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Bitcoin for Starters: A 21st Century Currency

By  | 27, Dec 2013 | 46 Comments

Bitcoin Bitcoin for Starters: A 21st Century Currency

Bitcoin is all the craze in the world right now. What is it, why has it gone on to become so popular in the last month alone and why should you pay attention? This is all what this post is about. Keep reading!

The start of the currency

Bitcoin, as you might’ve known, is the digital currency (or cryptocurrency) for the 21st century. It’s nothing physical, you can’t see it, you can’t touch it but it’s there.

But before you start, keep in mind that Bitcoin is a complex product. The concepts of cryptocurrencies in general are deep and abstract, and understanding how and why Bitcoin works requires a fair degree of technological knowledge. If I may speak frankly, Bitcoin is not everyone’s subject.

To put the idea in simpler words, Bitcoin is an alternative (digital) currency that can be paid for goods and services much like conventional currencies. You can transfer Bitcoins to other users and vice versa to maintain your financial account.

It was started in early 2009 by an unknown person under the name of Satoshi Nakamoto. No one knows for sure who this person might be or whether there is a whole group of people operating under this name.

In around-2010, he transferred all the Bitcoin-related property to Princeton University graduate, Gavin Andresen. Interestingly, Andresen has himself communicated with Nakamoto only via emails or web forums. Still, the amount of Bitcoins owned by Nakamoto are estimated to be around a million so he’s a billionaire in dollars regardless of his identity.

The currency isn’t dependent on a bank or any other source. Its value depends on the amount of interest and support it garners, as simple as that.

Some Facts

Bitcoin is divided into units, just like any other currency in the world. The smallest unit is just 0.00000001th of a Bitcoin.

Only 21 million Bitcoins will ever be created to avoid inflation. Around 12 million Bitcoins are already in existence today, with their publishing rate of 25 Bitcoins per 10 minutes slowing down until that golden 21 million figure is reached, which will happen around 2140.

Around $30,000 value worth Bitcoins are spent everyday worldwide. The currency has a total market capitalization of more than $8 billion.

Its value has jumped by 300,000 times since they came into existence, making the people who brought them in their infancy very rich. In fact, some guy from Florida brought 2 pizzas for 10,000 Bitcoins back in 2010.

How to Get Started with Bitcoin?

To start buying or selling bitcoins, the first thing you need to do as a new user is install a digital wallet on your computer or mobile device. The wallet is a free software and is quite similar to a personal finance software.

The wallet maintains your balance on your device and encrypts that info. There are two keys given with any wallet: A private key and a public one. The private key is to be kept secret at all costs whereas a public key is like an address through which you carry out your transactions.

This software is available on mobile, on a PC and as a web interface. Protecting it is necessary as once you lose it, your fortune is gone and will never come back which is why getting it installed on PC is the safest bet.

Buying a Bitcoin

The value of each Bitcoin is worth around $650 and while that figure is on the rise, it is extremely volatile. “But how can I earn?”, you are asking by now. Here are a few ways.

For one, there is the simple exchange from real-life money to Bitcoin. The rate fluctuates a lot but since Bitcoin’s value is mostly going up right now, this isn’t a very bad bet at all at virtually any cost. However, not all currencies are exchangeable to Bitcoin.

Online exchanges which work in Pakistan are Mt. Gox, VirWox and 24change.

If you can find a person who is willing, then you can also trade real-life money to Bitcoins. Websites such as www.bitcoinlocator.com are especially helpful.

Bitcoins can also be brought as a physical currency which comes in the shape of coins. These coins contain a piece of paper inside them containing a private key. This is a rather expensive way of getting Bitcoins so it certainly isn’t recommendable unless you want to “touch” the currency.

Finally, there is mining, which is easily the hardest way to getting a Bitcoin. This is also the only way through which a Bitcoin comes into existence (at a rate of 25 bitcoins every 10 minutes as I’ve said before, this rate halves every four years).

Miners use dedicated rigs with ASIC’s in “pools” along with other miners to solve complicated encryption functions. These are machines which are build just for the purpose and if you try to do that from a normal PC, you’re mad.

This encrypted function gets more and more difficult to solve as time goes on, making the entire process slower and hence the amount of Bitcoins minted.

Note: If you didn’t understand above 3 lines then trust me its not your fault. Its because mining Bitcoins is not for you.

