Cryptocurrency has been a revolution since the day of its emergence in the digital world. Obviously, you’re here to know about Bitcoin - basic ideas as well as the technical side. Yes, we heard your call, it’s time to understand about Bitcoin, and how things work in this coin. We'll provide a comprehensive study about the Bitcoin or in short BTC, and it’s a complete guide about Bitcoin!
We may begin the article from a brief note on BTC and proceed further down to the technical aspects.
BTC – A brief idea!
Bitcoin is the first-ever digital currency in the online market emerged as an alternative to the fiat money. So, the confusing part is the difference between fiat money and cryptocurrency. Fiat money is a government-issued currency with regulations and follows every norm. A cryptocurrency is an unregulated currency developed by an open community, and its value is determined by demand & supply, i.e., based on the circulation of a particular digital coin.
- Bitcoin is a trading option
- A new way to make the transaction
- As a payment option
- Investment opportunity
You may call it an asset with the above opportunities and the digital market is unregulated thus the Bitcoin is subjected to high risk. An innovative payment network and a new kind of money – Bitcoin.org stress on this point on their official website and they ensure it.
How does the BTC system work?
How does the BTC system work?
Buying BTC for fiat money from a website – BTC’s are kept or stored in a digital wallet – You own BTC!
What can you do with so bought BTC?
You can easily send BTC to anyone around the world – You spend it as a payment option – invest & earn – tradable for other digital currencies
What is mining?
Mining - Secured and verified by minors – Miners has to verify every transaction – Verified using a special algorithm – A mathematical problem needs to be solved – Verification is done once the problem is solved - Miners will be rewarded for verifying transactions – once verified transaction is completed and confirmed – recorded in the public ledger – Mining is completed – This whole unit or process is known as Proof Of Work (POW)
The above image shows you the exact working of the BTC system. Here you can see the three stages – Earning BTC, its functionalities & finally, an explanation of the mining. Let’s explain this separately one after the other.
How to buy BTC?
Earning BTC isn’t that difficult, and there are plenty of websites offering you BTC. You can buy them with the money with you (fiat currency) or in an exchange with other cryptocurrencies. Once you buy BTC, you’ll be provided with a BTC wallet, and here your BTC will be stored with high security. Basically, you make all the functionalities using this wallet, and it does have a unique wallet address to perform every function. That’s it you own Bitcoin!
Note: Make sure the website you’re using to buy the BTC’s is genuine but not scam! Read the blog to understand more about such Bitcoin scams and how to avoid them.
Well, there are many such altcoins available in the digital world with the same or something even more better. Ethereum, Ripple, Litecoin, etc. are some of the available and popular altcoins in the crypto world.
What can you do with your Bitcoin?
Now that you own BTC, you have various options or services to go forward with it. A cryptocurrency has got various applications, and BTC is the most popular asset to perform these tasks. We have already discussed these aspects in the beginning part itself, we may check on it once again.
Just like you acquire the share of a company, you can provide BTC and be a part of a token sale/ICO campaign event. It’s an investment and worth a lot.
It’s a payment option too when you buy something through the internet and if they are providing you an option to make a payment – use the BTC payment option. It’s easy and secure!
You can possibly trade a Bitcoin for other cryptocurrencies, and the value depends on the exchange rates. This exchange rate is determined based on the demand and supply part.
Let’s explain this with an example; you bought BTC for a price of $80 USD. Your friend or a potential buyer is in need of BTC and requesting you to sell it for $100. Well, you’re not happy with the rate and deny the offer. Here you increase the demand, and this improves the exchange rate. He offers you $110 but you’re still not okay with the amount, and you need to make a double profit. Finally, you fall for $125 USD, and you sell Bitcoin to him. Here ends the demand, and supply starts.
From the initial rate of $80 to $125, you made a demand of about 55%, and this will reflect in the exchange value also. The buyer may then sell or trade with a higher value or less. If he sells it for $120 USD then, the demand falls down, and this decline might be affected by various factors. The factors will be like financial advisers create an over hype like the price will increase in the next two months – so an investor sees this as an investment opportunity and make the investment. If hacking or similar issues happen then, the investors won’t buy it for a good amount and in reference to the above amount an investor might buy it for 85-90 dollars. The graph looks like,
The above graph clearly depicts the demand, and there is yet another factor pops up, and it’s the goodwill. The 'goodwill' depends on the trust of people, and if this increases the demand also increases and the circulation of the concerned currency will make it more popular. There are many factors to take care of while making the investment.
Note: It’s always best to take financial adviser’s consulting before you invest in Bitcoin.
What is mining?
We've got enough details about how Bitcoin price is calculated and other details; let's move on to know about Bitcoin production. How exactly is Bitcoin produced or generated? Mining might be a new word in your vocabulary in terms of cryptocurrency. Well, Bitcoin is produced using this particular process. You obviously know that blockchain is used to validate a transaction and there is a method or a procedure to follow to make the validation.
The miner's job will be solving a mathematical problem, and if s/he is able to solve this then, the transaction is verified. When the transaction verifies then, a new block gets added to the blockchain.
Miner gets a reward for adding a new block, and this is in terms of Bitcoin. The process is known as mining. The complexity of the mathematical problem increases after each and every mining process.
A special algorithm is used for mining, and this complex algorithm is called “Proof Of Work”. POW is thus the algorithm to validate the transaction, and the miners compete to solve the problem. We have now explained what Bitcoin is and how to earn it!
Highlights: Explaining Bitcoin in simple words
- A peer-to-peer electronic cash system for the online transaction.
- Open source protocol where anyone can review the code.
- Minimize the transaction fee, and make cut the business expenses.
- Easy set-up and no chargebacks.
- No regulations or centralized team to control this digital currency.
- A perfect way to invest, transfer and pay through the online platform.
- Fake or false transactions can easily spot as every transaction is validated by nodes in the concerned network.
- A new way to make a transaction and an alternative to fiat currency.
Bitcoin and the risk factors to consider!
Yes, it’s unregulated, and one has to bear a lot of risks. Investment is prior to more risks as one has to be aware of the complete marketing world. Subject to such high risks, one has to understand the present market value and similar aspects in deep. Say, at present Bitcoin is expected to have an average market cap. And when you search on the internet, search results point out one thing – “Bitcoin is expected to raise its value in XXXX”.
As there is no central body to regulate and control, you cannot complain about any authority for any loss.
A sudden fall may expect overnight, and you might face a loss. The market space is unregulated so beware of scams.
Currently, the government uses blockchain technology to develop its own cryptocurrency and use it for the above purposes. This indicates a strong point – everyone is accepting this concept and it is revolutionizing the digital world in its best ways. With good digging and deep research, make the right decision, this article covers you a comprehensive note on Bitcoin.