Bitcoin Basics… What Are Cryptocurrencies and Blockchain?

Daniel Penzing
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What Is Bitcoin?

Bitcoin is the first and most popular cryptocurrency on the market. It is also the largest digital currency by market capitalization. There are many ways to purchase Bitcoin, including mining and trading on exchange markets.

Bitcoin is often referred to as digital gold because it has a limited supply. In total, there can only ever be 21 million Bitcoin. Unlike physical currency, Bitcoins cannot be printed or otherwise. There are only 2 ways to obtain Bitcoins: you can mine them, or you can trade for them.

To mine Bitcoin, you must download Bitcoin mining software and solve math problems that will verify and record the transactions. After solving these math problems, you receive a portion of a Bitcoin. However, the amount you receive is smaller and smaller as more people mine. Because of this, it has become harder and harder to mine, and you may need to join a pool mining company or rig.

Exchange markets can be used to purchase Bitcoin. Bitcoin can be traded for a number of other currencies. Generally speaking, a seller with a higher asking price for their Bitcoin will charge a higher fee, but a seller with a lower asking price for their Bitcoin will charge a lower fee. It is common for exchanges to charge a flat fee of around 0.25% or less.

A Bitcoin wallet is an account where users can store their bitcoins. This wallet is secured with 2 factor authentication.

Blockchain Technology: The Foundation of Cryptocurrencies

Bitcoin is the first of many cryptocurrencies that came after it. They can be considered the most widely used type of decentralized digital currency.

All cryptocurrencies are digital assets designed to work as a medium of exchange using cryptography to secure the transactions and to control the creation of additional units of the currency. Cryptocurrencies are classified as a subset of digital currencies and are also classified as a subset of alternative currencies and virtual currencies.

The most popular cryptocurrencies are Bitcoin, Ethereum, DASH, Litecoin, and Monero. Bitcoin was invented in 2008, and since then a number of different alternative Cryptocurrencies have been created.

Crypto… is a prefix that means hidden. Cryptography is the practice and study of techniques for secure communication in the presence of third parties called adversaries.

So Cryptocurrencies are basically digital currencies that use cryptography to guarantee security and control the creation of new cryptocurrency units.

Note: For a more thorough explanation, check out our simple description of Blockchain technology for beginners.

Bitcoin “Mining”

Bitcoin is a cryptocurrency and in order to help with its creation, miners use specialized computer equipment to solve complex math problems. You can think of this as similar to a puzzle, which, when completed, helps the network run smoothly. When each problem is solved, the network rewards the miners with a certain number of bitcoins.

So how does this all work, and where do bitcoins come from?

To explain a bit about bitcoin – mining, you need to understand blockchain technology. Blockchain is a digital ledger that securely stores transactions and other data. It’s distributed amongst many nodes, with updates shared across the network.

A Little History

The original blockchain technology was designed by Satoshi Nakamoto as a core component of the bitcoin network. It was first described in 2008 and the first bitcoins were created in 2009. Also known as blockchains 1.0, bitcoin is often called the first cryptocurrency.

But that’s not the end of the blockchain story. Decentralized networks invented new ways for blockchain to be used including Ethereum and Hyperledger. These are known as blockchains 2.0.

During this time, we’ve seen the original blockchain that’s used for bitcoin as well as its 1.0 and 2.0 versions lead to the creation of many digital currencies. Each cryptocurrency has its own blockchain.

Bitcoin Features

How Big Is Bitcoin?

In a very short time, Bitcoin has become the most trusted digital currency of the world. We think of it as money because it acts like money, and we use it like we would use government-issued currency. But does it fit the bill in terms of the financial system?

In a very short time, Bitcoin has become the most trusted digital cryptocurrency of the world. We think of it as money because it acts like money, and we use it like we would use government-issued currency. But does it fit the bill in terms of the financial system?

Today we’re going to bust some myths about Bitcoins and cryptocurrency … and admit a few truths along the way. So don’t be shy, get ready and launch.

What is a Cryptocurrency?

You’re going to love this part (i.e., the technical part). cryptocurrencies are a subset of digital currencies used by computers around the world. Yes, that actually means computers and not people, because as of this writing no one has a physical bitcoin (well except for that guy in Australia, who accidentally threw away a hard drive with a bitcoin fortune on it).

Cryptocurrencies exist in digital form. Each one is made up of bits and pieces of previously generated Bitcoins. Cryptocurrency mining requires a lot of computing power to solve complicated mathematical equations.

Bitcoin Storage

You’ll need to think about how you want to store your bitcoin before you buy. The safest place to keep your cryptocurrency is in your own wallet. The safest place for this is on a device not connected to the internet, such as a USB stick, which you can then store somewhere safe like a bank vault.

