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“Every informed person needs to know about Bitcoin because it might be one of the world’s most important developments.”
Leon Luow, Nobel Peace Prize nominee
Yes, you heard it right! Bitcoin may have been a revolutionary invention in the world of finance where traditional currencies are surviving to prove their existence as a reliable medium of exchange. Bitcoin may have solved the monetary transactional problems the world is facing right now.
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The inception of Bitcoin is quite interesting. In 2008, a mysterious man or group named Satoshi Nakamoto released a whitepaper titled “Bitcoin, a Peer-to-Peer Electronic Cash System“. This was the first time people heard about it.
One year later, the mysterious man behind the whitepaper brought the title to life. Bitcoin started its journey in 2009. But till now, nobody knows who Satoshi Nakamoto is!
What is Bitcoin then? To put it simply, Bitcoin is a decentralized cryptocurrency that operates through blockchain technology. You may be wondering what decentralized cryptocurrency is.
A decentralized cryptocurrency, a form of virtual currency is run on a decentralized network of computers while being secured by a technique called cryptography. Cryptography secures information and communication through the use of codes.
How Bitcoin Works
When it comes to payment structure, Bitcoin is a phenomenal medium of exchange. Unlike traditional currencies known as fiat currencies, Bitcoin does not depend on intermediaries or central authorities.
It is not controlled by the government. Surprisingly, it is not owned by a single entity. It is open to the public.
A central bank or monetary authorities control the traditional currency of a country. Experts in the field of economy are designated to look over the circulation of the currency. However, many of the traditional currencies are still failing to operate in the economy despite having rigorous rules and regulations.
So, how is it possible for Bitcoin to function properly as there is no central authority to look over it? So, let’s dive into how Bitcoin works!
As Bitcoin has no central authority, it depends on peer-to-peer networks of computers and systems running Bitcoin software including Bitcoin wallet. The technical word for a system running Bitcoin software is called a node.
Too many technical words in one sentence! Many questions are swirling around your head, right? What do peer-to-peer networks mean? Which technology do these peer-to-peer networks of systems rely on? Where is your data being stored?
Firstly, let’s break down the phrase peer-to-peer networks. Suppose you and your friend share resources through your computers but there is no central authority or intermediary involved. Each of you has the same status. Then we call your networks peer-to-peer network. It is a decentralized network.
So, these transactions generated from the peer-to-peer networks must be stored in a database. Blockchain is the database that stores the transaction information. But here is the catch! The database is not in one particular place. It is everywhere within the systems of the participants. It is a shared public ledger. Let us discuss it further.
Understanding Blockchain
We all have heard ledger at some point in our life. To put it simply, it is just a book where banks, business organizations, and even individuals record their transactions. The idea of blockchain starts with a ledger too.
However, it is different than your traditional ledger. As we have already said it is a shared ledger, the information in the ledger is accessible to everyone in the network.
To understand the efficacy and future, we need to have a clear understanding of Blockchain. However, like me in the beginning, many of us find it hard to grasp the concept of blockchain. Let’s try to understand blockchain in the simplest way possible through an example.
Suppose, there are three guys transferring money using blockchain technology. Let’s use a traditional currency for better understanding though it would be a bit unusual to use the traditional one as an example since our topic is Bitcoin.
A has $15. B wants $10 from A. So, A gives it to B. Once the transaction happens, it is stored in the public ledger. The transaction where A transfers $10 must be linked to A’s initial capital of $15. Just like a chain, right?
Later that day, B transferred $8 to another person named C. The transaction between B and C is also linked to the previous chains. All the chain of transactions is stored for the public ledger.
Yet, there is no centralized database; instead, the database storing the chain of transactions makes it accessible to every participant in the network
The decentralization and accessibility of information make the currency more secure and stable since if someone wants to commit fraud, everyone on the network will be notified. Suppose, A wants to send $9, it seems A is trying to commit fraud since A does not have sufficient funds to transfer.
If someone wants to create a new block, it can be validated since the technology is created in that way.
