Bitcoin: Beginner's Guide

June 13, 2018

what-is-bitcoin

Probably, Bitcoin has become one of the most discussed topics recently. But in fact, only a few people know what Bitcoin is and how it actually works. So if you only have a vague idea of Bitcon’s nature, let’s get started and fill this knowledge gap.

Bitcoin or BTC is a digital currency, otherwise known as a cryptocurrency. Nobody is 100% certain which individual/s created Bitcoin, but it was introduced to markets in 2009 by ‘Satoshi Nakamoto.’ The most notable aspect of BTC is that no banks or financial institutions are needed to facilitate trades. Additionally, it runs as a virtually anonymous financial system whereby buyers and sellers do not need to input their names, addresses or any other personally identifiable information to transfer BTC. Over the years, many more merchants have begun accepting Bitcoin as part of their payments processing system. It is entirely possible to buy merchandise, pay for goods and services, transfer BTC domestically and internationally with minimal fees/charges.

Since no country or central bank is involved in regulating and administering Bitcoin, it facilitates cheap international money transfers. It is especially enticing to SMEs which do not have to pay vendors like MasterCard, Visa, Discover and American Express for using their services. Many people have enjoyed the significant appreciation of their BTC purchases over the years since it is now trading above $2,000 per BTC. It is possible to purchase Bitcoin on Bitcoin exchanges. The largest operational BTC exchange is known as Mount Gox. It is the equivalent of digital cash – it is not tied to the gold reserves of a central bank, or the quantity of USD held by governments or other authorities.

Big prospects for Bitcoin

So, the Bitcoins seem to have a potentially great future:
-international currency
-an alternative to real money
-fast translations
-impossibility to forge currency
- are not subject to inflation

Possible Obstacles 

In the matter of the Bitcoins' prospects, the first and most important obstacle to their further development is the legislation of the countries. Only a few countries have legalized Bitcoins at the moment. At the same time, the preliminary comments of the countries do not yet allow to be 100% sure that there will be positive results on the recognition of it as a legal currency. Hence, there are big doubts about their future.
At the moment, the states do not conduct an active struggle with the Bitcoins, so everything is still quite optimistic. But what if the struggle with the new currency starts in the form of various prohibitions? In this case, there is no need to talk about any future of the new cryptocurrency.
Probably, many will still be strongly repelled by the fact that now the Bitcoins course fluctuates very much and at the same time it is impossible to predict how much it will be in a couple of days. The market of crypto-currency, in general, is too speculative.
Many traders began to earn money by trading Bitcoins. You can apply the knowledge of technical analysis of graphs and try to predict what will happen next. But firstly their results are far from reality, and secondly, it is unlikely that every investor will want to engage in constant analysis and forecast. Moreover, the analysis is not always justified.
In the future, Bitcoin's course should eventually settle and begin to grow linearly (unless there are strong problems with laws). This is due to the fact that new coins are more difficult to mine. Therefore, the problem of a strong exchange rate fluctuation is likely to be resolved. It just takes time.

How Do Bitcoin Transactions Work?

From an end user side, using Bitcoin is extremely simple. It can be based on software on your computer or an application on your mobile device. You use the software to send or receive BTC to and from your wallet. This wallet has a unique encrypted set of numbers and letters which is linked only to your software and no one else’s.
Users can send money to your wallet and you can send money to other wallets on the Bitcoin network. When using a mobile device, you will often see the use of QR codes which make the process of paying BTC to another user a lot simpler. All you have to do is scan the QR code and verify the amount of BTC you wish to transfer. At the heart of the Bitcoin network these transactions are somewhat more complex. Every transaction is publicly shared on a Bitcoin network on a ledger labeled the “blockchain”.\This ledger contains every single transaction ever made, which gives complete transparency for each transaction and allows any computer on the network to verify its validity. A digital signature is linked to each transaction, which corresponds to the sending address.
This is done to give authenticity to each transaction and permit all users full control over all bitcoins which they can send from their Bitcoin address. Additionally, users who have high-end hardware can use it to authenticate these transactions as they go through and in turn are rewarded with bitcoins for their services, this is known as “mining.”

Trading Bitcoin

People simply ‘mine’ Bitcoin by solving complicated mathematical algorithms. The total quantity of BTC to be produced will be capped at 21 million. This makes them extremely rare and valuable. However, Bitcoin is also volatile. Its value can drop several hundred dollars within seconds, or appreciate equally as sharply. As with other digital currencies, they are stored in a digital wallet, on a user’s computer, external hard drive or in the cloud. There is currently no insurance available to safeguard BTC investments, although computer encryption technology and safe storage are a guarantee against theft. It is traded against fiat currency on reputable exchanges and trading platforms, and the current rate is $2,261.31 (July 2017). It peaked at $3,018.54 on 11 June 2017. The current supply of BTC is 16,431,775 coins, and the currency has a market capitalization of $43 billion.

Where can one buy bitcoin in the US?

There are loads of places where you can buy and sell Bitcoin in the US. In fact, some of the world’s most popular Bitcoin exchange sites are American.
Coinbase is one of America’s most popular Bitcoin exchange site and probably the fastest and easiest way to buy Bitcoin in the US. The site has an ‘Instant Buy’ option for credit or debit card purchases and setting up an account is quick and easy with no long waits for verification (this can be an issue with some exchange sites).
If you wish to buy Bitcoin via bank transfer on Coinbase, it can take up to five days which is a bit annoying. Although, if you do buy using a connected bank account, Coinbase charges a much lower fee for purchases – it’s 3.99% for credit/debit card purchases and only 1.49% for bank transfer purchase.
Coinbase is considered to be one of the easiest ways for newbies to buy Bitcoin because the site specifically caters to those who may not be all that familiar with cryptocurrencies. Admittedly, the fees are a little on the steep side compared to, say, LocalBitcoins and Kraken, but the good thing about using Coinbase is that you don’t have to worry too much about security. Oh, and additionally, Coinbase accepts payment via PayPal, which many sites are yet to cater for. As well as Bitcoin, Coinbase also offers support for Ethereum and Litecoin.
Of course, Coinbase isn’t your only option if you want to buy Bitcoins in the US. There are countless other sites, some of which charge lower fees than Coinbase so it’s worth considering other options.
Another popular option for US citizens is CryptoGo, the exchange is operational worldwide and caters for high rolling clients to beginners just looking to buy bitcoin for the first time. If you want more information, they have one of the best customer services of any exchanges, which can guide you through their process easily. They also appear to be able to handle to a large influx in clients suggesting their framework is sturdy!
If it’s lower fees you’re after, LocalBitcoins is another good option because the site simply puts buyers and sellers in contact with one other and offers an escrow service to ensure nobody gets ripped off. LocalBitcoins operates in all countries and buyers can pay for Bitcoins however they like, though most pay via cash deposit. Just remember to follow the rules of the site and beware of scammers.
Finally, if you want low fees but still want to go the traditional exchange route, try either Gemini, a New York-based site which offers some of the lowest fees around (but doesn’t operate in all states so check first to see if your state is catered for), or Kraken, which also charges low fees but can be a bit tricky for new users and the customer service isn’t all that great.
To be clear, we have named sites where you can buy Bitcoin using FIAT money. There are other sites you can use if you already have another cryptocurrency and want to use that to buy Bitcoin.

Now we hope you have a better understanding of such a phenomenon of the modern life as Bitcoin.