What is Bitcoin..
August 10, 2019
Cryptocurrency is a type of digital asset used as a medium of exchange. The most famous one is Bitcoin. Other common terms for cryptocurrencies are digital tokens or digital assets. They are all stored in distributed ledgers called blockchains. Each blockchain has its own digital token. In the case of Bitcoin, it is the Bitcoin token. Other examples are Ethereum, Litecoin, Monero, Dash, Zcash, etc. Each digital coin has its properties and functions. This tutorial will focus on Bitcoin but could be used for any other cryptocurrency.
Bitcoin is in the news today more than ever. Thanks to skyrocketing prices and rollercoaster dips, everyone and their dogs are interested in learning how to buy and sell Bitcoin. As the most popular form of cryptocurrency (and the blockchain technology that powers it) Bitcoin is now widely accepted around the world and has a growing number of applications. Before you can get into any of that, you need to first know where to go to purchase and store it.
There are a few steps you need to take to make your first purchase, but if you’re ready and willing to follow along, we’ll quickly teach you how to purchase Bitcoin.
Digital “wallets” are used to store Bitcoin until you are ready to spend them or exchange them for another currency. Wallets range in terms of features, platforms they can be used on, and security, so it’s important to choose one that works for you — though you should probably steer clear of the one evangelized by John McAfee.
To get you started, your best bet is to use the wallet that’s automatically provided to you on our recommended exchange, Coinbase. However, it’s also a good idea to set up a wallet that’s not linked to an exchange to ensure you’ll have ready access to your Bitcoin even in the event of overwhelming traffic or site closure. To buy bitcoin you can use standard payment methods including bank transfers, credit cards, cash or Paypal. They all have their pros and cons. Bank transfers are slower compared to other methods; credit cards have high transaction fees, paypal has transaction limits, and cash does not get the best exchange rates. The following figure will give you the brief overview of the ways you could buy cryptocurrency and the possible payment methods.
Here are our recommended options:
Desktop or Mobile Wallet: This is the most common type of wallet. An app has to be downloaded on your computer or mobile device. It will store user’s private keys on the device, that’s why it is strongly recommended to make regular backups of the wallet and store them on a different device besides your computer(USB stick, etc.). A mobile wallet could be compared to a real cash wallet. People don’t keep their entire wealth in their back pocket, and you shouldn’t store all of your crypto funds on your smartphone. Mobile wallets can be compared to real cash wallets.
Online Wallets are web based wallets, which are hosted on a server. Every online wallet requires a password for login. The upside of these wallets is the usability. They ‘re the most user-friendly because they require as little setup as possible. The downside is that the wallet owner is dependent on a third party that could be a victim of theft or revoke access to the wallet. It is recommended not to store large values in an online wallet. Enabling 2-factor authentication(2FA) at login is strongly advised. There have been reports of stolen coins from users, despite having 2FA enabled. Hackers are using social engineering techniques to hijack the phone numbers of victims from their carriers. These phone numbers were used as 2FA for their online wallets even for their online banking. Apps like Google Authenticator offer greater security for 2FA and are the preferred way by many people for securing their online profiles.
Hardware Wallet are a special type of wallet which stores the user’s private keys in a secure hardware device (e.g., USB stick). Hardware wallets work by installing a dedicated application on the computer or mobile phone and connecting it with the physical device via USB. This way the private keys are stored offline and are therefore not exposed to viruses or attacks from the internet. The downside is that you have to buy the device first.
Paper Wallets: In this case, people can generate their own private and public keys and print them on a paper for offline storage. This method avoids storing digital data on any device, offering the strongest security possible, but sacrificing usability. Once printed on paper, these wallets have to be kept in a safe place. Losing the piece of paper renders the funds in the wallet unusable. Check: Bitaddress.org
The best way to start buying coins is by opening a wallet with one of the large cryptocurrency exchange websites. To open an account each user needs to provide an official document ID. At the exchange, you can buy most of the popular coins and hold them in the same wallet. It is convenient and will save you a lot of time. The type of wallet is called an online wallet, and people rely on the exchange to keep their funds safe. After you bought your first bitcoin or any other cryptocurrency, you should consider transferring the funds to a more secure wallet, which is controlled only by you. There are different ways you can purchase cryptocurrency. For the sake of simplicity let’s concentrate on Bitcoin.
ATMs at public places give people the opportunity to buy bitcoins with cash. You will need to install a wallet first in order to transfer the coins to an address of your choice.
Voucher cards could be bought at stores in your area. These look like every other gift card and can be redeemed online. The cards are suitable for small purchases.
Coins like Bitcoin are stored in the so-called “wallets”. Think of a wallet as your bank account. The difference is that in the crypto world, you don’t have a third party like a financial institution, taking care of your money. In the case of a capital loss or a security breach, there is no rollback. Taking the right steps is vital for securing your funds. Being your own bank requires more caution and responsibility.
To start using Bitcoins or other types of cryptocurrencies, you first need a crypto wallet. The wallet stores the user’s private and public keys, which allows for sending and receiving coins. Different cryptocurrencies offer their own desktop or online wallet, which can be found on their website. A wallet does not store any coins. The only role of the wallet is to keep the user’s private keys safe and to connect to the corresponding blockchain. The private keys allow for the movement of funds between parties. Think of your private key as your home key, if you give it to someone else, he will have as much power as you. Note that coins are never stored in your wallet. Who owns how much Bitcoin is tracked in the Blockchain. There are four types of wallets that differ in usability and security level.
User’s address in the form of QR-code and string (mobile wallet)
The most important part of your wallet is your address. You use the address for sending and receiving coins. Almost all cryptocurrency addresses look similar to this: 1KDCn9XLVu3xNyr7ox64yjLw3kvKM1bADM.
Think of this as your bank account number. These strings could also be represented via QR-codes. QR-codes are widely used in the mobile wallets for better convenience. Cryptocurrency transactions have their unique transaction IDs and cannot be reversed. Once you have sent the money to somebody, there is no rollback.
For a transaction to be valid, it needs to get validated by the network. This process called a “confirmation.” A confirmation could last from a couple of seconds to many minutes, depending on the load of the network.
For each transaction, users have to pay a small fee. The fee could range from under 1 cent up to a couple of cents, sometimes even a dollar, and it gets automatically subtracted from your balance.
Many wallets offer the opportunity to see your Bitcoin balance as USD or EUR equivalent. This way you can type the amount of USD or EUR you want to send to somebody, and the wallet will automatically calculate the amount of Bitcoin needed for the transaction.
A blockchain is the backbone of any cryptocurrency including Bitcoin. Almost all cryptocurrencies run on public blockchains. Furthermore, each transaction happening on the Bitcoin blockchain gets saved and can be viewed online by anybody, by visiting a so-called block explorer. These explorers are websites which show a live feed of the transactions on the network.
To follow a transaction, you could paste the transaction ID in the search box. These transaction IDs are unique for each transaction and are shown in your wallet. One other way to follow a transaction to or from an address is to paste the address into the search box. This way the block explorer shows all incoming and outgoing transactions associated with this address.
Block explorers could be used for different statistics like for example the number of total transactions on the blockchain or number of unique Bitcoin addresses. (Bitcoin block explorer example: Blockchain.info)
