The revolution of money started in 2008 when Satoshi Nakamoto published the Bitcoin Whitepaper online, creating a digital alternative to the current monetary system. It removed the need for central authorities and made transactions records transparent and more public-friendly.
Since then, the crypto market has boomed with more and more people joining the craze. Different coins with varying purposes now flood the market but none is more popular than the world’s first cryptocurrency.
What is Bitcoin?
Bitcoin is a digital currency that can be bought, exchanged and sold through the Internet. Every transaction is verified by miners and listed in an open-source public ledger called the blockchain. It acts as an alternative to the present monetary system where fiat currency is used as a medium of exchange. Just as the name digital currency suggests, Bitcoin doesn’t have a physical body.
Bitcoin performs just like cash and it can be used to pay for products and services online or in physical stores. Others prefer to use it as an investment, storing huge amounts of Bitcoin and leaving them to accumulate in value. Some use Bitcoin to earn money through trading.
Transactions done with Bitcoin are listed publicly on the blockchain. This means that you can check and balance the transactions yourself. In the traditional system, banks keep their ledgers private and the public cannot see the record of all transactions. All the control is centralized and the public has no power over it.
The Bitcoin blockchain allows transparency between all members of the community, establishing trust and culpability. This is a huge step towards giving control back to the public from financial institutions.
Decentralized means no single authority controls the activities done in the network. In the current financial system, banks serve as the middlemen who validate the legitimacy of every transaction. Bitcoin removes the need for third parties, reducing fees and giving the power back to the public.
Instead, all members of the network contribute to its maintenance. Every computer that participates in the system keeps a copy of the ledger called the blockchain. Rather than a single point holding all the power and control, the blockchain decentralized it and equally distributed control across the network users.
Pseudo-anonymous yet traceable
Though the blockchain is an open-source public ledger viewable to anyone, this doesn’t mean that your identity is revealed. Instead of displaying your private details, the network comes up with a unique address composed of a string of letters and numbers as your identification.
This way, your identity remains confidential. Because of this feature, some feared that this would enable illicit activities to be done on the blockchain. However, Bitcoin’s pseudonymous characteristic means an address’ activities are traceable. This is a safety precaution as well to make sure that illegal activities are not tolerated.
Bitcoin is completely digital and it does not have a physical form. When you say that you own Bitcoins, what you really have is the right to access a specific address in the blockchain and send funds from that address to another. This means physical robbery is impossible.
How does it work
At the heart of Bitcoin’s existence lies the blockchain. It records all transactions done on the network, making them permanent and immutable. It’s a string of records dating back to the very first purchased Bitcoin to the latest transaction. Working on the blockchain are miners who complete cryptographic processes to validate transactions and add them to the chain.
When you make a Bitcoin transaction, miners and their computer nodes will validate it by completing a mathematical problem. Whoever solves the problem first will get to add your transaction to the blockchain, making it legitimate and unchangeable.
In exchange for their hard work, miners are rewarded by the network with Bitcoins. Every four years, the block reward is cut in half to slow down the influx of Bitcoin in the market and decrease the inflation rate. In 2009, the block reward was at 50 BTC. Eleven years later, the block reward is now 6.25 BTC.
Where to buy bitcoin
There are four main ways for you to buy Bitcoin: through exchange platforms, Bitcoin brokers, marketplaces or Bitcoin ATMs. Each one differs when it comes to additional fees, accessibility and ease of use.
Trading or exchange platforms are online sites where buyers and sellers are automatically matched by the site to complete transactions. Through this medium, you won’t have to find a seller to buy Bitcoin. All you need to do is place a buy order and the platform will find the best sell order for you.
There are different platforms out there but the most popular one is Binance. They boast the largest user base in the crypto market. Additionally, they offer trading capabilities which can be overwhelming for beginners. Locally, bitFlyer is Japan’s largest Bitcoin broker and exchange site.
Exchange platforms offer cheaper fees than brokers, but they can be harder to navigate. They are more ideal for those who already have experience with cryptocurrencies.
Compared to trading platforms, Bitcoin brokers are more beginner-friendly when it comes to the user interface and buying process. These are sites that directly sell cryptocurrencies to people. If exchange platforms are matchmakers for buyers and sellers, brokers are the sellers who instantly provide buyers with what they need as soon as an order is placed.
It’s a faster process than exchange platforms but the fees are usually higher due to convenience. Out of the many brokers out in the market, Coinbase is the largest seller in terms of the trading volume. With its easily navigable user interface, it is the perfect site for beginners.
You’ll find all kinds of buyers and sellers in a marketplace. These free-for-all sites provide a space for crypto buyers and sellers to interact with each other and complete trades. Compared to exchange platforms and broker sites, marketplaces have no middleman to conduct the trade. You’re on your own to find a seller and vice versa.
Since there are no intermediaries, marketplaces usually have low to no additional fees. However, security is an issue when it comes to user-to-user interactions since you can get scammed if you’re not careful. Sites like Bisq and BitQuick are some of the most trusted peer-to-peer marketplaces for cryptocurrencies.
People can also get Bitcoin on physical ATMs scattered around the world. Just like bank ATMs, Bitcoin ATMs are terminals where you can buy Bitcoins with cash. All you need to do is get your wallet’s QR code scanned by the machine before inserting the amount of cash you want to exchange for Bitcoin. After a while, your purchase is transferred straight to your wallet.
This machine also works the other way around. If you want to sell your Bitcoin and receive the equivalent cash, you just need to find the nearest Bitcoin ATM and follow the steps. What makes Bitcoin ATMs great is that you won’t need to give any personal information to conduct a transaction. It’s instantaneous and preferable if you’re transacting with cash instead of credit cards.
Where to store them
Anyone with an internet connection can buy Bitcoin but before you can do so, you first need to have a wallet. After buying Bitcoins in exchange platforms or brokers, they’ll be temporarily stored on the site until you can transfer them to your wallet. As long as your coins aren’t secured on any wallet, they are vulnerable to hackers, that’s why it’s important to choose your wallet carefully.
There are two types of crypto wallets where you can store your Bitcoins: software or hardware wallets.
These are the wallets that are accessible online. Hot wallets allow easy access to your coins whenever and wherever you may be since they are downloadable as applications on your phone. If you plan on using your coins for everyday transactions, this is the ideal option.
However, since it’s stored on the Internet, it can still be prone to hacks. Software wallets are third-party apps that are entirely independent of the blockchain so it’s important to consider which one you’re going to use. These wallets are often free to use but offer less security.
Unlike software wallets, cold wallets are physical wallets that come as a hardware device similar to a flash drive. This means your crypto coins will no longer be stored on the Internet and will be protected from cyber-attacks. This is the highest level of security for your coins, though it’s not as accessible as hot wallets and it comes at a more expensive price.
What can you do with Bitcoin?
Bitcoin is intended to be used in place of cash. You can use it to buy items online or on physical stores that accept Bitcoin as payment. However, due to its market’s unstable nature, some prefer to use it as a long-term investment. Others do day trading and gain small income by trading different coins and assets.
Why you should buy Bitcoin
The future of money is here. Because of Bitcoin’s decentralized nature, full control is taken from central institutions and given back to the people. With cheaper fees, faster transaction time and trusted security, it’s obvious why you need Bitcoin today.