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What is Bitcoin

by Zlatko Pažin29. September, 2015

Ever heard about Bitcoin? Do you know what that is? If you don’t know don’t worry because you’re probably not the only one. But I’m here to help you. Bitcoin is the name for digital money which is created and stored on the internet. Bitcoin is not printed and it is not controlled by anyone. It is created by people of the world with the help of computers that solve mathematical problems. Bitcoin is also the first example of this kind of money called cryptocurrency. Why is it different than other currencies? Well, bitcoin is used for digital shopping and with that in mind it is not much different than any other currencies (dollar, euro) which are also used for online transactions. But, bitcoin is decentralized which means that there is no institution which controls bitcoin. That is a big advantage of this currency because the growth or the fall of bitcoin can happen only because of people.

Bitcoin

Main Bitcoin characteristics

There are lots of advantages of bitcoin over other currencies, and I will mentioned 7 most important characteristic of this currency.

  1. Bitcoin is decentralized

Just like I already mentioned above, bitcoin network is not controlled by any institution in the world. Every computer that works on bitcoin mining is part of the whole network and all computers work together. In other words, there is no bank (country) in the world that can change monetary politics of this currency or just take bitcoin from people. That also means that money will continue to flow even if some part of the network collapses.

  1. It is simple to have an account

In traditional banks you have a lot of paperwork to deal with and lots of time to spend to make your account. If you want to make bitcoin account (address) all you need is few seconds.

  1. Anonymity

Bitcoin is mostly anonymous. User can own more bitcoin addresses that are not connected with names, addresses or any personal information. But…

  1. Transparent

…bitcoin stores data about every transaction that ever happened inside the network and it stores that data into blockchain. If you own an address then everyone can see how many bitcoins is stored on that address. But, no one knows who owns that address.

  1. Fees are very small

Bitcoin doesn’t require any fees when you want to transfer money. For example, if you go to the bank you will have to pay some fee when you want to transfer money to another account or pay something.

  1. Network is very fast

If you send your money somewhere it will arrive just few minutes later. Bitcoin network will process the payment or transfer very fast, unlike most of the banks.

  1. Impossible to get bitcoins back

Once you send your bitcoins to someone you can’t try to get them back like you can with banks. That creates a larger security with merchants. The only way to get a sent money back to you is to ask person who received it to send it back.

History – how it all started

You learned what bitcoin is and what are the main advantages and characteristics of it. But don’t you want to know something more about it, for example, how it was created and developed? Don’t worry, here is the short story about it along with some interesting stuff that happened during its history of growth.

In October 2008 Satoshi Nakatomo released a publication about his idea to create digital money that will be secure to use and won’t offer possibility to be copied, that was the start of bitcoin and foundation to its growth.

In January 2009 first bitcoin block called Genesis was launched and it meant the possibility to start bitcoin mining. In the same month a first bitcoin transaction was made. It was made between Satoshi Nakatomo and Hal Finney who was a developer.

In the October of the same year bitcoin got its own value for normal currencies. You could get 1,309 BTC for $1. Few months later, in February 2010 the first bitcoin market was established.

But bitcoin was not very secure and in August 2010 hackers discovered that and hacked bitcoin. After that people discovered more other vulnerabilities of bitcoin. Just a one month later bitcoin reached the number of $1 million.

In January 2011 an online drugs marketplace was established and the main way for payment were bitcoins.

In June 2013 each bitcoin was worth about $31 but then a first bitcoin theft was reported. One of the users reported that 25,000 bitcoins was stolen from his account. Those 25,000 bitcoins had the worth of about $375,000. Because of that, and some other security issues the value of bitcoin dropped to $0,01 per BTC.

Thanks to the large improvement of security and increased popularity the price of bitcoin climbed all the way up to $700, which happened in November 2013.

During the next few months there were a lot of talk about bitcoin with some countries and people supporting bitcoin and considering it as the future of payments while other think that bitcoins was influencing on the financial stability of their countries and the whole world. But bitcoin continued to grow and was people and some companies started to use it much more. In December 2014 Microsoft announced that they will accept bitcoins as the way of payments.

