If you haven’t heard of Bitcoin yet, then you are living under a rock. A lot of people are investing in Bitcoins, though it’s the other thing that the value of Bitcoin is not that high at the moment as it’s used to be in 2017. But it’s quite likely that in 2019, this cryptocurrency would be into the heights again.
If are a newbie and never heard about Bitcoins before, then this Bitcoin beginner’s guide is for you. Here we have gathered all the necessary information explaining what Bitcoin is and how it works.
What Is Bitcoin After All?
You must have heard many numbers of times that Bitcoin is a cryptocurrency. But what does that mean?
Bitcoin is a form of digital currency that makes use of the cryptographic technology and hence is called a cryptocurrency. The purpose of cryptographic technology ensures that the digital currency is not fraud generated or get stolen.
There are other cryptocurrencies out there in the market besides Bitcoin, like Ethereum, Ripple, Litecoin, Dash, etc. But do you know that Bitcoin stands out among all?
Bitcoin is so popular plus highly valuable than any other cryptocurrencies. Let’s understand the reasons here.
Reasons Behind Bitcoin Popularity
1. Bitcoin was the first cryptocurrency ever to be established. The Bitcoin was invented back in 2009 by Satoshi Nakamoto.
2. Few countries banned the use of cryptocurrencies and few welcomed it considering it legal tender money.
Well, this is because cryptocurrencies like Bitcoin are said to be decentralized currencies.
The term “decentralized currency” means that cryptocurrencies like Bitcoins are not issued by the centralized banks of any recognised government.
You can use the crypto coins to transfer wealth or ownership of any other commodity without the need of a third party.
How Does Bitcoin Work?
To let you understand how Bitcoins work, it is, to begin with, the phase of buying Bitcoins.
To buy Bitcoins, you can make use of any Bitcoin trading website. Once you create an account on the website, you will then be able to buy Bitcoins from the site.
To trade, enter the number of Bitcoins and then pay the corresponding amount (depending on the value of coin at the time) in dollars or any supported currency.
Once you buy, it is required to store somewhere, just as we store other currency in our wallets.
As Bitcoins are not a physical currency, a digital wallet, similar to your existing Google Pay or PayPal account, is used.
There are two types of digital wallet storage for Bitcoins:
1. Hot storage and
2. Cold storage
1. Hot Storage Wallets
Hot Storage or hot wallets are meant to describe digital wallets that store Bitcoins connected to the internet.
Which means, accessing a hot wallet would require an internet connection and all the data regarding your Bitcoins gets stored online.
Some of the great hot storage wallets are Bitcoin Wallet, Green Address, Mycelium, Bitcoin Core, etc.
2. Cold Storage Wallets
As hot wallets are prone to hacking threats, cold storage or cold wallets took place instead.
A cold wallet is a physical device most likely a USB device that does not require an internet connection.
To feed your Bitcoin data on to a cold wallet, you first need to download your Bitcoin data and then paste the data on to the cold wallet.
Once the data gets submitted, the cold wallet requires no connection to a system anymore and can even perform standalone transactions.
As cold storage wallets are not at all connected to the internet, they are very much safe from hacking threats.
Trezor, Ledger Nano S, and KeepKey are some of the highly recommended cold storage wallets you can try.
What Else I Can Do With Bitcoins – Perform Transactions, Private Keys & More
Even though many are buying Bitcoins from an investment perspective, you can use Bitcoins to perform transactions.
Both cold wallets, as well as hot wallets, can be used to perform transactions using Bitcoins.
Quick thing: Bitcoin transactions make use of private keys, which are unique for each Bitcoin wallet. But if you forget your private key once, you can no longer access your Bitcoin wallet.
Private keys are highly secure and work like a password that ensures that the actual wallet owner initiates all Bitcoin transactions. Private keys also help in uniquely identifying the wallet that started the transaction.
Now once a transaction is done, how is it verified and processed?
This is where the Bitcoin mining system comes. Bitcoin mining systems are connected distributed systems that are not owned by a single person or company but can be anyone who offers their computing hardware for mining.
Through computing hardware, all transactions are verified using the private key. The people who lend their computing hardware for mining are paid in Bitcoins as well.
We have tried to cover a comprehensive guide here for Bitcoin newbies/beginners. We hope you find this post useful and learn about what is bitcoin and how it works.
If you have any doubts or queries, feel free to leave a comment below. If you like reading the article do share it with your friends and colleagues on social media networks.