WHAT IS CRYPTOCURRENCY/BITCOIN?
In its simplest terms, a cryptocurrency is a digital form of money. Those holding cryptocurrency can spend, save, or trade in a similar way one would use paper currency. However, the currency does not have a physical representation. What companies refer to as ‘coins’ or ‘tokens’ are actually specific pieces of computer code that prove you are the owner.
The most commonly recognised type of cryptocurrency is Bitcoin. To understand Bitcoin, you need to remember that the word ‘Bitcoin’ can refer to two separate entities.
- Bitcoin can mean the individual bit of code that represents your ownership of a piece of digital currency.
- Bitcoin also refers to the system behind the digital currency. This is known as the Bitcoin network. The network serves as a ledger where your purchases and use of Bitcoins is verified and recorded onto a part of the network using a cryptography system.
Bitcoin and other cryptocurrencies receive praise for the fact that they operate smoothly without relying on a central entity, like a bank, which requires fees for transfers and other random services. Owners of cryptocurrencies also applaud the fact that there is no single government entity controlling the world of digital currency.
IMPORTANT TERMS TO KNOW
To someone new to the cryptocurrency world, it can appear confusing. Before we delve deeper into digital currency, here are a few definitions of terms that will help you moving forward.
- Blockchain – This is the public database that stores records of all transactions as a virtual ledger. The blockchain is accessible to the general public, but no one can alter the data on the blockchain. Aside from verification by a neutral party, cryptography protects the blockchain entries
- Node – An individual computer that holds and maintains a part of the blockchain. Nodes share cryptocurrency dealings with other nodes in the same network. Anyone can download the software and operate a node. Once installed and operating, the computer does all the work. However, nodes need a substantial amount of power and storage space.
- Mining – Bitcoin and other virtual currencies use the term mining when they speak of the process where groups of individuals use computer programs to bring more Bitcoins into use. The process is essentially similar to physical mining, individuals working together to unearth gold. A significant difference between the types of mining is no one knows when a vein of gold will end. However, Bitcoin’s creator promises that 21 million Bitcoins will be the final number in the future. The limited number of Bitcoins helps to assure the currency’s value. The ability to mine for Bitcoins is a reward for validating transactions on the blockchain.
- Wallet – Just as people hold their physical assets in a wallet, Bitcoin owners hold their cryptocurrency codes in one of several types of wallets. Each wallet has a unique key that permits you to open your Bitcoin address. The varieties of wallets range from mobile wallets, software wallets, hardware wallets, and even paper wallets.
HOW TO BUY BITCOIN
Purchasing Bitcoin is not a difficult process. You can buy them from other Bitcoin owners through a marketplace or exchange. Several forms of payment are acceptable and may vary depending on who you are working with as well as your location.
Need help? I’ve put together this handy guide about buying your first Bitcoin.
Another way to buy Bitcoin that I strongly recommend is by setting up an account with a gateway company such as CoinSpot. The process of creating an account is simple, and you can be sure of their security and verification practices. Another plus with using CoinSpot is you will receive a wallet with your account.
Once you have made your Bitcoin purchase, be sure it is safe in your wallet. If you are working with CoinSpot or another gateway company, you should see the record of your Bitcoin in the wallet the company provided.
Once you successfully completed your Bitcoin purchase, you may wonder what you should do next. You have options with your Bitcoin just as you do with your physical currency.
- Spend Bitcoin – Using Bitcoin for purchases worldwide is easier than ever. More companies advertise their acceptance of virtual currency than ever before. Bitcoin ATMs are situated around the globe to make use of virtual currency easier. If you would like to find places near you where you can use Bitcoin, the website, Spend Bitcoins can help you.
- Sell Bitcoin – Because cryptocurrency values fluctuate with the market, many owners treat the currency like stock holdings. After observing the value of Bitcoin, selling for a profit is the goal.
There are a few ways to sell your virtual currency. With few exceptions, the place you purchased your Bitcoin will have a ‘sell’ option. Additionally, exchanges are a good way to sell Bitcoins.
- Trade Bitcoins – It is no secret that trading cryptocurrencies can be a profitable venture. If you would like to trade Bitcoin, simply find an exchange, create an account, and follow the guidelines. Be sure to carefully look over the terms imposed by the exchange, especially fees.
ADVICE FOR BEGINNERS
While you are likely excited about your foray into the world of cryptocurrencies, there are a few points you should remember.
- Cryptocurrency is volatile, just like any other market. Be sure only to invest an amount of money you are comfortable losing.
- Consider downloading your virtual wallet to an external hard drive for added security.
- Carefully examine all contracts involving cryptocurrency exchanges to be sure you agree with the terms and fees involved with your transaction.
BUY YOUR FIRST BITCOIN
Learning all about bitcoin’s potential is exciting. Once you have mastered the basics, you are likely ready to get some of your own. I would be remiss if I did not mention that bitcoin, like other commodities, are subject to the forces of the market and by nature volatile. Be sure you do not invest more than you can comfortably lose.
You can purchase bitcoin directly from others via a marketplace or from exchanges. There are many payment options including, credit and debit cards, cash, wire transfers, and with other cryptocurrencies - this depends on who you are dealing with and your location. Setting up your own CoinSpot (or Coinbase) account is an easy way to purchase bitcoin.