What can we expect in the future? We can expect that large institutions will try to adopt bitcoins more and more but with some rules and regulations.

How to buy?

You can buy bitcoin on the same way just like the traditional currencies. You can buy them from the people who sell it or you can buy them in currency exchange office. This may sound a little weird but it is almost impossible to buy bitcoin with credit cards or PayPal. The main reason for this is because transactions made with PayPal and credit card can be called back and that is one of the problems that bitcoin wants to solve.

Buying Bitcoins

To buy bitcoin you must have your own digital wallet. You can look at those wallets just like you look at bank accounts. There are two types of wallets:

  • Software wallets that is stored on the hard drive of your computer
  • Online wallets that depend on website offering the service

Both options have their own weakness. If you use software wallets always make a backup of your data because sometimes you can lose data when you install wallet. And if you use online wallet make sure to trust the service provider because those wallets depend on him.

There are lots of new merchants that create new markets to you get large number of different options every week. There are large exchanges where you can safely store your money and exchange it with other traditional or digital currencies and there are other options that mostly just take care of your money. If you want to do some trading then digital wallets are the best option if you don’t want complete anonymity and you don’t mind the identity checks.

But take care because even though security is increased, digital wallets and exchange offices are still not as safe as traditional banks. If stock market loses its job or gets attacked by hackers there is no insurance for your money. Some stock markets promise a compensation of lost money in that case but they don’t have to do that, especially if your weak password or personal reasons are the reason for the loss of money.

If you still don’t believe in the idea of keeping money safe you can turn to investments trusts which grow larger every day. The largest one is Bitcoin Investment Trust (BIT). You can read more about it here.

There are also cities where bitcoin ATM’s are available. If you have an account in banks that support bitcoin and have bitcoin ATM then you have the option to transform money from digital to physical form.

But, to be able to invest, store and trade with bitcoins you must buy some first, or earn them. The main topic in the bitcoin world is mining. Read more about it in the next paragraph.

What is mining?

I already mentioned that bitcoins can’t be influenced by monetary government. With traditional money government can simply put more money into circulation. But with bitcoins money is not published, it is found. That’s what mining is for. If you want a short description then we could say that mining is a process where you invest a power of your computer so he could work on algorithms and “mine” the bitcoins for you. To start with mining you must make sure that you have a powerful computer for that. There are also a special computer parts made exactly for mining. People send bitcoins to one another over bitcoin network but if there is no one to track those transaction then it would be impossible to know how much money there is. Bitcoin network takes care of that and puts all transactions into blockchain, like I already mentioned. The miner, you (your computer), then confirms the transaction and writes it down into the main book and as reward the miner gets a small amount of bitcoins. Mining is a simple but yet very complex process. Everyone can start with mining but only people who learn a lot about this and follow everything about new and bitcoins pool every day can earn some money from mining. I will show you 6 basic steps to start with mining.

Mining Rig - The Trenton BPX6806

Mining Rig – The Trenton BPX6806

  1. Wallet

First you must get yourself a wallet where you will store the bitcoins you earn. There are lots of bitcoin digital wallets online, if you can’t decide which to choose then pick coinbase.

  1. Pools

I didn’t say a lot about the pools. Pools are the places where you combine mining powers with other users and then you mine for bitcoins together. Instead of mining for bitcoins yourself which would be bad idea (unless you have like 10 powerful computers) join with other miners and then split the reward equally. The best (and the first pool) that can be trusted is Slush’s Bitcoin pool.

  1. Miner

After you join a pool your next step would be to download a miner to your computer. There are two types of miners, CPU and GPU. If you are new to mining then use Kiv’s GUI miner.

  1. Set up account

Log to your pool account and then enter the address of your wallet on the place where it is needed.

  1. Workers

The next step is to register your workers. Every worker presents a sub-account on your pool account. You can add more workers on your computer.

  1. Final step

The last thing you should do is enter the information of each worker to the software (miner) you downloaded, find the pool URL and get to work, start mining.

 

And that’s it, now you know all the basic information about digital money called bitcoin and you know basic stuff about earning that money aka mining. Make sure to research even more stuff about mining and find out every little detail about it before you start with it. Good luck!

What is Bitcoin