What is Bitcoin? World's First Most Comprehensive Guide

What is Bitcoin? World's First Most Comprehensive Guide

in Cryptocurrency, Bitcoin, Blockchain, Crypto Vocabulary, Mining

Every single day we hear the same strange word which has already been included in all the dictionaries: Bitcoin. But...what is it? Who created it? How to buy it? Where to store it? Is it legal at all? How does it depend on the world's events? What makes its price? What is blockchain then? These and the other questions bother everyone who is new in cryptocurrency. In this guide, we are going to cover all the possible issues related to Bitcoin. Make yourself comfortable to read and study!
Bitcoin

 

What is Bitcoin?

Bitcoin was invented in 2009 by a person (or group) who called himself Satoshi Nakamoto. His stated goal was to create "a new electronic cash system" that was "completely decentralized with no server or central authority." After cultivating the concept and technology, in 2011, Nakamoto turned over the source code and domains to others in the bitcoin community and subsequently vanished. Simply put, Bitcoin is a digital currency. No bills to print or coins to mint. It's decentralized - there's no government, institution (like a bank) or other authority that controls it. Owners are anonymous; instead of using names, tax IDs, or social security numbers, bitcoin connects buyers and sellers through encryption keys. And it isn't issued from the top down like traditional currency; rather, Bitcoin is "mined" by powerful computers connected to the internet. But it differs from fiat digital currencies in several important ways:

 

1. Decentralization

Bitcoin's most important characteristic is that it is decentralized. No single institution controls the bitcoin network. It is maintained by a group of volunteer coders and run by an open network of dedicated computers spread around the world. This attracts individuals and groups that are uncomfortable with the control that banks or government institutions have over their money. Bitcoin solves the "double spending problem" of electronic currencies (in which digital assets can easily be copied and re-used) through an ingenious combination of cryptography and economic incentives. In electronic fiat currencies, this function is fulfilled by banks, which gives them control over the traditional system. With bitcoin, the integrity of the transactions is maintained by a distributed and open network, owned by no-one.

2. Limited supply

Fiat currencies (dollars, euros, yen, etc.) have an unlimited supply - central banks can issue as many as they want, and can attempt to manipulate a currency's value relative to others. Holders of the currency (and especially citizens with little alternative) bear the cost. With bitcoin, on the other hand, the supply is tightly controlled by the underlying algorithm. A small number of new bitcoins trickle out every hour and will continue to do so at a diminishing rate until a maximum of 21 million has been reached. This makes bitcoin more attractive as an asset - in theory, if demand grows and the supply remains the same, the value will increase.

 

3. Pseudonymity

While senders of traditional electronic payments are usually identified (for verification purposes, and to comply with anti-money laundering and other legislation), users of bitcoin, in theory, operate in semi-anonymity. Since there is no central "validator," users do not need to identify themselves when sending bitcoin to another user. When a transaction request is submitted, the protocol checks all previous transactions to confirm that the sender has the necessary bitcoin as well as the authority to send them. The system does not need to know his or her identity. In practice, each user is identified by the address of his or her wallet. Transactions can, with some effort, be tracked this way. Also, law enforcement has developed methods to identify users if necessary. Furthermore, most exchanges are required by law to perform identity checks on their customers before they are allowed to buy or sell bitcoin, facilitating another way that bitcoin usage can be tracked. Since the network is transparent, the progress of a particular transaction is visible to all. This makes bitcoin not an ideal currency for criminals, terrorists or money-launderers.

 

4. Immutability

Bitcoin transactions cannot be reversed, unlike electronic fiat transactions. This is because there is no central "adjudicator" that can say "ok, return the money." If a transaction is recorded on the network, and if more than an hour has passed, it is impossible to modify. While this may disquiet some, it does mean that any transaction on the bitcoin network cannot be tampered with.

 

5. Divisibility

The smallest unit of a bitcoin is called a satoshi. It is one hundred millionth of a bitcoin (0.00000001) - at today's prices, about one-hundredth of a cent. This could conceivably enable microtransactions that traditional electronic money cannot.  

 

Who is Satoshi Nakamoto?

Satoshi Nakamoto is the mysterious creator of Bitcoin and blockchain. Despite countless attempts to unmask the person or people behind the name, their identity has remained elusive.


satoshi

 

There have been numerous unsuccessful attempts by journalists to reveal the Bitcoin founder. In a high-profile incident in 2014, Newsweek magazine relaunched with a feature outing Dorian Nakamoto, a 64-year-old Japanese-American man, as the creator. The affair, having fallen apart under scrutiny, ended with a car chase and the real Nakamoto refuting the allegations.