Understanding Bitcoin Transaction
I think it would be better to see an example. You have your Bitcoin Wallet, a place for storing your Bitcoin. Now you want to send your friend Sam to a certain amount of BTC.
What you need first is to obtain Sam’s public address, a hashed version of the public key. Then you sign the transaction using your private key to ensure the security of the process.
Okay, there are two technical terms here. To make it easier to understand public and private keys, I think an analogy would be effective here. A public key is like your PayPal email address. You can share it so that someone can send funds to you. On the other hand, a private key is your password that only you know of.
Once signed, the transaction will be broadcast in the decentralized network of nodes. Then the miners by solving complex mathematical problems will validate the the transaction so that it can be included in the blockchain.
After being validated through the mining process, your friend Sam, now, can verify the transaction using his private key.
How to buy your first Bitcoin
Many of us are still in doubt whether we should invest in Bitcoin or not. It is normal to have that feeling. It would not be wise to put everything into Bitcoin since it is still a new phenomenon.
But at the same time, investing a safe and comfortable amount of money would not bring that much catastrophe, right? It could be a life-changing decision.
Since we have some sort of idea of what Bitcoin is, let’s find out how to have one.
Choosing a Crypto Wallet
Decide which crypto wallet is the most suitable for you. The preference relies on factors like security, cost, volume, and ease of use. In the crypto world, there are mainly two types of wallets: hot wallets and cold wallets. The cold wallet known as the hardware wallet is not involved with an internet connection. Thus, your private key stays offline.
On the other hand hot wallet is a wallet with an internet connection. If your priority is to be highly secured, then go for the cold wallet.
Some of the best cold wallets are: Trezor Model One, Ledger Nano S Plus, Trezor Model T, Ledger Stax; and hot wallets are: Crypto.com Defi Wallet, Guarda, Coinbase Wallet
Finding a Reputable Cryptocurrency Exchange
Find out the most reputable cryptocurrency exchange that provides the optimum security while having the best UI. These are some of the most popular ones in the market: Kraken, Coinbase, Gemini.
Prepare Your Documents
Be prepared to provide all the required information to verify your identity through a KYC process. Information may include personally identifiable information, official documents issued by the government, such as a passport or driver’s license, proof of address such as a utility bill, and other documents depending on the requirements of your exchange.
Deposit the Funds
Deposit your funds to your exchange account. There are many payment methods including bank transfer, and credit/debit card transfer. You need to be careful while choosing the payment methods. If your source of funds is costlier than the benefits generated from Bitcoin, then it would not be an effective investment to begin with.
Finally, you’re set to purchase your first Bitcoin.
Educate yourself
Whatever investments you are into, if you are new, you must educate yourself. There is no shortcut there. Researching and exploring the idea would be the ultimate solution to avoid financial catastrophe. Frauds are everywhere. They target people who do not engage in exploring deep of the subject matter. People with knowledge are their kryptonite.
I always prefer community forums. Here, people share ideas and news and this news can be seen by many people. It would give you the option to see the criticism or any alternative ideas. r/Cryptocurrency is a cool Reddit platform.
You can watch CryptoCase, a YouTuber who is educating beginners about Cryptocurrency.
CoinDesk, Cointelegraph, HackerNoon are some of the websites where you can get news and stories about cryptocurrency.
My suggestion would be to take time. When you get a piece of news, do not trust it with a blind eye. Try to google, and talk to forums. Always try to verify it. It is your money.
Is your country embracing crypto legally?
You are determined to invest in cryptocurrency. Then a question comes to your mind. Is it legal in my country?
Some countries ban cryptocurrency completely. The following lists give you an idea of where crypto is banned partially or completely:
Countries that have partially banned crypto: Colombia, Iran, Argentina, and Taiwan
Countries that have completely banned crypto: Morocco, the Republic of Congo, Algeria, Libya, China, Ghana, Saudi Arabia, Myanmar, Lesotho, Iraq, Afghanistan, Bangladesh, Nepal, North Macedonia, Sierra Leone, Egypt, Bolivia, Kuwait
If cryptocurrency has not been legal yet, it would not be prudent to invest in cryptocurrency since it can have some legal consequences.
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