Transactions and Usage

Bitcoin transactions generally take around 10 minutes to happen, after first confirmed in the block chain of the network. This makes sure that Bitcoins aren’t spent more than once but also means the usage is slow, an area through which its competitors are capitalizing. (In a few cases, this can also take up to an hour.)

Transaction fees usually depend on the amount of data which is sent out during transactions. They’re usually as low as to be negligible but if you’re sending a large number of tiny amounts worth Bitcoins, they’ll be more.

Bitcoin’s usage is increasing rapidly. In countries like Canada, you might even spot a Bitcoin ATM. Virgin Galactic now accepts Bitcoins for an outing to space while in the US, a guy recently spent a measly 91.4 Bitcoins to buy a $100,000 Tesla Model S electric car. Now that’s a high-tech way to buy a high-tech ride.

In our country, they’re virtually useless right now but investing in them doesn’t seem too bad an idea. They are on the way up, that’s for sure but still, investing your entire fortune into it isn’t something we would recommend right now.

Advantages

  • Payments made easy: Bitcoin allows you to pay with a simple two step scan-and-pay. No need to sign up, swipe your card, type a PIN, or sign anything. All you need to receive Bitcoin payments is to display the QR code in your Bitcoin wallet app and let your friend scan your mobile, or touch the two phones together (using NFC radio technology).
  • Security and control over your money: Bitcoin transactions are secured by military grade cryptography. Nobody can charge you money or make a payment on your behalf.
  • Zero or low fees: Bitcoin allows you to send and receive payments at very low cost. Except for special cases like very small payments, there is no enforced fee.
  • Protect your identity: With Bitcoin, there is no credit card number that some malicious actor can collect in order to impersonate you. In fact, it is even possible to send a payment without revealing your identity, almost just like with physical money.

Disadvantages:

  • The price of a Bitcoin is volatile, making it difficult to assess its real value and increasing the risk of losses for investors.
  • The relative anonymity of Bitcoin may encourage its use for illegal and illicit activities such as tax evasion, weapons procurement, gambling and circumvention of currency controls.
  • The fact that bitcoins exist primarily in digital form renders them vulnerable to loss.

Other Cryptocurrencies

In case you think that you missed the oppurtunity to invest in Bitcoins when they were cheap, then things haven’t quite winded up just yet.

There are a number of such currencies including Litecoin (market capitalization of $421 million, value $17), Ripple, Peercoin, Dogecoin and Nextcoin. They’re all cheap and virtually useless right now so investing in them might seem stupid but then again, Bitcoin was once in the same phase.

The Future

Given its volatile nature, no one can say for sure whether this recent trend of (mostly) rocketing value will continue in the future but people should certainly take notice.

Whether you want to be a part of the boom is up to you but we really hope it will not prove a bubble in the end. Placing your bet on something which loses half of its value overnight is a risky affair.

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  • Umer Draz

    yawn!

  • Rao

    a little late but worth it! nice addition admin.

    • Shahid Saleem

      More like three years too late. I had a bitcoin wallet on an old Pentium III in 2009.

      • http://ptclevosharing.blogspot.com/ Muhammad Anas

        I also have a bit coin wallet for one year or so but the whole process seems complicated for me, Isn’t it?

        • Shahid Saleem

          Nope. In the old days, all you needed was the application and you could mine on CPU or GPU. It was trivial process: turn the computer on (put it on a UPS first), start the program, turn the monitor off, wait a few days. Of course back then for me the power outages were for 1 hour so my small UPS could keep the computer working for days and days.

          These days, you can do the same process but with Litecoin or one of the altcoin currencies, like Worldcoin. Just join a pool and start “digging”. Even on an i5 CPU (not using GPU) you can do 50 khash/sec for litecoin mining, and after you join a pool, and get several litecoins/day.

          The TRICK: you mine litecoins, convert them to bitcoins at one of many exchanges, and then there you have it. The price of bitcoin increases faster than the price of litecoin in general, so your coins gain worth.

          • http://ptclevosharing.blogspot.com/ Muhammad Anas

            Thank You!

          • Yasir Mahmood

            Interesting Info..

      • Jawad

        Woo, TV aap ka hoa

  • Knight

    Pls. dont print such obselete info copy pasted from the wide world web….

  • ahmed

    ha, come on! so, as a muslim i am not going to use it because its juwa system…

    • Shahid Saleem

      I think you COMPLETELY misunderstand it if you think investing in it is the same as gambling.

      In the past people used to invest in salt.

      • Raja Maja

        even now, in India the normal table salt is selling at a prices of Rupees 300.

