Curious about what Bitcoin is? Have you heard about this virtual financial system in the news? Do all the technical explanations make your head spin? Is this the brave new world of e-commerce? Here is a beginner’s guide to how this virtual currency is being used and how everyone can get it. Even those of us who have a hard time understanding virtual currency can learn to use this payment system.
Bitcoin 101: A Complete Guide to Bitcoin
The basic explanation of Bitcoin, or BTC, is that it is a cryptocurrency or digital currency that uses a long line of encrypted codes to keep it secure. Cryptocurrencies have been around since 1980 but they had problems with double spending. A flaw in virtual spending, double spending is when a digital unit can be spent more than once. It was difficult to know when a unit had been spent. Bitcoin solved this problem.
In 2009 an anonymous person, or group, identified as Satoshi Nakamoto created this new worldwide payment system we now know as Bitcoin. This new currency is a decentralized digital asset that can be used liked virtual cash or gold. It can be transferred person to person so there is no middleman such as a bank or government.
Bitcoin works on a blockchain which is a huge public ledger. All verified transactions are documented as blocks. A peer to peer computer network is informed when a block enters the system. This virtual system prevents stealing and double-spending by making all users aware of every sale. It helps to build trust in the blockchain network of users. Bitcoins only exist in the blockchain. There is no physical evidence of them as with dollars. This virtual ledger is a record of all transactions, increasing and decreasing balances as well as addresses.
Why should someone use Bitcoin?
Why should consumers look into using Bitcoin? Is it a viable way to do business? There are many good reasons this payment system is a positive advancement in the financial world.
You can use Bitcoins in many transactions.
- To sell products or services
- To trade for cash
- To exchange for other forms of cryptocurrency.
Bitcoin enables greater access to do business.
There are over seven billion people on earth right now. Approximately 6.5 billion cannot get access to bank services. That includes 18% of Americans. They do not have checking accounts, credit cards or debit cards. Bitcoin is virtual. That means people anywhere and everywhere can use it buy, sell or barter goods and services. This is good news for people in third world countries or where inflation is a problem. They can buy Bitcoin with their local currency to avoid losing their savings.
Bitcoin is not legal in all countries and its use varies from country to country. You may need to check the status of the country you want to do business with to see if cryptocurrency is being used there.
There are no middlemen.
Bitcoin is banking without having to deal with government control or regulations. Many currencies around the world are inflated because the government is printing too much money without having anything to back it up. At one time the United States dollar was backed by the gold standard. Each dollar’s worth was equal to a fixed amount of gold. That has been abandoned. When a country prints too much cash, they are devaluing their country’s money. Bitcoin is controlled by the market’s participants. They will continue to be valuable as long as there is a market for them.
Bitcoins are limited and scarce, increasing their value.
The number of Bitcoins released between now and 2140 is 21 million. No more. No less. Having a limited number means the currency, like gold, is more likely to keep its value or grow in value. Gold is valuable because there is a limited amount on the earth. Bitcoins are similar. Bitcoins can be lost and have fewer of them will only increase the value of the ones that still are accessible. A predetermined number of Bitcoins are released every 10 minutes.
Bitcoin has a few other similarities to the gold standard other than the scarcity of its currency. There are no governmental authorities controlling its supply and there are low or non-existent ways for financial institutions to inflate or deflate Bitcoins value.
A virtual payment system that makes it easy to buy and sell.
Bitcoins virtual market enables purchases across nations to happen in a less expensive and easier way. They are not tied to any country or subject to any regulations. Customers and businesses will not have to be concerned with exchange rates or fees. It will be simpler than credit cards for a small business to use. There are no banks, credit organizations or government regulations. Bitcoin is truly a peer to peer way of doing business.
Transactions are verified in just a few minutes using Bitcoin. No need to wait while banks or credit organizations move your funds from one account to another. Funds are transferred almost immediately.
How can I be sure Bitcoin is trusted and secure?
Bitcoins are held in a public ledger. A secure private key is a password to access an account. Only the owner of this private key can send Bitcoins to a vendor, buyer or business. It is their password to “spend.” A public key of 27 – 34 alphanumeric characters enables cryptocurrency to be deposited in an individual’s virtual wallet or account. Users say these keys are strong and secure.
Bitcoin has also been vetted and tested for five years. This vetting process has built its reputation on being trusted.
Investors can remain anonymous in their financial dealings.
Many Bitcoin users enjoy the anonymity these transactions allow. It is not really possible to track the real world identities of the owners of the accounts. Basically, it reduces users to a series of numbers and codes. While the system is transparent in that transactions can be followed, the participants are not trackable.
