What is Bitcoin?

Bitcoin is an online digital currency and payment system. It was both created through series of mathematical algorithms that verify all bitcoin transactions through a public ledger known as the blockchain. Unlike banks, nobody controls bitcoin and unlike governmental currencies, the supply is limited to 21 million bitcoins and not subject to intentional devaluation through monetary policy. Bitcoin doesn’t print currency with unlimited supply like dollars or euros. This is because people and businesses that run high speed bitcoin mining computers all around the world use software to solve complex math problems in order to verify each block on the blockchain. Blocks are a series of bitcoin transactions that have been encrypted with an algorithmic hash that must be solved for transactions to be processed and authenticated. Each time a block as been successfully solved a number of Bitcoins are awarded to the miner that solved the equation.

Who Created Bitcoin, & Why?

Satoshi Nakamoto is rumored to be a Japanese software developer however nobody knows for certain. What is certain is that the idea for Bitcoin was introduced in the now famous Satoshi Nakamoto paper:

He proposed bitcoin with the idea of being able to produce a digital currency independent of any central authority. The idea was to be able to quickly transfer it electronically with with very low fees.

Why Are Bitcoins Different Than Normal Currencies?

While one can use bitcoin for buying things electronically, Bitcoin is a lot like conventional currencies; these currencies are digital transactions too.

The big difference is that Bitcoin is not institutionally controlled. Why is this important? This means, no bank can have control of the money. Being able to manage personal money, is a major selling point for a lot of people.

Also, another big selling point that makes Bitcoin different is that the currency isn’t physically printed out. Because, nobody owns it, there isn’t a bank making their rules up as they go messing with everybody else’s money.

Bitcoin is all digital, and anybody can join. Bitcoins are ‘mined’, using computer power in a network.

What Is Bitcoin – Based On?

When you take a look at common currency, gold and silver are the bases which support paper money. Bitcoin is different; it relies on mathematics.

Bitcoins are produced worldwide by people using software programs that follow a formula. This mathematical formula is available for everyone to check and make sure it is always working.

How Exactly Does Bitcoin Work?

Explaining how Bitcoin works can be a little confusing, but here is a simple explanation.

Let’s say; someone has just signed up with Bitcoin. This new user can get started without understanding all the technical details. As a new user, they can install a Bitcoin wallet on their computer or smartphone. Once they have installed it, their wallet will create a Bitcoin address, which can be disclosed to their friends, – that way they will be able to make payments or vice versa – it is pretty similar to an e-mail address.

A user can use more than one address, it is advised that a new address is utilized for every transaction.

Balances – Block Chain

The block chain is where all confirmed transactions are placed – like a bank balance. It is a shared public ledger. All of Bitcoin relies upon their block chain.

With blockchain, Bitcoin wallets calculate all their spendable balances and new transactions are verified with it too. Cryptography enforces the integrity and chronological order of the block chain.

Transactions – Private Keys

Transactions are transfers of value between Biton wallets, which are to become included in the block chain. Private keys or seeds are a secret piece of data that is used to sign transactions. Private keys provide proof mathematically that the operation comes from the actual owner of the wallet.

Private keys will also prevent any alterations of the trade to happen once issued or finished. The network usually confirms all transactions within 10 minutes – this process is called mining.

Processing – Mining

Mining is a system that confirms the waiting transactions and includes them in the block chain. It uses the chronological order in the block chain, protects the transaction through the network, and allows computers to agree on the state of the system.

Every transaction packed in a block that fits rules that are verified by the system to be confirmed. Enforcing these rules prevents previous blocks from being modified. Mining prevents any individual from adding new blocks in the blockchain and cannot control what the blocks included in it. Blockgeeks put together a very comprehensive and easy to understand explanation of how Blockchain technology works in their paper:

What To Know Before You Start Bitcoin

Since Bitcoin is different than a traditional bank, – which everybody works with – it works quite differently.

Bitcoin – and its transactions – should be taken as seriously as your wallet in your pocket or purse.
Security

As stated above, a Bitcoin wallet should be secured just like, or even more than, a physical wallet. Bitcoin can provide high levels of protection for your online portfolio when properly used.