The most recent candidate was Craig Wright, a former Australian academic, who claimed to be the bitcoin inventor. Wright wrote blog posts and gave interviews to Wired, BBC and the Economist in 2015 and 2016 saying he was behind bitcoin. (See also: "Cryptocurrency World Big Wigs") After failing to provide unquestionable proof, Wright posted an apology message that said:

 

"I believed that I could put the years of anonymity and hiding behind me. But, as the events of this week unfolded and I prepared to publish the proof of access to the earliest keys, I broke. I do not have the courage. I cannot."  

 

How does it work?

Today we hear here and there about Bitcoin, Blockchain, cryptocurrencies, Coinbase, digital bubble etc. And when someone beside you starts talking about blockchain you cries inside: hey, guy, I know what you are talking about! And, yeah, you are completely off. Why? Blockchain is not Bitcoin! At all! Bear it in your mind! If it has a “B” letter it does not make it Bitcoin-lock-chain!


blockchain


Blockchain holds a decentralized record of all transactions that is updated and held by all users of the network. To create bitcoins, users must generate blocks on the network. Each block is created cryptographically by harnessing users' computer power and is then added to the blockchain, letting users earn by keeping the network running.

 

A limit for how many bitcoins can be created is built into the system so the value can't be diluted.  The maximum amount is just under 21 million bitcoin. There are currently just over 16.8 million in circulation, each of which was worth around $10,000 at the time of writing. That puts its total value at around $168 billion.
 
blockchain

 

Learn more about Blockchain here. (See also: "What is Blockchain.")  

 

How to buy Bitcoin?


crypto coin


When you know for the first time what Bitcoin is you will probably want to learn how to buy it. Bitcoin is not a company or whatever. It is a digital currency which can be earned or purchased in the same ways as any other currency. Here we will observe the easiest ways you can buy bitcoins today.

 

Locally

The best way to gain access to the Bitcoin network is the other users which are the initial way bitcoins were intended to be traded as it happened in 2008. A user and a bitcoin owner suggested 10000 bitcoins to anyone who sells him 2 pizzas. There are apps that allow sellers and buyers to find each other to trade cash for bitcoins. One of this apps is Localbitcoins. Cash machine is the other way to redeem or buy Bitcoins. These machines are linked with online exchanges and allow buyers to make purchases by depositing cash inside. They can also vice versa exchange Bitcoins to local currencies. The ATM Radar sites can help you to find one’s locations. Click here to find out the other ways to buy Bitcoin. See also: "How to buy any cryptocurrency." See also: "How to buy cryptocurrency on your android/iPhone?"  

 

What is it used for?

Bitcoin is has a range of uses, including funding companies, investing cash and transferring money without fees. It is commonly associated with a criminal activity such as drug dealing, cybercrime and money laundering since it can be near-impossible to tie a bitcoin wallet to any one individual.
Bitcoin can be spent online and at select retailers in the UK. They include CEX stores, Dell's website, Your Sushi restaurants, and some pubs. They can also be withdrawn at a couple of dozen bitcoin ATMs. However, a surge of network activity has meant transaction fees spiking, meaning some retailers have lost enthusiasm. Others simply hold their Bitcoins, hoping they will accumulate in value and prove to be a lucrative investment. Its price is notoriously volatile, and early investors are now sitting on massive gains.  

 
cryptocurrency wallet

 

Where to store Bitcoin? 

Initially, Bitcoin was worth a gum in your pocket. Now it worth your pants, shirt, vest, and all the other clothes in your wardrobe taken together. So pay attention to the security of your tokens. Here is some good advice how to do it. Your tokens will not cry if they stay alone. Find a secure wallet and keep it there, Only you are responsible for what happens to your coins. Do not tell everyone that you managed to buy and save 150 Bitcoin tokens in 2008. They will be safe if you do not attract one’s attention to them. Click here to learn how to safeguard your bitcoin. To secure your bitcoin you will need a Bitcoin wallet. The step should not be taken lightly as you are investing your funds into Bitcoin (the Bitcoin pizzas time has gone). There are many wallets to choose from, including Bitcoin.com’s Official Wallet. Click here to read the article where we will take you through the main items we recommend reviewing before choosing a Bitcoin wallet. The items are not crucial – things can always change. But learning the basics is highly encouraged.    


cryptocurrency fee

 

What is a cryptocurrency fee?

