Innovation knows no bounds. We keep finding quicker and simpler ways to do all of our work. Bitcoin is one such invention which has made the task of making payments a moment’s affair. With this short guide on what bitcoins are and how they work to ensure that you know all about this creation with potential yet to be realised.
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WHAT ARE THE BITCOINS ?
Bitcoin is a currency of the digital form which is managed electronically. It is controlled by nobody and is a peer-to-peer system where users can transact among themselves directly without any middlemen. Bitcoins can be thought of as virtual money or money for the internet. They are produced by people running computers worldwide, using a process called mining. Bitcoin is also an example of cryptocurrency.
Bitcoin has an open source code, that is, a transparent mathematical design which means that anyone can study it and become part of it. It is thus a global currency and has no borders to it. For a user, Bitcoin is an application that allows him/her to engage in transactions online by means of sending and receiving bitcoins. This is done with the help of an online bitcoin wallet.
All transactions of the Bitcoin network are verified and noted in a public ledger known as the blockchain. It is a decentralised system which means that there is no central administration. The users have the power of sending their bitcoins from their own bitcoin addresses. Processing of transactions can be done by anyone using specialized hardware. This service is known as mining and is rewarded with newly produced bitcoins.
Bitcoin provides both individuals and businesses with a number of advantages. It is easy to operate, military grade cryptography provides a high level of security, it can be operated from anywhere at any time, ensures fast international payments since no banks are involved, charges negligible fees, and protects your identity. In addition, it also provides for accounting transparency and may help to attract new customers since it is still emerging.
HOW THEY ORIGINATED?
Bitcoin was created under an alias of Satoshi Nakamoto, whose invention was published on 31 October 2008 in a research paper “Bitcoin: A Peer-to-Peer Electronic Cash system” and was launched in January 2009 with an open source code. Since then, a good number of developers started working on bitcoin resulting in its significant growth.
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FIRST BITCOIN TRANSACTION
The first bitcoin transaction on record was made by a man in Florida who used 10,000 bitcoins to buy two pizzas from Papa John’s! With the growth of Bitcoin, Mt. Gox, the first bitcoin exchange, was established in 2010.
By 2013 many websites had begun to accept bitcoins such as WordPress, OKCupid, Foodler, Atomic Mall, TigerDirect, Overstock.com, Expedia, Newegg, Dell, and Microsoft. Wikileaks, The Internet Archive and a few non-profit organisations like the Electronic Frontier Foundation began to accept bitcoin donations.
October 2013 saw the installation of the first bitcoin ATM in Vancouver, British Columbia, Canada. More recently, there has been a notable growth in Bitcoin with large companies such as Wal-Mart, Microsoft, Dell, Newegg and Overstock accepting bitcoin.
WHERE CAN WE BUY BITCOINS?
Buying and selling of bitcoins are no different from the buying and selling of any other currency. There are two main sources of purchasing bitcoins. They can be bought either from exchanges or straightaway from people who are selling bitcoins.
Just like traditional exchanges, bitcoin exchanges match bids and ask prices from buyers and sellers respectively. This, in turn, helps to establish the market price of bitcoin. Other ways to get bitcoins would be to accept bitcoins as payments for your work or by mining of bitcoins, the latter of which is not recommended due to a high level of competition and little reward.
Bitcoins can be paid for in different ways. Cash, credit/debit cards, wire transfers, or other cryptocurrencies can be used to pay for them depending on the terms of the bitcoin exchange. Bitcoins can be transferred among people simply by use of mobile applications and computer software called bitcoin wallets.
A bitcoin wallet is a virtual wallet used to keep track of a user’s bitcoins. There are four kinds of wallets
1. WEB WALLETS
2. SOFTWARE WALLETS
3. MOBILE PHONE WALLETS4. HARDWARE WALLETS
Purchasing bitcoins is getting simpler day by day. Following are websites recommended for purchasing bitcoins.
LocalBitcoins – This fantastic service allows you to search for people in your community willing to sell bitcoins to you directly.
How To Buy Bitcoins – An international directory of bitcoin exchanges.
Expresscoin – Recommended for fast, simple service.
Coinbase – Bitcoin exchange. (Highly rated).
BitStamp – A multi-currency bitcoin exchange (Highly rated).
CoinJar – CoinJar allows direct bitcoin purchases on their site.
WHERE CAN WE SELL BITCOINS?
Bitcoin can be sold in person or it can be sold online. It is more commonly sold online. It is sold online in the following ways.
1. DIRECT TRADE
2. ONLINE EXCHANGE
Where you trade with an exchange. Exchanges hold all of the funds. After you’ve placed a sell order the exchange will complete the transaction when someone places a matching buy order and credit the currency to your account.
BitBargain, Bittylicious and Coinbase are again the recommended websites. The entire selling process might take some time and require some level of patience. A level of discretion and research is advised while trading bitcoin for fiat currencies on exchanges as an exchange facing liquidity issues might take some time to receive your funds.
3. NEW PEER-TO-PEER TRADING
New peer-to-peer trading marketplaces provide a platform for bitcoin owners to buy discounted goods with their bitcoins via people who want to purchase bitcoins with credit/debit cards. They act as facilitators in trade for people with complementary needs. Purse.io is an example of such a website.
Bitcoin can also be sold in person and is arguably the simplest way for exchanging bitcoins. All that is required is a QR code that is scanned from the other person’s device to complete a transaction. However, it is always important to be cautious while trading bitcoins in person.
It is also possible to advertise yourself as a bitcoin seller in order to gain a larger audience. Websites such as LocalBitcoins allow users to rate each other. This helps to determine the reliability of a bitcoin trader. Bitcoin meetups take place time and time again around the world where people trade bitcoin and other cryptocurrencies.
WHAT IS THE FUTURE OF BITCOINS?
Bitcoin has more to it than simply the exchange of money. It opens doors for a number of technological advancements many of which are being researched upon and explored. With features such as global accessibility, easier control against fraud, cost efficiency, processing of small payments and much more it could be said that Bitcoin may hold vast promises for the future. Bitcoin has enjoyed a considerable growth as a form of payment. It provides to merchants the incentive of lower fees than that charged by credit card processors.
Bitcoin, like any other coin, also has two sides to it. While it has huge potential for the future, it has not been free from criminal activity. Over the years there have been instances of theft, money laundering, use of black markets, fraud, and tax evasion. One notable instance has been of the slump of Mt. Gox in February 2014, formerly the largest bitcoin exchange due to theft. In response, legislative and law enforcement agencies have issued warnings on the use of virtual currencies.
While bitcoin is legal in most countries and is mostly unregulated, its use is restricted in a few countries. The future of bitcoin is still undetermined. No one can tell what will become of it. Arguably it could be said that the best of bitcoin is yet to be seen.
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