Bitcoin for Beginners – An Easy Explanation

Bitcoin for Beginners – An Easy Explanation

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What if there was a way to use a currency that didn’t require bills to be printed or coins to be minted? What if it had no governing agency to control it and allowed you to make payments anonymously from anywhere in the world? Those prompts were what motivated Bitcoin into creation back in 2009.

What is Bitcoin?

Bitcoin is a digital currency. That means you don’t use it in the way you use other financial tools. There are no bills or coins to carry and trade, checks or credit cards to draw from. There isn’t an organization that controls it, and owners remain anonymous when using it as a payment method. It will never be associated with names, social security numbers, or tax IDs. Instead, it connects buyers and sellers through encryption keys within a digital wallet.

How are Bitcoins created?

New Bitcoins are created by a process called mining. When someone buys or sells Bitcoin, it’s processed and recorded onto a “block,” which includes all transactions made over a certain period of time. These transactions enter a digital ledger known as a “blockchain.” Computers running the software to control this process are known as “miners,” which work to convert these blocks into code.

This is a complicated, energy-intensive process handled by thousands of miners competing for the “job.” Only the first to complete the mathematical process gets paid, so it’s a race to the finish line for all those vying for the job.

What is decentralization?

One of the biggest reasons Bitcoin has seen substantial growth is the decentralized nature that blockchain provides to its users. It means Bitcoin doesn’t rely on the government or financial institutions for its value but instead on the strength of the community of users. This provides more value overall, especially for countries that have experienced hyperinflation due to corrupt regimes. The value of Bitcoin relies on a censorship-free network where no one entity is in complete control and can manipulate the currency’s value. Without standard regulatory requirements, it means much of the world’s population that can’t use traditional banks have access to a more secure way of handling their finances.

How to invest in Bitcoin

Because Bitcoin is a digital currency, you’ll have to use a Bitcoin exchange to buy, sell, and store Bitcoins. Getting started requires setting up an account on a crypto exchange. Cryptocurrency exchanges run like other trading platforms you may already be using for other investments. They provide you with an account you can use to create orders to buy and sell in the crypto markets. Some crypto exchanges support advanced trading features, so it’s essential to research the various exchanges to choose one that offers what you’re looking for.

What is a crypto wallet?

People use Bitcoin and other cryptocurrencies for a secure, untraceable funding source. Using a crypto wallet allows you to store your Bitcoin and other cryptocurrencies and keep them private and safe. It uses a private key to validate transactions, giving you a secure way to exchange Bitcoin for other assets. This key prevents others from altering the transaction.

What can you do with Bitcoin?

Because Bitcoin is still relatively new and volatile, the vast majority of Bitcoin purchasers hang on to Bitcoin as an investment. Once you purchase Bitcoin, you store it in your Bitcoin wallet and hold onto it much as you do other investments in your portfolio. That’s changing as more people are jumping into the crypto market, and more organizations offer the ability to use Bitcoin as payment. Start-up companies now offer debit and credit cards tied to crypto accounts, making them easier to use for everyday purchases. You can also check sites like Coinmap to find merchants and ATMs that accept crypto payments.

How is Bitcoin different from other cryptocurrencies?

The difference is in the code. When Bitcoin was initiated, it capped off the number of coins that can ever be created at 21 million. There’s no way to bypass that code. That means Bitcoin is slowly released to miners until the 21 million are fully released. Other cryptocurrencies aren’t built with the same cap limits in place. However, each crypto does have its own supply limits. That’s what gives them each their own unique appeal and opportunity.

Should you buy Bitcoin?

Whether you should buy Bitcoin or not is up to you. Cryptocurrency is still considered to be a highly speculative investment. However, Bitcoin is one of the strongest cryptocurrencies and is being accepted by organizations across the world. Broader retail acceptance and the power behind blockchain technology will impact the currency’s overall value. So you will need to do your due diligence if you are considering it as an investment tool before you jump in.