When you’re investing in the blockchain, you have to deal with cryptocurrency transaction fees. This is nothing new as you also pay for using the services of third parties such as exchanges in the stock market as well. However, due to the decentralized nature of cryptocurrencies, you have to pay for using a network of a crypto as well. The network needs to be incentivized to verify all the transactions occurring on the blockchain, and you as a user are paying for that. Fees related to cryptocurrency purchase may include:

  • Exchange fees or commissions, usually a percentage of every trade. These are usually represented in fiat currency.
  • Fees related to the payment method- some forms of transactions have processing fees attached.
  • Wallet fees.

Click here to learn more about cryptocurrency fees.    


bitcoin mining

 

How does one 'mine' bitcoin?

A person (or group, or company) mines bitcoin by doing a combination of advanced math and record-keeping. Here's how it works. When someone sends a bitcoin to someone else, the network records that transaction, and all of the others made over a certain period of time, in a "block." Computers running special software - the "miners" - inscribe these transactions in a gigantic digital ledger. These blocks are known, collectively, as the "blockchain" - an eternal, openly accessible record of all the transactions that have ever been made. Using specialized software and increasingly powerful (and energy-intensive) hardware, miners convert these blocks into sequences of code, known as a "hash." This is somewhat more dramatic than it sounds; producing a hash requires serious computational power, and thousands of miners compete simultaneously to do it. It's like thousands of chefs feverishly racing to prepare a new, extremely complicated dish - and only the first one to serve up a perfect version of it ends up getting paid. When a new hash is generated, it's placed at the end of the blockchain, which is then publicly updated and propagated. For his or her trouble, the miner currently gets 12.5 bitcoins - which, in February 2018, is worth roughly $100,000. Note that the amount of awarded bitcoins decreases over time. Why should you know about hashing? Firstly, to protect your own funds. But also, a brief discussion of the work of generating and testing hashes is a good counter-argument to being told that “cryptocurrencies are money out of thin air.” You can make the argument that cryptocurrencies are backed by mathematics. Learn more about hash here.    


bitcoin fork

 

What's a fork?

This is a splitting of a blockchain into 2 branches. As a result, users decide themselves what branch to prefer. Sometimes, blockchain branches go smoothly. Other times, serious disagreements may occur within communities. In certain cases, a network splits in two. As a result, 2 separate blockchains arise and 2 new cryptocurrencies. Essentially, a bitcoin is software with an open source code. Anyone who wants can duplicate it, change it, and use it for their own purposes. A fork is a change to the source code. A fork is a side effect of distributed calculations. Forks occur when 2 different miners choose the key to a segment at the same time. Then, for the next segment, additional ones are used. A short chain is rejected by the network and a long one wins. Most often forks are achieved by accident. But sometimes they are created on purpose. So, developers can change the rules that determine the validity of a transaction. In the case of invalid transactions, a component is ignored by the network. The miner that generated this segment remains uncompensated. So miners are interested in searching for genuine segments with their subsequent inclusion into long chains. Learn more about forks here. (See also: "Hard forks & soft forks: what is the difference?") Claiming forked coins does take some work, though. Depending on how you normally store your Bitcoin, some claims may be harder than others. In this guide, we’ll go over a few different ways to get coins from Bitcoin forks and what you should be careful of during the process. Click here to learn out how to claim your coins. (See also: "Previous & Upcoming Bitcoin Cryptocurrency Forks List", "Two basic strategies of bitcoin forks claiming.")    
ico

 

What is an Initial Coin Offering (ICO)?

An initial coin offering (ICO) is a means of crowdfunding, through the release of a new cryptocurrency or token to fund project development. There are currently more than 1,000 coins available on different exchanges, with hundreds more in the process of being listed on exchanges. It’s important to understand that not all cryptocurrencies have their own blockchain, as most are issued on top of another Blockchain. A good example is ERC-20 tokens, which represents a standard of interoperability within the Ethereum Blockchain. Ethereum is a general purpose blockchain where different tokens can be issued on top of its blockchain without creating their own infrastructure. Before cryptocurrencies, tech companies and startups with great ideas could only raise funds through a handful of ways: private equity, venture capital, bank loans, or Kickstarter. Investment opportunities were also limited to a small number of investors. You had to be an accredited investor, know the right people and have millions of dollars. The emergence of blockchain technology and cryptocurrencies have forever changed how companies grow. Tech startups are now turning to the blockchain to raise capital for their projects. They bring together teams of competent people from around the world, then market themselves to the public via social media tools. Investors like you, from anywhere in the world, can then invest using cryptocurrency. There is no limit to how much you can invest. It can be as much as $ 100,000 or as little as $50. Initial Coin Offerings (ICOs) are accessible to all. Anyone can take part in ICOs. Learn more about ICOs here.