Here is some advice on how to protect a Bitcoin wallet

  • Be Careful Online
  • Only Use Small Amounts
  • Backup Your Wallet
  • Encrypt Your Wallet
  • Offline Wallet Should be Used For Savings
    An offline wallet provides the highest level of security. When used right – back it up and encrypt it – it is the best way to keep larger amounts of money.
  • Keep Your Computer Software Up To Date
  • Multi-signatures Will provide Extra Protection

The Price of Bitcoin Can Change

Since Bitcoin is relatively young, the price can go up and down unexpectedly over a short period. Always remember, because of its short life and sometimes illiquid markets, Bitcoin cannot be recommended for a Savings Account. It always is seen as a high-risk asset, and Bitcoin should never be used to keep money safe that users cannot afford to lose.

Payments Are Irreversible

Another interesting fact about Bitcoin is, once someone issues any transaction, it is irreversible. The transaction, however, can be refunded by the person who receives the funds.

Never do business with Bitcoin with anyone non-trustworthy.
Bitcoin can also detect typos, and makes sure that the money goes the correct recipient.

The future is still bright and Bitcoin will be moving forward. There may be some changes for some more choices for Bitcoin customers and the protection for their clients.

It Is Not Anonymous

When it comes to securing a Bitcoin wallet, there is some part the customer has to do with securing it. Bitcoin is a growing public community, and all transactions are stored publicly and permanently on their network. Anybody that has access to the Bitcoin network can see all the balances and transactions of any Bitcoin address. Everyone should know, the identity in which the address is referring to cannot be shared until the information has to become revealed during a purchase or other circumstances.

Since more than one Bitcoin address can be used; Bitcoin advises that users should use only one address per transaction.

It is the user who is responsible for protecting their Bitcoin wallet and addresses at all times.

Unconfirmed Transactions

When explaining this, it may get a little tricky, but hold on. Not every transaction starts out irreversible. What happens is, each transaction gets a confirmation score which states how hard it will be to reverse them. Every approval can take between 90 seconds to 10 minutes.

If the transaction has a fee attached or is typical, getting a confirmation – the first time – can take a little longer

Bitcoin Is Still Relatively New

Bitcoin is still very experimental. It is a brand new currency that is still actively under development. It will have a lot of bumps along the way, and everyone needs to expect them. With each improvement, it may bring more challenges. During each development, users may encounter increased fees slower confirmations or more server issues.

Always be smart with your money and be prepared for any problems when using Bitcoin

Taxes

Bitcoin isn’t an official currency. Always remember, jurisdictions still require you to pay:

  • Income Taxes
  • Sales Taxes
  • Payroll Taxes
  • Capital Gains Taxes

These Bitcoins have value, so all of the above meet the tax requirements.

Remember, it is Bitcoin users responsibility to make sure they follow tax and other legal mandates issued by the government.

Getting Started With Bitcoin

Being confident that the risks won’t get in the way, here is how one would get started using Bitcoin.

Know As Much About Bitcoin As Possible

Choosing Your Wallet

You can decide to have either a wallet on your smartphone or your laptop/desktop or both for only online payments. Choosing which can be done in minutes.

Getting Bitcoins

A user can get Bitcoins by accepting them for payment, or buying them from a trustworthy individual. They can also be obtained from directly exchanging through your bank account.

Spending Bitcoins

Spending Bitcoins depends on the merchants or services. Many merchants and services accept Bitcoins for payments. After the use of Bitcoins, the user can rate their experience to help an honest business gain more reputation.

How To Accept Bitcoin For Payments

Know as much as Possible

As stated before, you should always know what you are getting into and know what you are doing. If someone is interested in using Bitcoins as acceptance as currency, then they need to know exactly how receiving them for payment works. It could result in their business suffering if they didn’t know.

Processing Payments

Payments and invoices can be processed by the business owner and can process payments into bitcoins or local currency.

Accounting & Taxes

Bitcoin works similarly to foreign currency. Merchants should always get advice regarding tax for their jurisdiction from a qualified accountant.

Gaining Visibility

A business can be submitted quickly to online directories, and the Bitcoin logo can get displayed on their website.

Bitcoin is a form of digital asset that acts as a payment system; it was invented by a person only known as Satoshi Nakamoto in 31 October 2008.it was first intended for cryptography list before being released as open source software in 2009. Several people have tried to claim that they are Satoshi Nakamoto but none has yet to provide enough proof to back up their claim.

It is a peer to peer system where Bitcoins transactions take place from one user to another without the use of intermediaries. All Bitcoin users in the world are partial owners of the Bitcoin technology; this is because regardless of software improvisation by developers, users are free to choose which software or version they will prefer to use. For users to stay compatible with each other, they should use software which complies with the same rules thus all developers and users have an incentive to protect the consensus.

