The world seems to have gone bitcoin crazy in 2017. If you are worried you are being left behind, fear not – this brief guide will get you up to speed.
So, what exactly is bitcoin? While it’s called a crypto-currency, that term might be a little misleading. Bitcoins are quite simply digital assets. That means it only exists in digital form. Bitcoins are nothing more than code which, with the help of a sophisticated digital ledger system called the blockchain, cannot be reproduced or duplicated.
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To understand bitcoin, you really need to understand the bitcoin ledger, blockchain, and bitcoin wallets. The ledger keeps track of every bitcoin transaction. The ledger is decentralised which means it doesn’t exist in one place and it isn’t controlled by any single entity.
A Bitcoin Wallet is a digital address. When you send Bitcoin to someone, you send it to a Bitcoin address, and the transaction is entered into the ledger. Because the ledger is decentralized, it cannot be altered and it cannot be manipulated. That means a transaction can never be reversed. It also means everyone on the network agrees on who owns what at any point in time.
The bitcoin network is a peer to peer computer system. Like the ledger, the computer system is decentralised and not controlled by a single entity. Transactions are added to the ledger by miners. Bitcoin miners use powerful computer systems to solve mathematical puzzles. The first miner to solve the puzzle "wins" the right to update the ledger with a new block.
Transactions are added to the ledger in blocks, hence the term blockchain. As a reward for updating the ledger with a new block, the miner is given 12.5 new bitcoins. That is how bitcoins come into existence, and it's also how miners get paid. There are approximately 2000 transactions in a block, and a new block is added every nine minutes.
The total number of bitcoins will never exceed 21 million. Since bitcoin was launched in 2008, approximately 17 million coins have been mined. However, the speed at which new bitcoins come into existence is decreasing with each day. By 2036, all 21 million bitcoins will have been mined. The limited supply makes bitcoin scarce and therefore of value.
To purchase bitcoin, you need to download a bitcoin wallet and open an account at a cryptocurrency exchange. You can download a wallet at Blockchain.info, the Google Play store, or the iOS app store. Next, you open an account at an exchange like Coinbase or Kraken. These are a little like a stock broking account. You can transfer cash into your account from your bank, with a credit card or by using PayPal.
Once your account is funded you can buy or sell Bitcoin or any other cryptocurrency listed on the exchange. Your wallet will be linked to your account and update automatically.
Besides speculating on the price of bitcoin, there are lots of useful and fun things you can do with bitcoin. You can pay for products in the Microsoft and X-Box stores, you can buy all sort of products at Overstock.com. You can also use bitcoin to purchase a Tesla car or to book a space flight with Virgin Galactic. You can even play online casino games on bitcoin gambling sites like Crypto-Games.
When you want to pay for something with bitcoin, you will be given a choice between using a mobile wallet on a mobile device, or a wallet on a desktop PC. When you choose to pay with a mobile wallet, the vendor will generate a QR code. You open the wallet app on your mobile device and scan the QR code to complete the transaction. If you choose to pay using a desktop wallet, your wallet will open automatically and the transaction will be waiting for your approval.
Bitcoin is really easy to use, and hopefully, this guide has given you a basic overview of how it all works.