As word continues to spread, more and more people want to know about Bitcoin and how it works. Of course, despite the fact that Bitcoin has been around for more than a decade now, it remains a mysterious concept to millions and even billions of people. The concept of digital currency is not as straightforward as many people like to make it seem. For those who have never tried to know the mechanics of currencies, how they are brought into the economy, and how transactions take place, Bitcoin is nothing more than a mystery.
However, you cannot deny the fact that millions of people around the globe are looking for opportunities to trade Bitcoin or at least buy it to make money from it. However, Bitcoin should not be taken as only a method of making money. There is much more that this technology has done for humans and everyone needs to understand that before they use it. So, if you have been wondering what Bitcoin and how it works, here is your definitive guide XTRgate.org will explain in the simplest manner what Bitcoin is all about.
Understanding the Concept of Cryptocurrencies
Before we even get into the details of Bitcoin, we have to understand the importance of cryptocurrencies. After all, Bitcoin is nothing more than a single cryptocurrency out of thousands that are in the economy right now. However, there should be no doubt in your mind that this is the biggest and the best currency out there. So, what was the need of creating cryptocurrencies in the first place? Let’s take a look at a few points that will help you understand.
● Anonymity Matters
When you have a lot of money in your account, you do not want people to know about it. Let’s say you have to bring $100,000 from the bank to your house (let’s just imagine that for a moment). Do you think you are going to take measures to hide this money as perfectly as possible? Of course, you would want to hide the money so no one can notice it. At the same time, you might even hire a guard for an hour to protect you as you travel from the bank to your house. But here is the interesting part. When you use fiat currencies, more entities know about the transaction than you would like to know.
So, when you deposit money in your bank, your bank knows about the money. The person who deposits the money in your account for you knows about your money. Perhaps, even the guard sitting inside the bank knows that you have brought in a lot of money in a black bag. After that, the money gets transferred to the person who you want to send the money to. In this process, payment processors know about the money being transferred. In short, your government, federal bank, local bank, etc. all know about the money you are transferring.
On the other hand, no one knows that you transferred some money to someone when you use Bitcoin. You use your private wallet to transfer money, pay a small transaction fee and the money gets transferred to another person who has a cryptocurrency wallet. You and the person who has received the money are the only parties who know about this transaction.
● Money Matters More
Sit down some day and draw an illustration of how different banks are involved in a transaction. For example, when you transfer money through your bank to your companion in another country, the money takes five to six jumps. First, it gets deposited in your bank that charges you service fees for keeping your money. After that, the payment processor you are using charges you money for their services. Later on, it is the central bank of your country that gets to know about this transaction and charges a fee on that. The money then enters the other country where you have sent it. The same process repeats there in reverse.
Every entity that’s involved in the transaction takes its cut. These are called service fees. But why do you have to pay to so many entities? Is the technology really that old that six different entities have to be involved in completing a transaction? That’s counterproductive at best. However, that’s the reality of the world when you transfer money from one country to another. Do keep in mind, though, that the bank is only changing digits in its system and the same happens in the other country. The cash that you deposit never leaves the bank where you deposit it.
When you transfer money through a cryptocurrency, you have to a pay that’s so small you can simply forget about it. Just to give you an example to make you understand the extent of your savings, if the bank charges you $10 for a particular service, the same service will cost you $1 when you use Bitcoin.
● Decentralization Matters
That’s probably the most important part that you need to know when using Bitcoin or any other digital coin. When you use a digital coin, all of the information is stored on a decentralized system. When you transfer money through fiat currency, your bank keeps record of everything. If your bank finds anything suspicious about your transaction, it can freeze your account, even if you have not done anything wrong. That’s not the case when you use cryptocurrencies. Your money belongs to you and there is no way to shut down this currency. The banks and governments are not involved in its production and distribution.
Getting to Know Bitcoin
So, if you understand the importance of cryptocurrencies, we can talk about Bitcoin in specific and tell you what this cryptocurrency is all about. Bitcoin is a cryptocurrency that you can use to exchange value with anyone in the world. The more people and businesses accept this currency, the easier it will be for you to exchange value through the use of this currency. Let’s start with the history of Bitcoin.
