Bitcoin is a global cryptocurrency and digital payment system. It is the first decentralized digital currency, since the system doesn't need a central repository or single administrator to work. It utilizes a peer-to-peer system wherein transactions take place between the users directly, without an intermediary. The network nodes verify the transactions and record them in a public distributed ledger called blockchain.
It was created by the anonymous Satoshi Nakamoto, whose identity is still unknown, as the very first type of digital currency nearly a decade ago. He implemented it as an open source code and release it in January 2009.
BTC is the symbol used to represent the units of the Bitcoin system. Though BTC is the widely used unit, there are also alternative units used for small amounts of Bitcoin. These includes: satoshi (smallest amount representing one hundred millionth of a Bitcoin), milliBitcoin (represents one thousandth of a Bitcoin), and microBitcoin (equals to one millionth of a Bitcoin).
There are different ways to collect Bitcoins. The most popular (but challenging method) is through mining. Mining is the process by which new Bitcoins are generated. Your computer, when mining, adds new Bitcoin transactions to the publicly-shared ledger (blockchain) and searches for new blocks. You receive a certain number of Bitcoins when a new block is discovered by your computer. As of now, there are 25 BTC per block.
Gradually, Bitcoin is fast becoming more and more grounded as an acceptable currency or means of payment all over the world. People are losing faith in banks and the traditional paper currency it circulates. Notable investment companies and financial organizations are exploring this idea and have already started to buy up Bitcoins.
The media is talking about it more than ever and with each passing day; more governments are legalizing it and accepting it as a means of exchange and payments, even implementing it in other fields of financial operations. As more people are putting faith in Bitcoin, the value is increasing and it is making this digital currency more sought after in the business world today.
- High level of Security - ownership address can only be changed by the owner.
- Greater liquidity relative to other cryptocurrencies - allows users to retain most of its inherent value when converting to fiat currencies, such as the U.S. dollar and euro
- Increasingly wide acceptance as a payment method
- Very low transaction fees - compared to other digital payment methods, such as credit cards and PayPal
- International transactions easier than regular currencies
- Anonymity and privacy relative to traditional currencies - its built-in privacy protections allow users to completely separate their Bitcoin accounts from their public personas
- Independence from political agents and creators
- Built-in scarcity - support its long-term value against traditional currencies
- Susceptible to high price volatility - price can unpredictably increase or decrease over a short period of time due to its young economy, novel nature, and sometimes illiquid markets
- Government taxes and regulations - not an official currency and its legal status varies substantially from country to country and is still undefined or changing in many of them
- Competition- Other cryptocurrencies could send Bitcoin into history. Offering faster transactions, complete anonymity, storage space, and other improvements could lead to a lower market share for Bitcoin.
- Still experimental in active development
- Exposure to Bitcoin-specific scams and fraud
- Black Market activity may damage reputation and usefulness - the entire system could face marginalization
- No chargebacks or refunds - due to lack of standardized policy for chargebacks or refunds
- Potential to be replaced by superior cryptocurrency - negative impact Bitcoin’s value, leaving committed, long-term users holding the bag
How to Buy
There are three ways to acquire Bitcoins: Bitcoin Exchange, Trading, and Bitcoin ATM.
- Exchanges provide highly varying degrees of safety, security, privacy, and control over your funds and information. It is best to perform your own due diligence and choose a wallet that will personally keep your Bitcoins before selecting an exchange. Among the exchanges used internationally are Bitstamp, Coinbase, and Kraken. Those used in the U.S. are Coinbase, Gemeni, and itBit.
- In order to trade Bitcoins, you have to discover people who sell Bitcoin in your community. The site Local Bitcoins lets you search and browse through various sellers of Bitcoin in your area. It also has seller reviews and feedback scores to help you choose.
- Bitcoin ATMs work like a regular ATM, except they allow you to deposit and withdrawal money so that you can buy and sell Bitcoin. The site Coin ATM Radar has an interactive map to help you find the closest Bitcoin ATM near you.