 

How to spot fake ICOs?

ICOs have opened to the general public investments in blockchain ventures. In the third quarter of 2017 alone, ICOs raised more than $1.3 billion for crypto ventures — approximately five times more than funding raised through venture capital in the blockchain space. There were more than 200 ICOs in 2017, and conducting due diligence on all of them would be extremely time-consuming, even for a knowledgeable analyst, let alone an amateur investor. This is compounded by the fact that blockchain is still considered to be an early-stage technology, with new consensus mechanisms and use cases being developed every day. With the exponential growth in public interest, esoteric terminology and a lax regulatory framework, it is no surprise that some ICOs have been used to. There are a few steps you need to follow if you want to prevent yourself from a scam ICO. To learn more about fake ICOs proceed here.    


bitcoin faucet

 

What is a Bitcoin faucet?

Faucets are a way to get a few tokens for wallets test &  ropes learning without joining an exchange. It can also be a source of small income. Supposing, you want to try out several crypto coins at once, but buying them is a long process. So while you wait for your exchange verifications to pass through, you can build up a few coins and tokens to test wallets and learn how crypto coins work. Proceed here to Learn more about cryptocurrency Faucets.  

 

What determines the value of a bitcoin?

Ultimately, the value of a bitcoin is determined by what people will pay for it. In this way, there's a similarity to how stocks are priced. The protocol established by Satoshi Nakamoto dictates that only 21 million bitcoins can ever be mined -- about 12 million have been mined so far - so there is a limited supply, like with gold and other precious metals, but no real intrinsic value. (There are numerous mathematical and economic theories about why Nakamoto chose the number 21 million.) This makes bitcoin different from stocks, which usually have some relationship to a company's actual or potential earnings. Without a government or central authority at the helm, controlling supply, "value" is totally open to interpretation. This process of "price discovery," the primary driver of volatility in bitcoin's price, also invites speculation (don't mortgage your house to buy bitcoin) and manipulation. Bitcoin has made Satoshi Nakamoto a billionaire many times over, at least on paper. It's minted plenty of millionaires among the technological pioneers, investors and early bitcoin miners. The Winklevoss twins, who parlayed a $65 million Facebook payout into a venture capital fund that made early investments in bitcoin, are now billionaires according to Fortune.

 
 

What affects its price?

The price of a Bitcoin has jumped up and down since it first entered the mainstream consciousness in 2013. That year prices rose by almost 10,000 percent before the collapse of Mt Gox, the biggest online bitcoin exchange, sent it crashing. Prices slowly crept up after that but surged again in 2017. This is largely put down to regulators appearing to warm to bitcoin and the rise of initial coin offerings - a way for projects to raise money by selling cryptographic tokens similar to bitcoins. Many skeptics believe we are in the middle of a new Bitcoin bubble while advocates say we are just beginning to see the rise starting. Prices have fallen in 2018 amid fears of a regulatory crackdown. (See also: "Ten factors that affect cryptocurrency price.")


cryptocurrency market

   


bitcoin volatility

 

Why is Bitcoin so volatile?

Volatility “is a rate at which the price of a security increase or decreases for a given set of returns. Volatility is measured by calculating the standard deviation of the annualized returns over a given period of time. It shows the range to which the price of a security may increase or decrease.” To put it simply, volatility is a mathematical tool or index by which we measure price movements over time for a traded financial instrument or asset. Hence, measuring that price movement over time for Bitcoin and other cryptocurrencies is called volatility in this world too. The cryptocurrency market is unstable because cryptocurrencies, including Bitcoin, cannot be controlled and hence would continue to trade in the free markets. In economics, a free market is an idealized system in which the prices for goods and services are determined by the open market and consumers, in which the laws and forces of supply and demand are free from any intervention by a government, price-setting monopoly, or other authority. Here you can learn out the main factors of Bitcoin's volatility.

   
Bitcoin Lending

 

What is bitcoin lending?