● The History of Bitcoin
It was in 2008 that a person/entity named Satoshi Nakamoto launched the first whitepaper that explained what Bitcoin was all about. The whitepaper explained that it was a digital currency that people could use on the internet to transfer money from person to person. Yes, the idea was for people transfer money through the internet without the involvement of any banks and governments. Who is Satoshi Nakamoto? Well, no one knows him/her/them to this day. A common belief is that Satoshi Nakamoto is just a pseudonym and perhaps there is more than one person behind the creation of Bitcoin.
Keep in mind that while the whitepaper had already been launched in 2008, the currency was not issued to the public until 2009. When Bitcoin came into being, its value was as good as zero. Yes, you could spend your pocket money for the day and get a bunch of Bitcoin at that time. If you don’t know already, the initial value of the coin was only $0.0008. Yes, you read that right. That’s three zeroes after the decimal point. The price of the currency kept rising since then. One of the reasons for such huge increase in the price of Bitcoin is its short supply.
The total number of Bitcoin that can ever be mined in the world is 21,000,000. While the number may seem big, it is nothing compared to the total supply of your country’s paper currency in circulation as you read this line. You will be surprised to know that the first thing bought with the help of Bitcoin was a pizza. The person who had the coins must have considered them of no value because they went out to spend nearly 10,000 of these digital coins to buy a couple of pizzas. Today, you could open a pizza restaurant chain with that number of Bitcoin in your hand.
The fluctuation in the value of Bitcoin has always been a topic of interest. Just so you know, at one point in 2018, the price of one Bitcoin was more than $19,000. Now, imagine spending that high number of Bitcoin to buy pizzas. You wouldn’t dare!
● Legality of Bitcoin
Bitcoin is becoming more and more popular and acceptable as time passes. There was a time when people only looked at Bitcoin as some scam or fad. Today, the world has realized the potential of Bitcoin and that’s why more countries are ready to accept its status as the currency of the future. More than 100 countries in the world accept and consider Bitcoin legal. They might not accept it as a mode of payment that readily, but they definitely regard it as something completely legal and with future potential of becoming a currency.
If you live in the US, you can use your Bitcoin for paying for a variety of services. Some of the companies that provide TV services in the US are accepting payments from their customers in the form of Bitcoin. For example, if you are a Dish Network customer, you can pay using Bitcoin. In a similar way, Microsoft will not refuse to accept Bitcoin for certain types of transactions. You can notice that most businesses are welcoming of Bitcoin, but they just do not want to go full-in into this craze because they want to have some cushion too.
You should have no problem in using Bitcoin in other countries like the EU, Australia, Canada, etc. Countries like Vietnam, Russia, and China are a little less friendly to the digital currency right now. However, you can be sure that if the biggest economies of the world start accepting and using this currency, others will be compelled to use it too.
● The Mining of Bitcoin
An important concept that you have to wrap your head around is mining. Mining is the creation of cryptocurrencies, not just Bitcoin. Any cryptocurrency that you see in existence today has been created through the process of mining. To make it easy for you to understand, you can say that mining is synonymous with the printing of fiat currencies. However, when fiat currency is printed, the central bank is involved in the process. No one is involved in the creation of Bitcoin or any other cryptocurrency. The people who mine Bitcoin are called miners, and they are people just like you and us.
So, mining means to create new coins. It his process, miners have to buy big computers with huge computational powers. These computers have some heavy graphics cards and GPUs installed on them to perform very heavy cryptographic riddle solving. To create a new coin, the miner has to solve a particular puzzle using the computing resources of his/her computer. Once the puzzle has been solved, a new set of coins is created. This coin is given to the miner as a reward. The miner can keep these coins or release them in to the economy by using them for some purpose.
● The Blockchain for Bitcoin
To understand the mining process, you have to understand the blockchain technology. The blockchain technology is the framework upon which Bitcoin is created and moved from one person to another. The blockchain is nothing more than a ledger that keeps record of every transaction being performed. However, in the case of Bitcoin, the ledger does not rest with a particular centralized entity. There is a copy of this ledger available to every person who owns Bitcoin, which means no one entity can tamper with the ledger.
Now, why is it called the blockchain. That’s because it is exactly that i.e. a chain of blocks. Every transaction that is performed using Bitcoin gets recorded in a particular block. The block contains the data of many transactions. After a certain time, the block is recorded and then a new block is created that contains the data of new transactions and the ones performed before it. This is how the process continues. Every next block in the blockchain contains the data of the previous block as well as the new transactions. It is for this reason mining is becoming more and more difficult with the passage of time.
