{"id":12006,"date":"2017-08-07T11:26:19","date_gmt":"2017-08-07T18:26:19","guid":{"rendered":"https:\/\/coincentral.com\/?p=12006"},"modified":"2021-10-01T23:55:06","modified_gmt":"2021-10-02T03:55:06","slug":"beginners-guide-what-is-bitcoin","status":"publish","type":"post","link":"https:\/\/coincentral.com\/beginners-guide-what-is-bitcoin\/","title":{"rendered":"Beginners Guide: What is Bitcoin?"},"content":{"rendered":"

\"What<\/p>\n

The Bitcoin world is abuzz with both excitement and curiosity\u2026 and the opportunity for upside potential to skyrocket. Everyone from everyday Joes to reputable experts is betting on Bitcoin\u2019s success.<\/p>\n

It\u2019s been a wild 8 years since Bitcoin\u2019s release. Most notably, we\u2019ve seen headlines of people who fortuitously purchased bitcoins early on turn into kid-millionaires. With the immense potential of new cryptocurrencies, our attention often turns to Bitcoin as a quintessential example of what\u2019s to come.<\/p>\n

We\u2019ve designed this guide to teach you about Bitcoin so that you\u2019re up to speed and ready to join the crypto-world.<\/p>\n

What is Bitcoin?<\/h2>\n

Released as an open-source software in 2009, Bitcoin is often credited as the world\u2019s first cryptocurrency and is best defined as a digital currency that only exists electronically<\/b>.<\/p>\n

Bitcoin is decentralized<\/b>, meaning it doesn\u2019t have a central issuing authority or political institution that controls the amount of bitcoin in circulation. But the Bitcoin platform is far from anarchy.<\/p>\n

The whole process is pretty simple and organized: Bitcoin holders are able to transfer bitcoins via a peer-to-peer network. These transfers are tracked on the \u201cblockchain,\u201d commonly referred to as a giant ledger<\/b>. This ledger records every bitcoin transaction ever made. Each \u201cblock\u201d in the blockchain is built up of a data structure based on encrypted Merkle Trees.<\/a> This is particularly useful for detecting fraud or corrupted files. If a single file in a chain is corrupt or fraudulent, the blockchain prevents it from damaging the rest of the ledger.<\/p>\n

Instead of relying on a government to print new currency, Bitcoin\u2019s blockchain programming handles when bitcoins are made and how many are produced. It also keeps track of where bitcoins are and ensures the transactions are accurate.<\/b><\/p>\n

There are currently about 17 million<\/a> bitcoins in circulation. There isn\u2019t a central regulatory agency or government controlling the supply of bitcoins, meaning the supply is controlled by design. The total supply to ever be created is capped at 21 million bitcoins.<\/p>\n

This cap raises an argument that Bitcoin could have problems scaling. However, since Bitcoin is essentially infinitesimally divisible (meaning users can transfer as little as 0.00000001 bitcoins), this doesn\u2019t really create a scaling issue. The magic number of 21 million is arbitrary.<\/p>\n

It\u2019s believed that Bitcoin was designed to become a deflationary currency to combat the government\u2019s use of inflation as a hidden taxation to redistribute earned wealth. Many people praise Bitcoin for empowering the people by overthrowing the currency printing powers of transient politicians.<\/p>\n

How Does Bitcoin Work?<\/h2>\n

One of Bitcoin\u2019s most appealing features is its ruthless verification process, which greatly minimizes the risk of fraud. Since Bitcoin is decentralized, volunteers\u2014referred to as \u201cminers\u201d\u2014constantly verify and update the blockchain. Once a specific amount of transactions are verified, another block is added to the blockchain and business continues per usual.<\/p>\n

What is \u201cMining\u201d?<\/h3>\n

Instead of a single central server verifying every transaction, essentially every other person on the network verifies each transaction.<\/p>\n

Cue the \u201cminers.\u201d<\/p>\n

Let me simplify the process so we all understand: Miners are presented with a complicated math problem and the first one to solve the math problem adds the verified block of transactions to the ledger. The calculations are based on a Proof of Work (POW), or the proof that a minimum amount of energy was spent to get a correct answer.<\/p>\n

There aren\u2019t actual human beings hunched over computers with scraps of notebook paper and calculators doing pre-calculus homework; hardware is used to perform Bitcoin mining.\u00a0<\/p>\n

Bitcoin\u2019s built-in reward system compensates successful miners with a chunk of bitcoins. The reward changes over time per Bitcoin\u2019s programming, and the block reward halves about every four years. The current reward for each new block of verified transactions is about 12.5 bitcoins.<\/p>\n

