Bitcoin 101 – What to Know Before You Buy
So what is bitcoin? Well, basically it’s a form of digital currency that is created and used electronically.
It is decentralized – which means that it’s not controlled by anyone – no government or central bank or specific country.
This makes it immune to government money printing or central bank mismanagement.
Bitcoin is similar to physical currency like dollars or yen in that you can buy physical goods and services with it.
You can also send money to anyone online without having to go through a bank account (and paying the fees).
Characteristics of Bitcoin:
Easy to set up
One of the best things about bitcoin is that it can be used by anybody quickly. It’s easy to set up. You just get a bitcoin wallet, find a place to buy bitcoins, make your purchase and then you have bitcoins in your wallet you can start spending.
There’s no long process like you sometimes get with a bank. And when you want to send money to someone there are no bank limits or high fees.
All the transactions that are done with bitcoins are stored on a huge network which is known as the blockchain. Anyone can see the number of transactions that are done with a specified bitcoin address but they will never know the person who uses that address.
While the transactions you do in bitcoin are transparent and are on the blockchain for everyone to see, they are only linked to your bitcoin address. Since bitcoin users can hold various addresses and these are not linked with any kind of personal information about you, then technically you can remain anonymous when doing transactions.
Bitcoin is a type of currency that is not controlled by any authority – any government or central bank. Each and every machine that will mine bitcoins is a part of the network. As a result, all machines work together.
When compared to other transaction methods like bank transfers or wires, bitcoin transactions can be quite fast. You can send bitcoins and have them show up in another persons wallet in seconds or minutes.
Cannot be Reversed
After a bitcoin transaction is completed, it cannot be reversed (unless the person you sent coins to agrees to send them back to you in another transaction).
What is Bitcoin? Some History…
So who came up with the idea for bitcoin? Who started it? This is the great mystery.
It’s said that the concept was created by a person working under the name of Satoshi Nakamoto.
The accounts of this person are no longer active and the coins in his wallet are still not used. Moreover, he’s either disappeared or he never actually existed – since no one seems to know who he is.
A recent article published by Fast company reveals that Satoshi Nakamoto is a group of people that includes Vladimir Oksman, Neal King, and Charles Bry. But the details are still not verified. Still, it’s understandable that whoever created it would not want to be named – just for safety alone.
There are also rumors it was created by a group of computer experts in response to the 2007-2008 financial crisis – as an alternative currency to protect people from another banking crisis. But again, this is just rumor and not verified.
In October 2008, the bitcoin: a peer-to-peer electronic cash system was posted by a mailing list that was published under the name of Satoshi Nakamoto. This also outlined the operations of bitcoins. On August 2008, an unknown person registered the bitcoin.org domain. Finally, in January 2009, the first version of the Bitcoin was introduced.
At first the concept of bitcoin was only adopted by techno geeks and people who were willing to take the chance on an unknown, completely different kind of currency. But as usage continued to grow, the price of Bitcoin steadily rose.
Benefits of Using Bitcoin:
So even if you still haven’t got your head around the question ” What is bitcoin? ” you may still want to know the benefits of using this currency. (You don’t need to know how a car works to understand the benefits of driving one).
#1 Cannot Be Seized by Government or Banks
Since bitcoins are not kept in the banking system, they can’t be seized by governments or banks (like they did in Cyprus for example when the banks froze everyone’s account and took some of their money). This makes bitcoin very attractive for those living under despotic or chaotic government regimes.
#2 No Tracking
Because only the address is seen in the blockchain (no information about you), these transactions can’t be tracked by various governments or banks who want to stick their noses into where and how you’re spending your money.
In the age of big brother, people are looking for more and more privacy – not because they’re doing anything wrong – but just because they don’t like being spied on in their every day lives.
#3 Less Fees
While people say bitcoin transactions are free, technically they’re not. There is a small fee to pay the miners when you send a transaction. However these costs can be much smaller than bank wire or transfer fees.
Also, if you’re a business owner, bitcoin payments are a lot less expensive than taking Visa or Paypal payments (which both take a percentage cut of the sale).
#4 Inflation Resistant
A lot of people have noticed that with increased government currency printing the purchasing power of their dollar has dropped significantly.
With bitcoin this is not a problem as there is a limited number of bitcoins to be mined – and then that’s it. They can’t just “print more” currency and devalue it as many governments are doing today.
#5 Transactions Are Not Reversible
If you’re a merchant who sells products, you’ve probably had your share of people who buy the product with Visa and then dispute the payment a month later – taking the product and their payment with them. Because bitcoin transactions are not reversible in this way, you won’t run into this problem.
#6 No Paperwork or ID
You can basically get a Bitcoin wallet and start making transactions today. There’s no need for ID or filling out mounds of paperwork, credit checks etc like you often get with your bank.
Drawbacks of Using Bitcoin:
#1 Transactions are not Reversible
Just like it’s a benefit, this can also be a drawback. Once you send a transaction it’s done. You can’t get it back.
So if you make a mistake and accidentally send money to the wrong address, too bad, so sad. You’re out the money. So you need to be extremely careful when sending and receiving transactions.
#2 Vulnerable to Thieves
Because it’s not regulated bitcoin has been vulnerable to thieves and hackers over the years. Bitcoin itself cannot be hacked. Once you own coins on the blockchain they are yours until you send them elsewhere. However bitcoin exchanges and sellers are vulnerable to hacking.
For this reasons it’s not recommended that you leave any bitcoins or other cryptocurrency on the exchanges. Examples of exchanges that have been hacked include Mt. Gox and Bitfinex.
#3 Can Be Volatile
Because it’s still in its infancy the bitcoin price can be very volatile. If news of a major hack comes out or a government tries to clamp down on Bitcoin usage in a certain country, it could, in theory, send the price down quite a bit.
For this reason it’s recommended that you not put any money into bitcoin that you can’t afford to lose.
What’s the The Future of Bitcoin?
While nobody can predict the future, it’s still pretty clear that adoption of bitcoin is growing by the day. And with more people starting to buy and sell with Bitcoin, the future for the currency looks positive.
While governments may try to regulate it eventually they cannot shut it down (as you’d have to shut down the entire internet in order to do this).
As more and more people see the benefits of virtual currency in a volatile world, bitcoin solidifies it’s place as a viable currency to buy, sell and trade in.
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