The first name which flashes in our mind when someone says Blockchain or Digital Currency is Bitcoin. In my initial days of learning, when I tried talking to my friends about Blockchain technology many of them wouldn’t even have heard about it, the only name heard was Bitcoin. I think, today also in many part of the world Blockchain means Bitcoin. Since we are working on a series - ‘Cryptocurrency for beginners’, let’s talk about Bitcoin today, in a little less technical way.
What is Bitcoin?
Bitcoin is the first decentralized digital currency or cryptocurrency. These are digital coins that can be sent through internet using peer to peer network. It was designed by Satoshi Nakamoto (unknown) in 2009 and the core technology used is called as Blockchain Technology.
Compared to other alternative, Bitcoin has a number of advantages.
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Permission less - Bitcoin can be transferred directly from person to person via internet without going through a bank or a clearing house.
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Fast - The transaction is confirmed in minutes.
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Anonymous - The transaction is anonymous, no one would now the real identity of the sender and the receiver, it’s all just the addresses that we know.
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Irreversible – Transaction done is permanently recorded and can’t be reversed.
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Cheaper - Transaction fee is much lower, because there is no middleman and no govt. parties involved.
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Global - It can be used in every country,
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No central monetary authority –It is not regulated by any govt. but is generated by the miners.
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A user’s account cannot be frozen.
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There is no pre-requisite or minimum limits.
How Bitcoin works?
Bitcoin, based on blockchain technology are generated all over the internet by anybody who runs a free application called a ‘Bitcoin Miner’ on its computer (device). Mining requires a certain amount of work for each block. These are expensive computation performed in order to provide the security and verification of transaction. The process involved is commonly known as Proof of Work (PoW). Each time a miner successfully solves Bitcoin’s proof of work algorithm, he is rewarded a set number of bitcoins agreed upon by the network. The difficulty level is automatically adjusted by the network such that Bitcoin is always created at a predictable and a limited range and the reward is decreased by 50% every 4 years by a process called ‘Halving’.
How can I obtain Bitcoin?
Bitcoin can be obtained from one or all of the below methods:
- Purchase from an exchange – As on date, this is the easiest way to obtain Bitcoin and probably most accepted too.
With fiat currency – In most of the cases, first Bitcoin is purchased with Fiat currency. There are exchanges that allow purchase directly through fiat currency like Coinbase (US most trusted exchange), Kraken. They accept bank transfers and or credit card payments for the purchase of Bitcoin and provide online wallet to save them.
With another cryptocurrency – One can also purchase Bitcoin through cryptocurrency exchange without paying in fiat currency. This can be done only if he possesses Ethereum or altcoins in his wallet in exchange like Poloniex, Coinbase – GDAX, Kraken, Bitfinex, Gemini, Bitstamp (one of the oldest Bitcoin exchange, supports world wide..
Purchase from an exchange is widely accepted method for obtaining any digital currency. A buyer can select an exchange that is supported in his location.
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Purchase from a Bitcoin ATM - A bitcoin ATM is an internet machine that allows a person to exchange bitcoins and cash. Some Bitcoin ATMs offer bi-directional functionality; these machines enable both the purchase of Bitcoin (given as a paper receipt or by moving money to a public key on the blockchain) as well as the redemption of Bitcoin for cash (fiat currency).
In some cases, Bitcoin ATM providers require users to have an existing account in order to transact on the machine. In order to buy bitcoins using a bitcoin ATM one needs to find the closest to his location and understand what kind of machine it is. Eg. San-Diego based company Genesis Coin produces three types of ATMs: Genesis1 (two-way), Satoshi1 (one-way) and Satoshi2 (two-way).
The buying process may vary as per location and can be more expensive than online transactions as the infrastructure cost is higher and the steps that are actually needed to transfer the money and Bitcoins. The average ATM charges a fee of 5-10%, but this is what people are willing to pay to buy bitcoins privately and with no verification. -
Purchase from a local trader – A classified service where you can find a seller who will help you trade bitcoins for cash. LocalBitcoins charges a flat 1% fee on each purchase and is one of the popular website listing this service. BitQuick connects you with sellers who want cash for their bitcoins and is available in the United States.