Once a block has been recorded on the blockchain, you cannot remove it or tamper with it. It will be there forever in the same state. Every time a new block of transactions is created, a copy of it is created on the ledger that is available to every person who has Bitcoin. In other words, miners are also the people who are validating the transactions and recording them into the ledger (the blockchain). When you look at the blockchain, it is nothing more than a database that contains the record of every Bitcoin transaction that has ever been performed in the form of blocks.
● The Storage of Bitcoin
Now, even if it is digital, Bitcoin is still a currency that you have to hold somewhere. You have to find a place where you can store the Bitcoin you have. That’s where wallets come in. The wallets that store your digital currencies like Bitcoin are called crypto wallets. These wallets can be in more forms than you may realize. You can have your money stored inside a web-based wallet. That’s the type of wallet you get to access when you are on a cryptocurrency exchange. Which wallet you pick depends on the level of security you want for your money.
A hot wallet is one that is connected to the internet at all times. Since it is connected to the internet at all times, a hacker can easily access it. You can then go for wallets that are not always connected to the internet. For example, you have USB wallets, on which you can record your Bitcoin and then disconnect them from the computer so they are not connected to the internet. You will be surprised to know that you can even use a pen and paper as a wallet to store your cryptocurrencies. As medieval as it may sound, this type of wallet is considered the safest among all.
You have to find a way to disconnect your wallet from the internet because the more it remains connected to the internet the easier it is for your wallet to get hacked. Perform your research on the internet to know about the safest Bitcoin wallets and get the one that sounds best to you.
● How to Buy Bitcoin
There are many ways for you to buy Bitcoin. The most common ways, as you would have already guessed, is the online exchange. You have to use an online cryptocurrency exchange to buy Bitcoin or any other cryptocurrency for that matter. What you do is you go on the website, look at the exchange rates for buying the Bitcoin, compare these exchange rates, and buy from the exchange that’s offering you the best rates. You will use your fiat currency to buy Bitcoin. On some cryptocurrency exchanges, you can use other cryptocurrencies to buy Bitcoin.
For example, on these exchanges, you can sell your Ethereum tokens to buy Bitcoin. The most accepted currency is Bitcoin. You will not find any other currency that’s as acceptable as Bitcoin on online exchanges. Another way for you to get access to Bitcoin is through a Bitcoin exchange. CoinCorner is a great example of such an ATM. If you do some research on the internet, you can find some other ways to buy Bitcoin. For example, you can look for any local services where people are willing to sell any Bitcoin that they own for another cryptocurrency or just fiat currency.
However, you have to be very careful with such exchanges because the world of online Bitcoin exchanging is scammer abound. Last but not least, you can be creative and obtain the value of your creativity in the form of digital currencies. For example, you can create a particular software, and then sell it in exchange of Bitcoin or some other cryptocurrency only. It is your product, and you are the one to decide how you want to accept money for it.
● How to Trade Bitcoin
You can even trade Bitcoin. There are many online exchanges where you can trade Bitcoin for other cryptocurrencies and fiat currencies. However, one of the safest methods of investing in this market is through online CFD brokers. These brokers allow you to trade Bitcoin against USD or some other fiat currency without you owning the coin at any point. You just have to buy the contracts that reflect the value of Bitcoin. You can keep those contracts with you and sell them for a profit when you see favorable conditions in the market. This type of trading comes with lots of leverage as well wherein you can increase the size of your trade through a contribution from your broker.
● Avoiding Bitcoin Scams
You will find more Bitcoin scams on the internet today than anything else. Scammers have realized that people from all around the world are interested in buying Bitcoin and trading them for profit, and so they have created some scams to rob them of their money. If you see an online software that claims to make you money through bot trading with a success rate of more than 80%, you must walk away from it as soon as possible. There are many online software scams that ask you to sign up with them for a small amount of just $250 so you can then trade Bitcoin automatically and make money.
These are just scams. They take your money and never return it. The best they do is help you sign up with an online broker, which you can do on your own as well.
So, you have now learned everything about Bitcoin that you need to know. Before you try to buy this valuable cryptocurrency or trade it with someone else, make sure you understand the laws of your country. Research as much as possible before exchanging your money with someone for Bitcoin or when using an online exchange to buy digital coins. If you have successfully bought some Bitcoin, make sure to use a safe wallet to store your money.