardware wallet. Always do your due diligence before using any digital wallet you find on the internet.
The hardware wallet is the most secure Bitcoin storage because you do not leave it plugged into your computer or mobile device. An online wallet is the least safe because if you can access it online, hackers can so.