You have probably heard of Bitcoin but might not know exactly what it is. That’s fine though, because once read through this guide you will know the fundamentals behind the original cryptocurrency.
As mentioned above, Bitcoin is a cryptocurrency which is another term that you should know. The other important thing that we will explain is the technology behind Bitcoin and most other cryptocurrencies which is blockchain.
Before we get into the details of Bitcoin, it is important that you understand what cryptocurrencies are and how they work.
Bitcoin is a cryptocurrency and a type of virtual money. In a way it is like having an online version of money or cash. Bitcoin can be used to purchase products and services and more and more vendors are now accepting Bitcoin as a form of payment. On the other hand, some countries feel very threatened by Bitcoin and have banned it completely.
There are no physical Bitcoin tokens. You may have seen pictures of Bitcoins but these are fabrications. The worth of a Bitcoin resides in the private codes that are imprinted inside them.
Every Bitcoin is simply a virtual file stored in what’s called a digital wallet. If you have a digital wallet then other people can send you Bitcoins or fractions of them. You can also send Bitcoins or fractions to others using your digital wallet.
Every Bitcoin transaction is recorded publically using blockchain technology. This is a transparent network where anyone can trace the history of Bitcoin transactions. All records in the blockchain are immutable. This means that you cannot copy transactions, change the number of Bitcoins owned or use Bitcoins that you don’t own.
There are several methods of purchasing Bitcoins including:
- You can purchase them using your native currency through a cryptocurrency exchange
- You can sell products and services in exchange for Bitcoins
- You can use a Bitcoin ATM
- You can “mine” Bitcoins
The practice of mining Bitcoins has been going on for a while. In order to do this, you will need high-end computer equipment and lots of it. These computers perform complex algorithms to guess secret codes. If your computers guess right you get Bitcoins as a reward.
We will not be recommending mining as a way of obtaining Bitcoins in this guide. There are only a limited number of Bitcoins so the process of mining is now incredibly complex. You could spend years mining for Bitcoin and spend a great deal of money on computer equipment and electricity costs without earning any Bitcoins.
You may be wondering why Bitcoins are so valuable. When Bitcoin first started it had no value but in five years a single Bitcoin was worth around $1,000. At the time of writing a Bitcoin is worth around $60,000.
Why this jump? Well, there are a number of other things in life that have value. Diamonds and gold are good examples. Bitcoins have value because people are willing to trade them for real products and services and also buy them for cash.
People like the idea that any government or central bank does not control Bitcoins. They also like the fact that Bitcoin transactions are pretty anonymous. Yes, there is a record of all Bitcoin transactions but very few include real-world identities.