What is Bitcoin & How Do Bitcoins Work?

What are Bitcoins and how do you get them? It’s a frequent question and an important one, as Bitcoins are virtual banking currency. Therefore understanding Bitcoin is important, as it could be your future wallet. Learning about BTC mining could help you earn some money using your computer. What is Bitcoin, bitcoin mining, bitcoin wallet, miners, cryptocurrency?

The bitcoin currency has been around since 2009, but there are still many people who have many questions regarding the bitcoin technology. It is said that Satoshi Nakamoto was the inventor of Bitcoin way back in 2008.

What’s Bitcoin?

It’s a digital currency using a decentralized ledger platform that is run by Bitcoin miners. The cryptocurrency is free from control by governments and institutions. What is cryptocurrency? Since it is a virtual currency, there is no corresponding physical coin or paper for a Bitcoin. They are just blocks of secure data that have value as money. You can move the data from one person to another during a transaction.

How Bitcoin Digital Currency Works

The business model can be explained like this:

– Developers created the code base initially

– Miners invest their time and computer power to processing and verifying a transaction

– Blocks are added to the chain and the BTC miner/mining pool earns bitcoins as rewards. They can use these for buying goods/services online

Bitcoin users use their bitcoin wallet for buying or selling anonymously

You can even hold on to bitcoins as an investment and choose to sell them at bitcoin trading sites when the value increases.

Tracking Bitcoins

The entire electronic currency or bitcoin network is based on a common public digital ledger called the block chain. You can see all transactions on this block chain. The blockchain is capable of generating new Bitcoins, verifying transactions of the cryptocurrency and creating new Bitcoins.

Every bitcoin transaction is logged in the public ledger, to avoid fraud. No transaction can be duplicated.

Bitcoin miners help in the process of mining bitcoins. This generates new blockchains on the ledger. So, when a transaction takes place, it automatically creates new Bitcoins that are credited to the miner.

How are Bitcoins Generated? / What is Bitcoin Mining

Before someone spends a Bitcoin, it has to be created in the system. This is how bitcoin mining works. In normal currencies, the government prints the money or mints the coins.

In case of bitcoins, the system sustains itself. There are some users who let their computers be used by the system and offer the processing power of their computers to the Bitcoin network. Coding for generating new data blocks needs a lot of processing power.

Bitcoin miners are users who allow their computers for use by the Bitcoin system for verifying transactions. In return, miners receive some Bitcoins and they can spend it for purchasing goods or services. When the miner’s system generates a new block, he gets some Bitcoins as his reward, which is a transaction fee.

Bitcoin Miners / Earning Bitcoins

In normal currencies, governments validate and keep track of the money. However, Bitcoin money is decentralized. So how do we ensure the validity of a transaction? If A sends one Bitcoin to B, what is to stop A sending the same Bitcoin to C as well?

Here is where the miners play a big part. Miners get bitcoins as rewards when they validate a transaction. If you want to be a miner, you will need a computer and the specific program for solving blocks containing recent transactions. You have to compete with other miners to solve and win the block. You will then get a reward in the form of 12.5 bitcoins. It also helps in validating a transaction.

In the early days, people interested in cryptography became the miners. They used their computer powers for validation of blockchains. However, now mining is becoming a lucrative business to earn bitcoins and there are many mining sites or bitcoin farms trying to profit from it, even using bitcoin cloud mining to lower electricity use. However, be careful of a lot of ponzi schemes in this type of cloud mining services.

Bitcoin Wallet

It’s a free virtual wallet, which you can use for making bitcoin payment using the virtual currency. You can use the wallet on your desktop or on your mobile phone. It’s like a data base that can be stored in your computer or your smartphone and even in the cloud.

Go to Blockchain.info
Enter you email add
Create a password

Voila, your Bitcoin wallet online is ready and you can start sending or receiving Bitcoins.

As a miner you can use your home computer to solve the bitcoin math problems. It could take anywhere around two to three days for solving a problem. You can also co-operate with other mining groups to increase hardware power. On a larger scale, using several computers, you could earn around $500 a day.

However, the mining is limited, as there is a limit of 21 million bitcoins that can exist. As of now, 11 million Bitcoins have already been mined and are in circulation.

Spending Bitcoins / Bitcoin Transfer

Now that you know how Bitcoins are generated and have created your bitcoin account, how do you spend Bitcoins? If you wish to buy a product at your favorite supermarket you can use your debit or credit card. Using Bitcoins is very similar to this kind of purchase.

Every Bitcoin user has a Bitcoin wallet in which he stores his Bitcoins. He/she has a password for connecting to the system. When you want to make a purchase from someone or from a shop, you send a request using the Bitcoin system and the other person (who is also a bitcoin user) can accept it.

The system verifies the transaction and the value of the purchase is transferred from you to the other person’s wallet, using the processing power of Bitcoin miners.

Security of Bitcoin Transaction

The Bitcoin transactions are extremely safe, as the system uses complex cryptological codes for verification at each step of the transaction. However, it is possible to steal someone’s Bitcoin wallet, if you know their password.