        • Raja Maja

          i mean in black.

  • Saleem

    Promotions.Pk is among the first few Pakistani Companies (if there are any) to accept bitcoins in exchange for their services

  • http://ptclevosharing.blogspot.com/ Muhammad Anas

    You’re right!

  • Farhan Tahir

    Simply Stupid. Electronic currency means you dont have ANY control over your money, and hackers can easily steal all your money in one go.

    • Shahid Saleem

      If you walk around with cash, people can rob all your money. so what do you do?

      That’s right, you only walk around with SOME of your cash and keep the rest in a bank.

      So how do you imagine bitcoin to be any different? A bitcoin “wallet” is just a program running on a computer, you can have several wallets and each with different amounts of currency. Just like your real life “wallet” has a small amount of rupees and your bank “wallet” has more.

      And, don’t be a fool, STOP RUNNING WINDOWS. Now hackers cannot get to you.

      • PeeDroid

        How Many BitCoins Will You Take To Zip Your Vag*na Up??

      • Pakistani

        what do u mean by “STOP RUNNING WINDOWS”?

        • Shahid Saleem

          Exactly what I wrote. Switch to Linux.

    • Ahmed

      No, the banks don’t have ANY control over your money. They’re the ones most threatened by digital currencies.

  • Vicky

    Seriously ProPakistani, what is with these two – Azeem Ullah Hassan always posts outdated articles and that lady, Mehwish Khan, always posts articles copied/plagarised from somewhere else.

    • Azeem Ullah Hasan

      Compared to other *major* publications and blogs, yes it is a bit outdated, but a lot of people we know (and I’m not talking about people who are well-informed in these matters) are still unfamiliar with this idea. Since it is booming so much today, we thought we should do an explanatory post. It’s not perfect, but at least people will get the point.

      • PeeDroid

        You Gotta A Big As* Name Homie!!
        No Offense

      • Vicky

        “Since it is booming so much today, we thought we should do an explanatory post.” – good point. Justifiable!

  • Shahid Saleem

    Unlike dollars, there is a limit to how many bitcoins can be. THERE CAN BE NO INFLATION.

    Also, who says you have to hoard them and only exchange for dollars/rupees/whatever when they go up? The whole point here is to set up an economy around bitcoins where you exchange bitcoins for products and services.

  • Mahmood ur Rehman

    This is a good effort.

  • Abbas

    your post is always great..nice information..thanks for sharing..@shahidsaleem:disqus

    • PeeDroid

      LAWLZ

  • http://ITNama.com/ Muhammad Zohair Chohan

    Very precise and informative article @azeemullahhasan:disqus

    • Azeem Ullah Hasan

      Thanks mate. That was quite satisfying.

  • Irfan

    I don’t see Bitcoin as replaceable currency, cos
    1- it’s not easy to use like credit card or notes
    2- your bitcons got stolen as it happened many times in past few months
    3- Governments doesn’t support it, China and India latest move against it proves it.
    4- No government or physical asset supports it.
    5- no authority to monitor or control it.

    It will eventually be shut down as it is currently being used for almost all the illegal activities ( Plz see Silk Road Websites shutdown by Us Govt, where they sell drugs and use bitcons)

    Above all price is too high now, is it worth to gamble on this?

    • Shahid Saleem

      1. credit card and cheques are not as easy to use as cash YET people still adapt to using them, so your concern #1 is not valid.
      2. cash gets stolen too all the time, ask anyone who was held up at gunpoint. happens more frequently than bitcoin.
      3. Governments HAVE NO CONTROL over it. That is why they don’t support it.
      4. That is not a bad thing, that is a good thing.
      5. Actually, there is one authority to monitor it: EVERYONE WHO USES IT. By its very nature it is a decentralised peer to peer currency. Everyone can see and verify everyone’s transactions (note: bitcoin is not “anonymous” currency. Everyone participating in the bitcoin network is like taking the role of the state bank for a country currency.

      Bhai jaan, torrents is also being used almost entirely for illegal activities (copyright violation), but that alone is not reason enough to shut down. In fact, coming back to the issue of money, criminals do not give each other cheques or exchange credit card infos to do illegal things. They use cash. A HUGE portion of criminal activities are cash-only. So by your reasoning, the State banks should try to eliminate use of cash and promote use of banking-only transactions, right? Yet they do not do it for criminal reasons (they do it for money supply economics reasons).