HOW TO STORE CRYPTOCURRENCY
Prior to the purchase of bitcoin, it is necessary for you to have a form of storage ready. Bitcoin owners use a “wallet” to hold their virtual assets. Your wallet has your individual key that gives you access to your bitcoin address. If your wallet is well designed, it will appear as if the bitcoin is present in the wallet. You may keep your wallet on your mobile device, computer, an external storage device, or simply a paper ledger.
Often, a virtual wallet holds numerous keys, and many bitcoin owners use several wallets. The complexity and number of wallets you use are up to you.
- Electronic wallets
- Mobile wallets
- Software wallets
- Hardware wallets
- Online wallets
- Paper wallets
HOW TO SELL CRYPTOCURRENCY
Except for select bitcoin ATMs, nearly all places you purchase bitcoin will provide a “sell” option. You can find out more about ATMs near you with Coin ATM Radar.
Exchanges are also a good place to sell as well as buy cryptocurrency. Be sure to work with an exchange geared towards your use of bitcoin. Some exchanges are quite specific and will only work with specific groups such as an institutional holder, trader, or small investor. Some, such as Gemini, or GDAX focus on sizeable orders from institutional traders and investors.
A retail client can work with exchanges such as Bitstamp, Coinbase, Kraken, Poloniex, and others. Each exchange has its own interface and its individual requirements.
WHAT IS MINING
Many clients new to the world of bitcoin ask about the term “mining” and how it relates to virtual currency. The world of bitcoin uses the term mining because of the similarities to gold mining. Bitcoin exists in the design of the protocol, in much the same way gold exists underground. Miners unearth the physical entity we call gold and bitcoin miners virtually uncover bitcoin within the program. While no one knows just how much gold exists, the bitcoin design promises that there will be 21 million bitcoins uncovered at some point in the future. Bitcoin miners use computer programs to bring the bitcoins to the surface. These miners can do this as a reward for validating transactions and adding them to the blockchain.
COMPONENTS OF BITCOIN At this point, I would like to highlight several components of the bitcoin mining process
A node is a strong computer that both runs bitcoin software and relays the information necessary to keep bitcoin working. There is free bitcoin software available for anyone to download, so anyone who wants to try can run a node. After downloading the software, simply leave a port open and the node takes care of the work.
Your node shares bitcoin transactions with other nodes it knows within the network. These nodes pass the information to nodes they know, and the data continues to spread through the entire system. The biggest drawback to the process is nodes use large amounts of energy and storage space.
SOLVING THE PUZZLE
The bitcoin miners work with the nodes to solve a complicated mathematical problem that is part of the bitcoin program. To solve the riddle and complete the chain, a miner must figure out a number that will combine with the data in the block then passed through a hash function will create a result within a specific range. This is incredibly difficult because the hash function prevents any output predicting.
Miners find the number by guessing and applying the hash function to the combined mystery number and the data in the block. The miner who solves the puzzle receives new bitcoin as a reward.
At this present time, a miner’s reward is 12.5 bitcoins. According to today’s rate (July 3, 2019), the bitcoin reward equals $141,500. While the payoff is generous (and based on the daily value of a bitcoin which does fluctuate) this is a highly competitive venture. Success depends on ultra-fast computing power and an element of luck.
Additionally, it is quite costly to operate as a mining node. There is a considerable amount of electricity to pay for as well as purchasing the very top of the line computer processors to outpace the other miners.
Lest anyone believe that any part of the mining process is simple, be aware that the difficulty of the calculation changes frequently. The goal is for miners to take 10 minutes to process each block. Bitcoin developers settled on ten-minute increments because they want a consistent and decreasing supply of bitcoin until they reach the final tally of 21 million bitcoins. The timeframe predicts mining will end in 2140.
While this is a broad outline of the bitcoin concept and some of what is involved, there is still a plethora of information for you to discover about bitcoin.
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There are three overarching types of cryptocurrency:
- Transactional cryptocurrencies serve as a way to store and exchange value. Examples include bitcoin and Litecoin.
- Cryptocurrency platforms are designed to build a foundation that allows for the creation of new blockchain applications. These often focus on the development of secure record-keeping as well as running smart contracts.
- Cryptocurrency applications can range from decentralized exchange to initial coin offerings to raise start-up funding.
Once your company decides to accept bitcoin and potentially other forms of cryptocurrency, there is a relatively straightforward process that will allow you to take digital currency as a form of payment.
- Create secure storage for your cryptocurrency. Depending on the amount of bitcoin you will store, a hardware wallet is an excellent example of a safe place to store coin. If you anticipate large sums of currency, you may wish to consider a company that offers custodial crypto services.
- Decide on how you will process payments. Once again, the anticipated amount of volume is a determining factor when choosing a payment processor. For occasional cryptocurrency purchases, your customers can pay directly to your wallet via your public address. For large numbers of purchases paid with a digital currency, aligning yourself with an application to facilitate your transactions.
- Advertise your acceptance of bitcoin. It is nearly pointless to create storage and payment processing plan if no one knows you are joining the ranks of the scores of companies who accept cryptocurrency.
Trading bitcoin and other cryptocurrencies can be extremely profitable. If trading is something that interests you, it is a simple process to learn.
Your first step in trading is to choose an exchange for your trading. There are numerous exchanges where you can trade. Before you commit, look into the fine details about the exchange. You will want to know about things like fees, liquidity, and locations for depositing fiat currency, if necessary. Once you have decided on an exchange, create an account, and follow the instructions on the site.
While there is an element of excitement to trading in a global market that functions 24/7, you need to be sure to assess your risks before proceeding.