There have been some cases where hackers have attacked Bitcoin wallets. However, they will not be able to spend such stolen Bitcoins, because of blockchain tracking. However, you will have lost your currency.

Is Bitcoin Equal to Real Money?

Does bitcoin have value?
What are bitcoins used for?

The Bitcoin market is real money, as you can use Bitcoins for purchasing many goods and services. But you may not be able to pay all bills or buy everything that you need using Bitcoins, though these services are slowly increasing.

There are a number of companies and shops accepting Bitcoin payments, like Newegg, Reddit, Overstock.com, Subway restaurants etc. that accept Bitcoins.

Getting Started – Buy Bitcoin Online

Once you understand how the system works, it is easy to get started with the Bitcoin website. You can create your Bitcoin wallet suitable for your desktop/mobile phone, using Blockchain/Coinbase or ChangeTip

How do I get bitcoins?

Buy bitcoins to put in your wallet. Where to buy bitcoins? (Tip: buy from legitimate exchanges) like Coinbase; Bitfinex pr Cryptsy

Start using it to make digital payments using a safe gateway like BitPay or gocoin.

Bitcoin Pros – Why Use Bitcoins?

The advantages are numerous.

There are no middlemen or banks involved in the transaction. However, there is a small fee to the servers for supporting the miners network; online exchanges; and any mining pool that you join. It is of course much cheaper than traditional banking fees.

You can buy and sell them anonymously. They are not tied down by regulations.

You can even buy them to invest, as their value is sure to appreciate in the future. You can check out the bitcoin stock value and sell them when the price increases.

Many businesses and merchants have started accepting them. Yes, you can even use Bitcoins now to pay for that Pizza or your manicure.

You can also send money to anyone anywhere in the world without bothering about remittance fees.

No one can steal it from you as it is not paper currency, unless they can access your mobile wallet

How to Get Bitcoins?

You can get Bitcoins when someone pays you with the digital currency for selling some goods/services. There are also other ways for buying Bitcoins.

You can use Local Bitcoins for browsing through Bitcoin sellers in your location. Check out their reviews to make a wise selection and buy bitcoins with cash.

FindBitcoin ATM, which works like regular ATMs. You can deposit and withdraw money for buying or selling Bitcoins. Check out Coin ATM Radar for finding a Bitcoin ATM close to you.

Buy Bitcoins at Bitcoin Exchanges or at bitcoin website. Use Coinbase app to transact on mobile. Create a Bitcoin account and buy bitcoins with credit card or debit card. You can even get free bitcoins by playing games like Bitcoin Popper offering your free bitcoins, though it also comes with a paid upgrade. You may have to spend some time to get such bitcoins. There are also some bitcoin faucets like Moon Bitcoin and Free Bitcoin who offer freebies.

The Downside

Many retailers are now accepting bitcoins and users are buying electronics, homeware, fashion accessories and a lot more using bitcoins.

Even multinational companies and online commercial sites are accepting bitcoins. You can buy theater tickets or flight tickets and make hotel bookings with them. Bitcoin converter allows you to convert it into any currency. Yet, there are some disadvantages.

Why are bitcoins so controversial? There are many crooks using Bitcoin wallets for criminal activities and for purchasing drugs on the dark web, resulting in controversy around this cryptocurrency.

Hackers and criminals are using bitcoins for their ransomware attacks, due to its anonymity.

It is difficult to regulate and governments do not recognize it.

Also, Bitcoins do not have any collateral. Whereas other currencies have the backing of governments or gold, Bitcoin does not have it.

Moreover, Bitcoins are not yet universally accepted, though it is becoming increasingly popular.

The value keeps fluctuating based on the demand.

There are technical problems.

You cannot reverse a transaction.

There is a limit on the number of Bitcoins that can be generated.

Wrap Up

Bitcoin has stirred quite a large amount of interest, as it is a source of confusion. It also got into trouble, as it is anonymous and was used for payment in drug deals or for any other illegal purchase on the dark web. However, the value has been soaring.

Is it Worth Buying Bitcoins? Yes, check out the bitcoin price chart, the bitcoin graph or the bitcoin price live. The value of Bitcoins has become more than that of gold increasing the Bitcoin price. As for the bitcoin exchange rate, one Bitcoin price USD or bitcoin to USD is valued at $US7229 today, compared to $1286 for an ounce of gold. People who bought and stored Bitcoins in its early days are now millionaires.

Caution Tips

– Payments are not reversible
– It is still in the experimental stage
– Some governments have regulations on the currency
– You need to keep your bitcoin wallet secure
– Bitcoin Values could fluctuate drastically, depending on the demand

Educate yourself before you start using it.

Newcomers to the digital currency find it difficult to understand it, as it is not similar to other existing currency. However, even if you don’t understand all the intricate details of the Bitcoin technology, you can still get started quite easily.

Leave a Reply

Your email address will not be published.