If you have some Bitcoins, you may want to see them work for you instead of lying around in a wallet. That is where Bitcoin lending services come in. Lending in cryptocurrencies has the noble idea of providing financing for world areas where finding bank loans may be difficult or impossible. Also, it is a tool for traders who want to sell borrowed Bitcoin at a high price and then buy them again to return the loan. Bitcoin lending is very similar to general investing. Nevertheless, funding bitcoin loans have some characteristics, that other asset classes don’t share exactly this way. This guide highlights the 5 most important principles you should consider when lending bitcoins. Click here to study the basic Bitcoin lending principles.    


bitcoin trading

 

How to read trading charts?

As with any tradable asset, there are prices and markets which change according to sentiment or fundamental shifts in the assets core use. With cryptocurrencies, perhaps the most important fundamental change is how Governments treat it, through tax and through regulation. Charts show you a representation of their movements over the specific time period.

Charts types

Modern charting packages allow traders to visualize price activity in different forms. Three of the most common types are bar charts, candlestick charts, and line charts. These chart types are based on the same price activity, but different aspects of the trading data are emphasized in each case.

  • In a bar chart, the open, close, high and low prices of a given time period are displayed: each bar extends from the low to the high for the interval with a left-side spur showing the open and a right-side spur showing the close (last price during this interval). This allows traders quickly to identify whether prices rose or fell over the interval.
  • Candlestick charts are similar but with one key difference: the space between the open and close is filled and colored to show whether the interval had a positive or negative close. A wick extends at the top and bottom to the high and low for the interval. Candlestick charts allow different types of price pattern to be identified and are commonly used by traders with shorter-term strategies.
  • Line charts (or tick charts) remove the open, high and low price data and only show the last price traded during the interval. Prices appear as a simple line graph. This type of chart is often used by news traders on intraday timeframes where in-depth technical analysis is not utilized.

Here you will study how to read each of the chart.    


crypto vocabulary

 

What is a cryptocurrency market vocabulary?

Cryptocurrency market, as well as any other, has its own specific vocabulary. I mean the terms that are understandable only to users of the market. In this list of articles, I will help you understand the cryptocurrency language:

 

   
cryptocurrency

 

Is all of this legal?

Short, qualified answer: Yes, for now, as long as - like any currency - you don't do illegal things with it. For instance, bitcoin was the sole currency accepted on Silk Road, the Dark Web marketplace for drugs and other illicit goods and services that was shuttered by the FBI in 2013. Since then, bitcoin has largely evaded regulation and law enforcement in the US, although it's under increased scrutiny as it attracts more mainstream attention. Though it's legal to buy and sell bitcoin, miners and exchanges occupy a gray area that could be vulnerable to future regulation and/or law enforcement action.    


crypto market

 

What are the risks?

Legal and regulatory hazards aside, as both an investment and currency, bitcoin is very risky. When you wake up in the morning, you know pretty precisely how much a dollar can buy. The financial value of a bitcoin, however, is highly volatile and may swing widely from day to day and even hour to hour. Bitcoin transactions cannot be traced back individuals -- they are secured but also obscured through the use of public and private encryption keys. This anonymity can be appealing, especially with companies and marketers increasingly tracking our every purchase, but it also comes with drawbacks. You can never be certain who is selling you bitcoin or buying them from you.  Opportunities for money laundering abound; in 2016, authorities in the Netherlands arrested 10 men for just this. Theft is also a risk. The bitcoin subreddit is rife with individuals' stories and even established exchanges are targets. Mt. Gox, based in Japan, "lost" 750,000 of its customers' bitcoins in 2014 and hackers took $60 million from NiceHash in December 2017. There are few avenues for pursuing refunds, challenging a transaction or recovering such losses. Once a transaction hits the blockchain, it's final.  

 

Are there more risks?

Because bitcoin is so new and decentralized, there is plenty of murkiness and many unknowns. Even the technical rules for mining are still evolving and up for debate. The IRS views bitcoins as property, not currency. There are tax implications and a federal judge recently ruled that Coinbase must surrender records to the IRS on transactions of $20,000 or more. Then there's the fundamental question of whether you should trust a particular exchange. Even Coinbase, the most established of them all has struggled to keep up with demand, plagued by site outages, scaling issues, and customer service complaints. Even if it's venture-backed, every bitcoin player today is by definition a startup and comes with all of the associated risks.  

 

The guide will be updated as more information is gathered. Stay with Cryptoca!

 


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