It’s also a good idea to keep copies of the private key offline just in case the device is lost or damaged. You can also encrypt the wallets with a password to provide added security.

For smaller holdings, a desktop or online wallet on your computer or smartphone is adequate, but make sure it’s encrypted and backed-up. If you’re going to be storing a large amount of bitcoin it’s recommended that you use a hardware wallet such as a Trezor or a Ledger Nano S.

It’s also possible to print out a paper wallet. Even better is to print out multiple copies and store them in a safe place. This is known as “cold storage— and will give you the highest levels of protection. You’ll need to write down the backups and keep them somewhere safe like the bank vault mentioned above. This is considered the ultimate way to back up a cryptocurrency wallet.

Bitcoin Limitations

Bitcoin has never made any major effort to hide its intentions to scale transactions seamlessly based on demand, or as the Bitcoin ecosystem grows in popularity, and is currently designed to handle a predetermined amount of transactions per second.

Bitcoin mining today requires an enormous amount of computational power, and people are concerned that it will soon be too hard for everyday people to mine Bitcoin. As a result, the network will eventually be controlled by large centralized mining pools that are dangerous to the network.

Additionally, as the Bitcoin blockchain grows in size, it becomes more difficult and more expensive to download the entire blockchain. The Bitcoin blockchain is about 130GB as of September 2017 (and growing) and may be more than 1TB when Bitcoin is fully mined.

A significant majority of Bitcoin nodes don’t have the blockchain fully downloaded. Because of this, they rely on the blockchain data from other nodes. And if the other nodes are being dishonest, the information they provide might be incorrect. As a result, there is a possibility for fraud, or a situation where one party’s transaction is considered by the honest nodes to be valid, but later rejected by the honest nodes because they find out it violated pre-existing rules. Since the blocks in the chain are dated, this could be problematic.

Does Bitcoin Have Any Competitors?

If you have been hearing a lot about Bitcoin, you might wonder whether this is the only cryptocurrency out there. In fact, it isn’t.

There are tons of cryptocurrencies that are fighting for dominance based on the different benefits they can offer. Most of the other cryptocurrencies are just clones of Bitcoin.

It’s like saying that Apple was the first company to produce phones. It isn’t true. Before smartphones, Apple didn’t even exist.

In the same way, there were many cryptocurrencies before Bitcoin. However, Bitcoin is the only one that succeeded and is currently the most popular cryptocurrency.

Many other cryptocurrencies are very popular and here is the list of the top 10 cryptocurrencies other than Bitcoin.

Where to Buy Bitcoin

When you hear the word Bitcoin, what do you think of? Bags of coins, BTC written in large text on a wall, the international symbol of currency? Bitcoins are an increasingly popular and hot new type of investment and cryptocurrency that you can use to buy goods and services.

In the past few years, more and more people are investing in Bitcoin and other cryptocurrencies. However, some people are still confused about these virtual currencies and find it hard to understand the concept.

What is a Cryptocurrency?

Cryptocurrencies are a virtual or digital type of currency that is designed to work in peer-to-peer transactions as a global currency that can be traded for goods and services.

When compared to traditional fiat currencies, one of the main differences is that you can use the digital currency without the need for a central bank. There is no centralized authority or government backing the cryptocurrency.

Bitcoin came into existence in 2009 as the first decentralized cryptocurrency, which means that it is operated by a network of computers, and not by a central bank.

What is a Bitcoin Wallet?

A bitcoin wallet is simply how you store your bitcoins for safekeeping.

In cryptocurrency, you are your own bank. Therefore, you need a bitcoin wallet to secure, store, and spend your virtual currencies.

Conclusion

Bitcoin is one of the most popular cryptocurrencies today. Bitcoin uses blockchain technology, a technology that has existed for years but is applied to a different purpose with cryptocurrencies.

Have you heard of Bitcoin? If you haven’t, this article is for you. Before we get into what exactly you should know about Bitcoin, let’s take a quick look at how it all started.

Much of the technology we use today started in the military. According to a widely-held belief, this came to be when a reward was offered to whoever could come up with the best encryption device to keep their messages secure. This resulted in a number of high-tech digital methods. Now, digital encryption is used in banks, security firms, and military branches.

Blockchain is also not new to the digital world. It has been in development since 1991 and was first employed in cryptocurrency in 2008. The idea behind this is relatively simple. It is a universal digital ledger where nothing is removed and everything is saved in an unchangeable state.

It is this function of blockchain that gives cryptocurrency its worth. It can’t be hacked, it’s unchangeable, it cannot be destroyed and the information in its data is available to everyone in the chain.

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