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.
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.
- 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.
- 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.
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.
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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