Bitcoin Basics

Bitcoin Basics

Bitcoin is an electronically created digital currency that is not controlled by any Country, government authority or institution. This currency is not in a printed form, like Euros, Dollars etc. It is, in fact, produced digitally by using applications that create algorithms. The idea of Bitcoin was proposed by Satoshi Nakamoto, a software developer, the idea was to create a currency that is not controlled by any authority.

Decentralized Currency

The distinct characteristic of Bitcoin is its decentralization. It isn’t controlled by any institution, and is electronically transferred almost instantly with a very minimal transaction cost.

Creation and Protocol

Bitcoin is produced digitally by a community that can be joined by anyone. It is mined by using a computing power in a distributed network, which also execute transactions that are based on virtual currency. This makes Bitcoin its own payment network. According to a Bitcoin Protocol, the miners of Bitcoin can only create a maximum of 21 million Bitcoins ever. However, you have a choice to divide this currency into smaller parts.

Transparency – All the transactions that have been executed on the network so far are stored in a very large general ledger, known as the Blockchain. For example, if you have a Bitcoin address that you use publicly, then anyone on the network can easily figure out how many Bitcoins are registered at that address.

How do Bitcoin Transactions Work?

All the Bitcoin transactions are executed from one electronic Bitcoin wallet to another. These transactions are then digitally signed for security. However, you must be aware of the fact that Bitcoin do not exist anywhere except only in records. Yes, you can trace it back to a particular address, but once you are there on that address, it doesn’t contain any digital Bitcoins.

Executing Transaction – Bitcoin transaction is usually executed in three steps, including

An Input – A record of address that was used to send the Bitcoins in the first place.

An Amount – The amount of Bitcoin that is sent to the other party.

An Output – An address of the party that receives the Bitcoin.

Sending Bitcoins – In order to send Bitcoins, all you need is a Bitcoin address and a private key. Bitcoin address is a set of numbers and letters. The private key, on the other hand, also represent another set of numbers and letters, but it is kept secret. For example, when one party sends Bitcoin to another party, the first party uses a private key to sign a message with an input, amount and output. From there, she sends it out from her Bitcoin wallet out in the network, where miners put it in a transaction block after verification.

Transaction Fee – Sometimes, it is charged on a transaction, but not all the time. A number of factors are considered in computing a transaction fee. You can set it manually in some wallets. There are many miners who do not charge any transaction fee. In the past, the calculation of this cost was very complex, but with several updates to the protocol, it developed and evolved very organically.

How to Buy Bitcoins?

There are a number of Crypto Currency exchanges where you can buy or sell Bitcoins, and other digital currencies like Dogecoin and Litecoin. In order to buy Bitcoins, you are should sign up with one of these exchanges and provide a proof of residency and photo ID scan for anti-money laundering and KYC (know your customer) compliance procedures before you can use the services.

Avoid using the word “Bitcoin” in the payment reference, as most banks are known to reject anything that is related to the digital currency, even if it concerns closing the accounts in the past.

Avoid using the word “Bitcoin” in the payment reference, as most banks are known to reject anything that is related to the digital currency, even if it concerns closing the accounts in the past.

How to Sell Bitcoins?

Bitcoins can either be sold online or in person, but selling them online is, so far, the most common method of trading this currency. You can sell online by the following methods:

Direct trades – This involves a direct trade with another person, where intermediary facilitates the connection. Websites that provide this structure are Coinbase, Bittylicious, LocalBitcoins, and BitBargain. You can get yourself registered on these platforms, and then post the offer, where you show your intention to sell. When there is a buyer who wishes to trade with you, the website intimates you instantly.

Exchange trades – In this case, you can trade with the help of an online exchange rather than trading with another individual. There will, however, be a limit on the amount of money you can store on an exchange. Besides, it is not wise to store all your Bitcoins on exchanges, even if it is relatively an easier way to trade Bitcoins.

On the other hand, selling the Bitcoin in person is easier than selling online. It involves scanning a QR code on the other person’s phone, and in return, accepting the cash in hand.

Peer-to-peer trading marketplace – It allows Bitcoin owners to obtain goods at a discount through others, who want to obtain Crypto Currency with debit or credit cards. So, it allows two groups to resolve this issue through a peer to peer exchange.

On the other hand, selling the Bitcoin in person is easier than selling online. It involves scanning a QR code on the other person’s phone, and in return, accepting the cash in hand.

On the other hand, selling the Bitcoin in person is easier than selling online. It involves scanning a QR code on the other person’s phone, and in return, accepting the cash in hand.

Why Use Bitcoin?

First of all, it is very cheap and apart from some merchants, no one charges a fee for debit or credit transactions. Since it is a decentralized currency, no central government can take it away. There are no charge backs in a Bitcoin transaction. The party that sends Bitcoin is unable to retrieve them without the consent of a recipient.

All in all, Bitcoin allows you to mine your own coin, if you have enough computing power, or you can definitely buy it in the open market, and can easily trade it without bearing a burden of extra cost.

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