Consumers do not need any permission to use Bitcoins. They can download software for free. There are no regulations to using this form of payment, no hoops to jump through and no barriers.
How are Bitcoins acquired?
In order to begin purchasing Bitcoins, clients need to obtain a virtual wallet on their mobile device or computer. This “wallet” is like a ledger or finance program that keeps track of all transactions and a current Bitcoin balance. There are apps available for clients to do this.
The next step is to transfer funds from a bank account or online payment company to an approved third-party website that connects Bitcoin buyers and sellers.
Bitcoins can be purchased from individuals or through an exchange much like stocks are acquired. Individuals or businesses can barter, trade or sell products and services to add Bitcoins to their virtual wallet.
Mining for Bitcoins is another way to fill a digital wallet. Miners use special software to “find” Bitcoins and increase their holdings. This is becoming a harder way to increase holdings.
How to protect your investments.
When anyone has valuables they need to protect them from loss. Cryptocurrency is not insured by the FDIC When you conduct a transaction it is not reversible. Those Bitcoins you send for a service or product are gone for good. There are no returns. Even if the vendor is dishonest.
It is important to keep private the digital key for each Bitcoin. Bitcoins can be lost when a hard drive crashes or is stolen by hackers if they can find the password key. Password codes or keys are the identities of your Bitcoins. If they are lost or stolen you lose. Here are some ideas for keeping them safe.
- Write the codes in a book that is kept in a secure place such as a fireproof safe.
- Store Bitcoin keys in small amounts on USB drives that are not connected to the internet and are locally accessible.
- This will keep them safe from online hackers. They can also be destroyed by a virus.
- Use an external hard drive to store a backup of your coins. Just make sure you encrypt the data in the event the device is stolen.
- You can keep your external hard drives or USB drives safe by keeping them in a safety deposit box at your banking institution.
- Protect the devices you store your coins on with strong passwords and authentications.
- Make sure you keep all virus protection programs on your devices up to date and use current software on your computer.
- Protect your address by changing it and updating passwords regularly.
- Educate yourself about scams to hack into Bitcoin accounts.
- Ensure that you are doing business with a reputable vendor or service provider. There is no way to undo a transaction with cryptocurrency. All sales are really final.
What are the scams to avoid?
It is important to beware of current scams and educate yourself to the advancement of cryptocurrency payment systems. Whenever a new way to invest and potentially make money is invented there will be people who seek to cheat the system. Bitcoin is increasing in value and the scammers are looking for ways to take advantage of this newly developed cryptocurrency.
Phishing scams – You get an email saying you won some Bitcoins. Embedded in the email is a link to log into your wallet and information on how to collect your coins. Unknowing investors will use the embedded link and try to log into their account. When they do so they will give away all their account details. Many times the scammer will empty the investor’s entire account this way. This has become a very common scam. It is better to type your wallet website in your browser yourself than use a clickable link to avoid phishing sites. Always check the web address if you do use links. If it seems different or suspicious don’t type in your information.
Wallet scams – Wallet scams are another way to lose your investments. Always make sure you are using a vetted wallet app. Fake wallet sites collect your data, accept your payment for Bitcoins but do not deliver the coins. Your money and the site disappear.
MLM and Ponzi scams – Whenever you are promised something that is really too good to be true then be on guard. Multi-level marketing schemes promise a high return on an investment. It becomes a Ponzi scheme when there is no real product involved. There is no way to check on the product being offered when it is a virtual product like cryptocurrency.
Mining scams – Be wary of organizations that offer to mine large amounts of Bitcoins for you. There is a cost. These fees will be required up front, before they transfer your Bitcoins. They will accept your funds and you will not receive your Bitcoins.
What is the Future of Bitcoin and digital finance?
Some investors are asking if cryptocurrency will eventually replace traditional currency. Experts say no. Economists pretty much agree that central banks will not give up complete control of their monetary systems in favor of a global, virtual exchange.
Bitcoins have not exactly grown to the point where it is being used as a true currency. Right now it is primarily used in speculation, not commerce. It is also popular on the dark web because users are anonymous.
A measure of caution is needed. The value of Bitcoins has fluctuated quite a bit since its beginning. Right now it is enjoying a surge in price.
Will cryptocurrency be the wave of the future? Bitcoin represents a closer step to a one world, global currency that can make acquiring and spending wealth easier for some. Just remember to be careful. Bitcoin is not without its problems. Many people think Bitcoin is a fad or a bubble that will burst. Only time will tell. Will it become a widely accepted way of doing business? That depends on whether or not people continue to invest in Bitcoin and see it as valuable.