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Bitcoin Mining - Back in 2009, mining was the only way to possess bitcoin. In order to mine Bitcoin, we need a computer and a bitcoin mining software. As Bitcoin mining gained popularity, people invented sophisticated hardware (ASIC cards) to perform the computation faster and generate Bitcoin. Today, we have lot of miners having big setups with most advanced hardware and extremely efficient software. So, in order to possess Bitcoin, buying Bitcoin through alternative options is preferred over mining. Bitcoin mining can be done in different ways
Individual mining – When you are mining individually, you need to setup hardware required for Bitcoin mining and install related software. Few popular softwares are Bitcoin Miner (for Windows 10 and Windows 8.1), BTCMiner, CGMiner (for Linux, the most famous and commonly used), EasyMiner (GUI based), RPC Miner (for Mac OS 10.6 or higher).
Pool mining – In case of Bitcoin pool mining, you need the software to connect to your mining pool. Mining pools are groups of cooperating miners who agree to share block rewards in proportion to their contributed mining hashing power. Few big mining pools (based on data from Blockchain’s pool share) are AntPool (a Chinese based mining pool, maintained by BitMain, mines about 15% of all blocks), DiscusFish/F2Pool (China based, mined about 12% of all blocks), BitFury Pool (Geogia based, one of the largest producers of Bitcoin mining hardware and chips, but it is not open for public as it’s a private pool, mines about 12% of all bitcoins), BTCC (China’s third largest Bitcoin exchange, mines about 7% of all blocks), BW Pool (is another mining company based in China, mines about 8% of all blocks), KnCMiner (Sweden), 21 Inc. (California, US).
China mines most of the Bitcoins. It’s estimated that F2Pool, AntPool, BTCC, and BW mining pools own somewhere around 60% of Bitcoins hash power, meaning they mine about 60% of all new bitcoins.
Cloud Mining - Cloud mining or cloud hashing is the process of bitcoin mining utilizing a remote datacenter with shared processing power. It enables users to purchase Bitcoin mining power from Bitcoin mining hardware placed in remote data centers. It is still considered as mining as even if users are not using their own hardware, yet they are allowed to mine bitcoins. Cloud mining is really useful for those who aren’t technically minded and don’t want to run their own software or hardware. Hashflare or Genesis Mining provides cloud mining contract with them .
Bitcoin miners are very important to Bitcoin and its security. Without miners, Bitcoin would be vulnerable and easy to attack.
Where can I save Bitcoin?
Bitcoins are stored in a digital wallet. Digital wallet or cryptocurrency wallet is very similar to online banking. When a transaction is made an electronic signature is added. After a few minutes, the transaction is verified by a miner and is stored permanently and anonymously in a network.
There are many Bitcoin wallets, popular wallets are Ledger Nano S (hardware wallet for all platforms), Electrum (for Mac, Windows, and Linux), Mycelium (Android), breadwallet (for iOS).
Where can it be used?
It has got wide application and acceptability.
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One can purchase any item through online store that accepts Bitcoin.
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We can exchange Bitcoins for USD, Euro or more with help of several currency exchanges.
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It is a great way for small businesses and free lancers to get noticed.
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It doesn’t cost anything to start accepting it.
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Will provide additional business from the Bitcoin economy.
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Billion dollar businesses such as Dell, Expedia, PayPal, and Microsoft accepts it.
The Bitcoin software is completely open source and anybody can review the code, anyone can create its own digital currency as well. It does come with a little precautionary warning. It is highly volatile and is open for thieves hacking accounts. So, user needs to be cautious while storing in a wallet, using it for any transaction.
Bitcoin is changing the finance the same way ‘internet’ changed the publishing. With everyone having access to the global market, more use cases are flourishing.
Disclaimer: This is not an investment advice but for educational purpose only. Readers are requested to conduct their own research before investing into cryptocurrency. Our website (etherworld.co) neither intend to advertise any project nor recommend buy or sell any cryptocurrency. This is author’s personal opinion and is not a sponsored article.
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