The mining processes have become increasingly sophisticated. The most popular method uses ASICS–Application-Specific Integrated Circuits. ASICS are hardware systems similar to CPU computers that are built for the sole reason of mining bitcoins.<\/p>\n

Bitcoin mining operations take a lot of effort and power, and the sheer amount of competition makes it difficult for newcomers to enter the race and profit. A new miner would not only need to have the adequate computing power and the knowledge to use it to outcompete the competition but would also need the extensive amount of capital necessary to fund the operations.\u00a0<\/p>\n

A Simple Bitcoin Transaction Example<\/h2>\n

While Bitcoin’s underlying technology may seem hard to grasp, using Bitcoin does not have to be difficult. \u00a0Here’s an example of how simple a real-world Bitcoin transaction can be.<\/p>\n

\"A<\/p>\n

 <\/p>\n

Bitcoin Wallets: How to Store Your Bitcoins<\/h2>\n

So, you\u2019ve got this digital currency. You can\u2019t really chuck it in your pocket. Let\u2019s go through some useful definitions before we jump into storing cryptos:<\/p>\n

    \n
  1. Exchange platform: <\/b>where you trade money for cryptocurrencies such as Bitcoin, Ethereum<\/a>, or Litecoin<\/a>. You can also trade one cryptocurrency for another.<\/li>\n
  2. Wallet platform:<\/b> essentially a bank account where your cryptocurrencies are kept.<\/li>\n
  3. Hard wallet<\/b>: an \u201coffline\u201d wallet that is not linked to a network.<\/li>\n
  4. Public Cryptographic Key:<\/b> your account number. Similar to how someone would send money to your bank account via your account number, your public cryptographic key is the information you give to someone to receive cryptos.<\/li>\n
  5. Private Cryptographic Key: <\/b>the key that allows you to spend your Bitcoins and other cryptocurrencies. You guard this with your life. If someone has access to it, they can transfer (steal!) your bitcoins.<\/li>\n<\/ol>\n

    Now that we\u2019ve got that out of the way, we can discuss Bitcoin wallet better.<\/p>\n

    When you hear of bitcoins being hacked, you\u2019re probably hearing about an \u201cexchange platform\u201d being hacked. Since Bitcoin\u2019s blockchain structure makes it EXTREMELY difficult to hack (borderline impossible), it is considered very secure.<\/p>\n

    Exchanges, however, are a different story<\/a>. Perhaps the most notable\u00a0hack was the Tokyo-based MtGox hack in 2014, where 850,000 bitcoins with a value of over $350 million suddenly disappeared from the platform. This doesn\u2019t mean that Bitcoin itself was hacked; it just means that the exchange platform was hacked. Imagine a bank in Iowa is robbed: the USD didn\u2019t get robbed, the bank did.<\/p>\n

    Industries surrounding Bitcoin are new and not without their kinks. Bitcoin advocate and esteemed venture capitalist Marc Andreessen stated<\/a>, \u201cMtGox had to die for Bitcoin to thrive. Its former role from early Bitcoin days has been supplanted by better, stronger entities.\u201d<\/p>\n

    Even though most wallet platforms are considered extremely secure, the prospect of hackers makes many users paranoid. They\u2019re also now more heavily regulated, especially those based out of the United States. You can compare any bitcoin exchange with another and view our in-depth reviews in our How to Buy Bitcoin Guide. We\u2019ve also listed our top two recommended options below:”<\/p>\n

    That brings us to hard wallets. <\/b>A hard wallet is essentially a USB that allows users to store their cryptographic keys offline and off of exchanges. Your cryptographic key only lives on your hard wallet and is impossible to hack (unless someone physically steals your hard wallet).<\/p>\n

    .\"ledger<\/p>\n

    Hard wallets are so secure that there are countless stories of people carelessly misplacing a hard wallet full of cryptos and never being able to recover thousands, hundreds of thousands, or millions of bitcoins.<\/p>\n

    Some users opt to use a \u201cpaper wallet,\u201d<\/b> which is essentially your cryptographic keys on a piece of paper stored somewhere safe like a bank vault. Although paper wallets are not recommended, they can be done either by an online key generator (not recommended due to threats of malware) or handwritten.<\/p>\n

    For more information on Bitcoin wallets, read out Guide to Finding the Best Bitcoin Wallet<\/a>.<\/p>\n

    Why use Bitcoin?<\/h2>\n

    Bitcoin is often hailed as the future of the monetary world for a variety of reasons.<\/p>\n