Bitcoin Explained: Complete Guide for Beginners
August 23, 2019
Satoshi Nakamoto developed the software of Bitcoin. He offered an electronic payment system, which is based on the use of mathematical calculations. The idea was to create an electronic decentralized cash system in the form of a distributed and immutable ledger – blockchain.
The legend of Satoshi Nakamoto is one of the greatest Internet mysteries in the history of the global network. He has a vast fortune, which remains unclaimed. Even according to the most conservative estimates, his capital is 980,000 BTC. As of August 7, 2018, it was around $6.86 billion, making the owner one of the wealthiest people in the world.
Bitcoin is an anonymous, decentralized, and fully transparent network protected by sophisticated cryptography that allows anyone to make money transfers anywhere in the world with minimal commission.
What is Bitcoin?
Bitcoin is an electronic payment system in which virtual “money” (bitcoins) circulates. Do you have a Visa or Mastercard? Both Visa and MasterCard are also electronic payment systems. However, they use the fiat currency – dollars, euros, and all transactions are processed by the bank. The bitcoin system uses cryptocurrency – a purely digital currency that has no reference to any world bank or economy of any country.
Most significant features of Bitcoin:
- The whole system is decentralized. This means that Bitcoin is not regulated by any bank, agency, or government entity. All network members (peers) are equal. For example, Visa and Mastercard have gold, Platinum, Vip cards, systems like Webmoney or QIWI have user levels. There are limits on the size of transactions. And in Bitcoin – all are equal, and there are no limits.
- Pseudonymous. When transferring to BTC, participants do not disclose their identity. Transactions use an address (a hash of 27-34 characters) without revealing any other recipient or sender information.
- Irreversibility. All bitcoin transactions are irreversible. They cannot be undone, stopped, or blocked. Theoretically, a full rollback of the system (blockchain) is possible. In practice, it is complicated to implement.
- Security. It is hardly possible to hack a Bitcoin wallet. Bitcoin uses an SHA-256 cryptographic algorithm – encrypted data that guarantee privacy and security.
Who controls Bitcoin?
Bitcoin does not belong to anyone. This technology can be used by anyone who follows the rules of this currency. Any Central Bank does not control it. Now it is engaged in independent developers. It means bitcoin has become the so-called open-source software that can be downloaded and used free of charge at its discretion.
How to get Bitcoin?
You can mine, buy, or you can gain Bitcoins. You can start accepting BTC for your services or goods. You can use your computing power to participate in mining (bitcoin mining).
What is Bitcoin Price?
Where to store Bitcoin?
Digital coins like ordinary money are stored in wallets, but only in special – cryptocurrency. A crypto wallet is a program that owns and manages private and public keys that provide access to and gives the owner the ability to send or receive their assets. As the one who has the private key has access to the funds, it’s necessary to protect private keys from hacking.
Before answering the question of where to store cryptocurrency, it is worth analyzing these storage systems.
1. Hot wallets
Such crypto wallets provide instant money transfers to any user with an Internet connection, as they require a connection to the blockchain.
2. Cold wallets
The primary purpose of cold systems is to store the funds independently. They do not require an Internet connection. In comparison with hot wallets, they provide slower access to crypto money, but their Forte is an increased level of reliability as they are hacking proof.
3. Paper wallets
Cryptographic currencies can be stored on plain paper. These keys can be implemented as an alphanumeric combination or a QR code. They are then printed on paper. The advantage is the impossibility of hacker attacks. The only thing that may happen is that they can be stolen, lost, or destroyed.
Answering the question of where to store cryptocurrency, we have considered several alternative options. Each of them has its pros and cons. Therefore, many large companies that deal with digital currencies store their funds in two different wallets – hot and cold. On the hot wallet, you can leave a minimum of crypto money necessary for everyday spending and play. The principal amount should be sent to cold storage.
Is Bitcoin Legal?
Bitcoin has not been made illegal by legislation in most jurisdictions. However, some jurisdictions (such as Argentina and Russia) have introduced strict restrictions or prohibitions on the use of foreign currencies. Other jurisdictions (such as Thailand) may limit the licensing of certain entities such as bitcoin exchanges.
Regulators from various jurisdictions are taking steps to provide individuals and businesses with rules on how to integrate this new technology with the formal, regulated financial system. For example, the U.S. Financial Crimes Enforcement Network (FinCEN) has issued a free guide on how it characterizes certain activities that include virtual currencies.
Pros and Cons of Bitcoin
First of all, let’s consider the main advantages of Bitcoin.
- The lack of restrictions on payments
Owners of bitcoin digital coins can make any transactions from their wallets without any limits. It does not matter the payment amount, purpose, or geographical location of the payment recipient.
- Control over personal funds
Working with Fiat money (euros, dollars, etc.), there is always a risk of blocking the account or cancellation of the transaction by the bank. Bank account holders do not have full control over their money. In the case of Bitcoin, this is no problem. Users have complete control over their funds. No one will be able to track or cancel transactions, as well as freeze the account for suspicion of illegal financial activities.
- Easy registration
Any new crypto investor can start working with Bitcoin. You do not need to confirm your age or income level. All you need to do to make transactions is to have a personal wallet: register on the online platform or download an application on your desktop/smartphone.
- High security
Cryptography protected and hacking proof. Only wallet owners have access to these keys.
Disadvantages of Bitcoin
Although Bitcoin has many advantages, it is also filled with problems, so it’s worth considering them in the process of dating:
- If the virus erases your bitcoin wallet file (this applies to accounts that are on local devices) or can track the password – your money will be lost.
- If you understand why you need bitcoin and decide to invest money, you may face a drop in the price due to a lack of demand. The value of a cryptocurrency is determined by capitalization and demand (and only by them) – this is a consequence of how bitcoin works.
- Virtual money bitcoin doesn’t support refund in case of theft of your password or deception. As a result, no one has the ability or authority to reverse a bitcoin transaction unless you are returned the funds by the person who issued them.
No one knows what will happen to Bitcoin. Its future is an unregulated process. Someone will say that the possibility of earnings on the Internet it is not predictable and it’s true! If you approach the analysis of digital currency for a promising future, without a doubt, we can say that it will be the object of quite profitable transactions in the Forex market.
Given the fact that the number of digital coins has a specific limit, we can assume a rapid growth of investment injections in this direction. But since there have been no explicit guarantees, you need to consider all your steps carefully. Control your financial investments. The Golden rule of the financial market says: “Do not invest money you cannot afford to lose.”