Over the years, the number of individuals and businesses using Bitcoins has grown exponentially. It is estimated that the value of Bitcoins currently in circulation is well over US$ 2 billion. Bitcoins are usually acquired for payment of goods and services. To acquire the Bitcoins, one has to purchase the from either Bitcoin exchange, exchange the Bitcoins with another user or earn Bitcoins from competitive mining (this is the use of computers to solve complex math questions where the winner is rewarded. The present-day rates are twenty-five Bitcoins for the winner). Most exchanges do not allow payment via methods like a credit card or PayPal due to money reversal.

Some advantages of Bitcoins for individuals include:

Mobile payments

The current dynamic of the world requires individuals to be able to pay for goods and services regardless of the time and location. For mobile payment, one has to have enough funds in their mobile wallet. The payment is done in two simple steps.it does not require signing up hence an individual just swipes his card, inputs his pin or anything that will identify him. The receiver should be able to display his QR code in his wallet application and let the sender scan his mobile or bring the two phones together (this uses NFC radio technology). Bitcoins give users total control of their money by eliminating banks, borders and bureaucracy.

Money security and control

Fraudsters are continually coming up with new ways to cone people off their hard earned money. Bitcoins has several necessary steps that should be implemented to ensure that individuals have a solid level of protection and control over their money. Bitcoins operations are secured by use of high end military grade cryptography. No individual is able to make payment in accounts that are not theirs or charge another person. Additional security is ensured by the use of the backup system and encryption. Users can increase their security by:

  • Choosing a trusted wallet provider. Wallet providers have different levels of security; some wallets have recently incurred cases of breaches. Choosing a trusted, secure and insured walled does the trick.
  • Use of secure passwords. Passwords are your paramount line of defense to your wallet, experts have ideally decided that people should have sixteen character long passwords that include letters, symbols, numbers and punctuation marks.
  • Keep a small amount in wallets. To minimize the risk of losing a lot of money or having it stolen, one should keep only the amount he expects to use soon. The rest of the money can be kept in a bitcoin vault which is designed to be less accessible than the wallet.
  • Works anytime, anywhere

The technologies used for Bitcoin transaction are all compatible hence individuals have the option to use any software they prefer. It works just like emails; you can send a message to any person regardless of the site he used. Bitcoin is an international currency and its network does not take a break, even during holidays.

Reliable worldwide payments

Bitcoins are not bound by any nation’s law; sending Bitcoins to another country is as easy sending them to your friend across the street. We are used to the normal regulations of banks making people wait for at least three to five business days, incurring an extra fee for international transfer or limitation to the maximum or minimum that one is allowed to send, but with Bitcoins, no such regulation exists.

Choose your own fees

The available wallets let you decide how hefty a fee to pay before spending, for receivers, Bitcoins come at no fee. All wallets have a set reasonable default fees but for faster confirmation of transactions, the higher the fee the better it becomes. The amount of fees paid is not directly proportional to a number of Bitcoins transacted hence you can send one hundred thousand Bitcoins at the same fee as of one Bitcoin.

Identity protection

Other payment systems require users to link their credit cards hence being vulnerable to malicious attempts. With Bitcoins, no one can collect your data or impersonate you since no credit card is required. Just like real money, the user can send money without revealing his identity. Bitcoin’s software may, however, require your information to protect your privacy.

Some disadvantages include:

Degree of acceptance

Bitcoins is still a new currency in the world and a lot of people still do not know its availability or how it is used. The amount of businesses accepting Bitcoins is still small and this numbers should significantly grow for it to benefit from network effects.

Volatility

Never before has this world experienced such a start-up currency, it is an exciting and interesting new venture. The overall value of Bitcoins in circulation and the businesses involved is small thus small events or business activities can easily affect its price. The positive from this disadvantage is that the volatility will decrease as the Bitcoin technology matures.

Ongoing developments

Bitcoin software’s are still in their initial versions of development; there are so many incomplete features currently available. New services and tools are springing up daily to make it more accessible and secure to the masses. With time, bitcoin businesses will start to offer insurance hence becoming more acceptable.

People trust Bitcoins due to the fact that it requires no trust. It is a decentralized and open source hence anyone can go through the whole source code at will. Any knowledgeable developer in the world can decode how Bitcoin work. Any ongoing transaction can be visibly consulted in real time by both users.

Bitcoin can be used to pay physical stores or online business just like real money. It can also be exchanged with physical forms like Casascius coins. Their balances are kept in large distributed networks and cannot be altered by any mischievous person.

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