Bitcoin wallets store the private keys that are needed to access a bitcoin address and spend the funds. They come in different forms, designed for different types of device. You can even use paper storage to avoid having them on a computer at all. Of course, it is very important to secure and back up your bitcoin wallet.
These are the five main types of Bitcoin wallets:
- Desktop Wallets: If you have already installed the original bitcoin client (Bitcoin Core), then you are running a wallet, but may not even know it. In addition to relaying transactions on the network, this software also enables you to create a bitcoin address for sending and receiving the virtual currency and to store the private key for it. There are other desktop wallets too, all with different features. MultiBit runs on Windows, Mac OSX, and Linux. Hive is an OS X-based wallet with some unique features, including an app store that connects directly to bitcoin services. Some desktop wallets are tailored for enhanced security: Armory falls into this category. Others focus on anonymity like DarkWallet which uses a lightweight browser plug-in to provide services including coin ‘mixing’ in which users’ coins are exchanged for others’, to prevent people from tracking them.
- Mobile Wallets: Running as an app on your smartphone, the wallet can store the private keys for your bitcoin addresses, and enable you to pay for things directly with your phone. These mobile clients are often designed with simplified payment verification (SPV) in mind. They download a very small subset of the blockchain and rely on other, trusted nodes in the bitcoin network to ensure that they have the right information. Examples of mobile wallets include the Android-based Bitcoin wallet, Mycelium, Xapo and Blockchain (which keeps your bitcoin keys encrypted on your phone, and backed up on a web-based server). All of the major bitcoin wallet providers are also be found on iOS store. There are also other types of wallets that can be used on a mobile, such as the browser-based wallet CoinPunk is developing. Another unusual wallet is the Aegis Bitcoin Wallet, which supports Android smartwatches.
- Online Wallets: Web-based wallets store your private keys online, on a computer controlled by someone else and connected to the Internet. Several such online services are available, and some of them link to mobile and desktop wallets, replicating your addresses between different devices that you own. One advantage of web-based wallets is that you can access them from anywhere, regardless of which device you are using. However, they also have one major disadvantage: unless implemented correctly, they can put the organization running the website in charge of your private keys – essentially taking your bitcoins out of your control. Coinbase, an integrated wallet/bitcoin exchange operates its online wallet worldwide. Users in the US and Europe can buy bitcoin through its exchange services. Circle offers users worldwide the chance to store, send, receive and buy bitcoins. Currently, only US citizens are able to link bank accounts to deposit funds, but credit and debit cards are also an option for users in other countries. Blockchain also hosts a popular web-based wallet, and Strongcoin offers what it calls a hybrid wallet, which lets you encrypt your private address keys before sending them to its servers – encryption is carried out in the browser. Xapo aims to provide the convenience of a simple bitcoin wallet with the added security of a cold-storage vault.
- Hardware Wallets: Hardware wallets are currently very limited in number. These are dedicated devices that can hold private keys electronically and facilitate payments. The Trezor hardware wallet is targeted at bitcoiners who wish to maintain a substantial stash of coins, but do not want to rely on third-party bitcoin storage services or impractical forms of cold storage. Ledger USB wallet uses smartcard security and is available at a reasonable price. CoinDesk reviewed this wallet in December 2014. Another is the Nymi Sports Wristband, from Boinym, which can act as a bitcoin wallet and uses your heart rhythm as a security key.
- Paper Wallets: This is one of the most popular and cheapest options for keeping your bitcoins safe. There are several sites offering paper bitcoin wallet services like BitAddress.org. They will generate a bitcoin address for you and create an image containing two QR codes: one is the public address that you can use to receive bitcoins; the other is the private key, which you can use to spend bitcoins stored at that address. The benefit of a paper wallet that is made correctly is that the private keys are not stored digitally anywhere, and are therefore not subject to standard cyber-attacks or hardware failures.