      Even with Silk Road shutdown, the US government has NOT moved against bitcoin. And why should they? Since it is 100% not-anonymous, unlike cash, every bitcoin transaction can be traced. In fact, that is a GOOD thing for their CBR.

      And China? China is still government-controlled economy. There is no such thing as a 100% private entity in China. Dig deep enough and you will find that directors, funding, high executives — are all from the Chinese government or PLA ( People’s Liberation Armies). CHINA IS A BAD BAD BAD EXAMPLE TO FOLLOW FOR ANYTHING.

      As for the price, well, you have litecoin, worldcoin, etc to use. Personally I would buy namecoin.

      • Irfan

        Dear Shahid,

        Valid points you have raised, but still confidence is the key factor.

        In old days Cigarettes, salt and rice had the status of currency. Since the arrival of digital era, we see Bitcoin etc.

        6 Billion people will not move to adopt it, you can’t replace notes. Indeed areas where have internet and smart devices some % of people with opt it.

        I doubt Marketplaces or big financial institute will give Bitcoin status of currency.

        I think it is a good toy for entertaining and keeping people busy in mining.

        • Shahid Saleem

          Just because 6 billion people won’t use it ***DIRECTLY*** doesn’t mean ANYTHING. Look at any banking system in the world, especially not first world. a Large percentage of the population will not or cannot or do not use banks. Does that mean that banking is a bad thing? There are certainly more banks than bitcoin exchangers.

          Tell me, what is the difference between “This 100 rupee/dinar/sterling/dollar/etc note can be exchanged for the equivalent in gold” (as old currency was like) and “this 100 rupee note can be exchanged for the equivalent in bitcoin”? NOTHING. Most people will not use gold or whatever, they will use paper.

          As for financial institutes giving Bitcoin any status, you should DEFINITELY look into why rich people in the west ***ARE INVESTING*** in Bitcoin. For examples:

          * Asia’s Richest man Li Ka-shing invested in a bitcoin trading system.
          * The Winklevoss twins (who had lawsuit against Facebook for stealing their idea) invested $11 million in Bitcoin when it was worth $120/coin. It is now over $700/coin. They think it will go to $10,000/coin
          * Peter Thiel, who co-founded Paypal also invested in Bitpay like Li Ka-shing.

          There is money to be made here. There are people making money here. If you don’t think it will work out, then you know what? Maybe you’re right. But it’s NOT for the reasons you outlined in the comment I replied to.

  • Κ@§ђ!ƒ @ђм@đ ♐

    I think it is also prohibited in #Pakistan like #Paypal :-p

  • Videovertex

    Its useful for Karachians.

  • Hero

    China Bans Financial Companies From Bitcoin Transactions.
    Some others counties are too thinking to ban bitcoin, so no need to invest in bitcoin anymore.

  • ARsalan

    I was in the game of bit coin between couple of weeks and I have understand approx all things in the above article, but one thing i want to know from writer that during bitcoin mining miners solve complicated problems, does these problems have any value or have any use that create value, of then consequently create a bitcoin or a piece of it????

    • Shahid Saleem

      It is a distributed ledger. Since there is no central bank (or any bank at all), there has to be a mechanism to prevent double spending of digital currency. That is what the calculations are in a nutshell: by “mining” you are verifying everyone’s transactions.

  • Shahid Saleem

    You must be one of the poor individuals who need mommy Apple or mommy Dell or mommy Acer to hug you and help you with your typing problems. The rest of us, we’re professionals.

    • http://cockadoodledohoe.com/ Mr. Active X

      One Lonely Professional Who Has No One To Talk Or Argue In Real Life So “SHE” Comes Here To Argue With Every Person & Shows “SHE” Has All The Knowledge Of The World!!
      Do Us All A Favor & Wear Some V’s On Your Face Cuz This D’K Trap Is Outa Control..

  • Shahid Saleem

    And for your information, Dell, Lenovo, HP are all official partners of Ubuntu to give one example. Some other hardware companies support Centos or SUSE.

  • Shahid Saleem

    Today I discovered a Pakistani company that takes BTC for payments: hometownshoes .com

    • Muhammad Abrar Naeem

      Shame on you spammer

      • Shahid Saleem

        I don’t work for or know those people, I am just reporting what I have learned.

        Do you know how many companies in Pakistan accept bitcoins? No? then if one company DOES, then it is news, isn’t it?

        And if you think I am a spammer, you are a 100% zero. I have never EVER posted anything to promote a company that I work for.