A Bitcoin Guide for ‘Dummies’
Bitcoins are no easy to topic to understand, so you can’t really be considered a ‘dummy’ for not having a perfect, working knowledge of the subject. Virtual currencies are still a fairly new opportunity for many people, so you can pat yourself on the back for trying to understand exactly what this virtual currency is all about.
Now that we have that out of the way, here is a simplified guide to get you up to basics with Bitcoin.
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What is Bitcoin?
First theorised by Satoshi Nakamoto in 2009, Bitcoin is in an online, virtual currency. They don’t exist in the physical world, despite what the word “coin” may imply. A few engineers have created physical versions, but these are not practical, since the currency can only be used and transferred online.
When you break it down, Bitcoins are a string of two unique numbers, a public key and private key, that are considered to hold the value of real currency. Just as every US dollar has a unique serial number, every Bitcoin has a unique set of keys that differentiates it from the others.
How Do You Get Bitcoins?
To spend and transfer in any currency, you must first get hold of some of the currency itself. Yet bitcoins, unlike national currencies, are formed from thin air by computer software. As such, they are not created through a printing press, but rather through a form of coding.
This process is called mining. The reason these coins hold value is that it takes a significant investment of time and electrical power to create them from a computer. Mining software from one computer (or from a “pool” or group of computers) must decode numerous complex algorithms, while also being faster than other miners, to receive a reward, set to a certain number of Bitcoins.
At the start of Bitcoins iteration, an average home PC or laptop could run the software and earn new Bitcoins. Yet, as the currency has become more popular, it has gotten very difficult to create new currency and a large investment is required to mine new Bitcoins. As computers get stronger, the currency adjusts itself to make sure new coins are only generated every 10 minutes or so. While this is a challenge for miners ,this process helps control the currencies value, as it doesn’t flood or inflate the market.
Ultimately, mining is not a viable activity for the average computer anymore, but you can easily buy, sell, and trade Bitcoins that are already on the market. Bitcoin exchanges allow you to buy Bitcoins with any existing currency from your country. This is a great way to acquire your first Bitcoins, or even use the service to exchange for profit.
Where Are Bitcoins Stored?
To store your Bitcoins, you need to down a special piece of software, known as a Bitcoin wallet. You can get this software for free on a mobile phone, computer, or a cloud storage facility.
Bitcoin wallets are encrypted pieces of software that store Bitcoin key codes for you, allowing you to send and receive coins anonymously.
This is exactly the same as a regular currency, but all handled online. You wouldn’t walk around with a wad of money in your hand or pinned to your jacket, would you? Instead, you would put it in your wallet. Bitcoin wallets are encrypted, so nobody can just look into them from outside of your computer and know the key codes.
Keep in mind that the similarity to physical cash is closer than it may seem. If you lose a cash bill somewhere, you won’t be able to get it back. Bitcoin key codes are the cash in this metaphor. If you lose your public and private key codes, you won’t be able to claim the respective Bitcoin back in any way and you will lose it.
For this reason, many people either print out a paper copy of their codes, or save them on multiple secure locations, to keep from losing them if their computer crashes.
Can You Spend Bitcoins?
Bitcoin is a currency, and you can spend it just like any other form of money. The only catch is that it’s not accepted everywhere right now.
Many online services and merchants are now accepting Bitcoin, while some physical locations will also allow you to pay using a mobile Bitcoin wallet. However, not all shops will allow you to make purchases with Bitcoins. In those cases, you can simply convert your Bitcoin to cash and use the cash for a purchase instead.
Currently, 1 full Bitcoin is worth close to $660 US dollars, but you can break every coin into decimals up to 8 places, known as Satoshi, to make smaller values.
Are Bitcoins a Legal Currency?
Bitcoins are legal in most of the world. Yet there are some countries, such as Russia and Indonesia, that have outlawed Bitcoins entirely. A few other countries, mainly China and India, have placed restrictions on the coins but have not entirely banned them. Most countries, however, either have no official position or have made Bitcoin legal for use.
What Makes Bitcoins Unique?
Most people that use Bitcoins like the fact that they are not owned or controlled by any government agency or bank. Bitcoins are self-regulating, because the software that mines new Bitcoins is required to keep a public record of all transactions that take place with any Bitcoins that exist.
This is why miners are rewarded with new Bitcoins, because they are working to keep a public ledger of transactions that will keep any fraudulent activities from taking place. Any attempt at fraud would disrupt the entire blockchain - essentially the Bitcoin ledger - and would be far too visible to succeed.
Other people prefer the fact that Bitcoins can be spent globally, without having to deal with national exchange rates and regulations. Some also prefer the privacy benefits that come with Bitcoins, making them popular for online casinos and other expenses.
Ultimately, this is just scratching the surface, as there is a lot more to learn about Bitcoin. Yet this guide should let you understand the basics of how the currency works, what it is and why it can prove beneficial.
Want to learn more? Read out other articles!
- How Bitcoin Cryptography Works
- Bitcoin and Other Virtual Currencies: Are They Legal?
- Anonymous Bitcoin: How To Remain Untraceable