Cryptocurrencies have demanded attention in the most recent news media cycles. Many of the stories have focused on how cryptocurrencies such as Bitcoin have seen tremendous gains when compared to other monetary investments. These forms of digital currencies have been around for nearly a decade now, yet many have not paid close attention until now. However, before investing in a crypto, an interested party needs to know what a Bitcoin actually is and how to go about obtaining one.
What is a Bitcoin?
Bitcoin first came about in 2009. It is a digital currency made without any middlemen. This means there’s no bank attached to it or centralized body to regulate it. In other words, there’s no national bank monitoring it, printing currencies or adjusting it. As the currency has no natural boundaries within a given nation (such as the U.S. dollar, Japanese yen, Mexican peso or so on) there are no international exchange rates, fees or anything else of that measure. It’s a single currency available internationally.
Someone who has Bitcoin can make purchases online exactly as they would using a credit or debit card. The reason Bitcoin is desirable goes beyond an international currency without banking regulations. First, all cryptocurrencies are created in order to address a very specific problem. According to CoinDesk (2018), software designer Satoshi Nakamoto (an alias of the creator as nobody knows the person’s actual name) created the digital currency in order to develop a digital currency that could be easily transferable, verifiable and secure.
As the New York Times (2017) points out, Bitcoin uses a very specific algorithm that makes it nearly impossible to track. This provides a handful of benefits. First, for those who want to remain anonymous when making a purchase, they can do so. Second, it makes it difficult to hack into a person’s account and steal the digital currency. While it’s necessary to create Bitcoin address and wallets in order to use and transfer the money, the currency can prove substantially more secure than the services of a centralized bank.
How Can Someone Buy Bitcoin?
How can someone go about buying this digital currency? After all, every “Bitcoin” exists as nothing more than a string of digital information online. The visuals used on websites and newspapers of coins with a “B” on it are not actually real. Just a visual representation of a coin in order to help illustrate the idea of currency, as some might struggle with the idea of actual, physical money, being nothing more than a string of numbers on an Internet connection (yet that’s what a cryptocurrency is).
How can someone buy Bitcoin? There are a few different ways. First, if a person runs a storefront (both brick and mortar and Internet-based) they can accept Bitcoin as a form of payment. To do this they need to create Bitcoin address services with their company and integrate it into the point of sales system. Second, they can go to a website such as “Coinbase” and create an account. According to the New York Times (2017), a user will link up their current banking account or credit card and then purchase a Bitcoin for hard currency. The third way is to “mine” for Bitcoins.
How to Mine for Bitcoin?
It might be easiest to think of Bitcoin as digital gold instead of digital money. Currencies are regulated by the government and a centralized bank, but gold is different. Gold has no true regulating body. The value of gold depends on how people trade for it. It's why during an unstable financial crisis, investors put their money into gold. Gold tends to see dramatic increases in value during hardships. It's because gold is a tangible, physical object that doesn't have any connection to industries, banks or governments (even those most who invest in gold never actually see the gold, but instead have documentation of their investment). To obtain gold, a person must either purchase currently existing gold or mine for it. Bitcoin works in the exact same way.
A person can purchase Bitcoin from someone who has Bitcoin for the current market value. Or, a person can mine for it. However, as Bitcoin is a digital currency, there is no physical mine somewhere a person can travel with pickaxe and shovel. Instead, a person mines for Bitcoin with their computer system.
What makes Bitcoin so difficult to steal is through what is known as a blockchain. Every transaction used with a Bitcoin is, essentially, a block. To access the contents of the block, the correct passcode is required. Every time a new purchase i.e. made another block attaches itself (eventually forming a chain, thus the name blockchain). When a person owns a Bitcoin, they don't own physical currency, but instead, they own the passcode to this particular Bitcoin. When a person purchases or uses Bitcoin, they are not transferring anything physical, but instead giving this passcode away (CNBC, 2014, updated 2017).
Mining for Bitcoin is essentially searching for this passcode. A computer program identifies an available Bitcoin and continually inputs a different passcode. When a correct passcode is entered the mining software opens the Bitcoin to the owner of the software. According to Blockchain.Info, it takes, on average, nearly 1.8 billion attempts at a passcode before the correct passcode is entered. When trying to mine for Bitcoins, computer programs from all around the world attempt to crack into the individual "block" on the blockchain, so there's no guarantee an individual will actually mine the code themselves. It's similar to thousands of different people mining the same gold mine. They all know gold exists in the mine, but not everyone will recover gold for himself or herself.
Attempting to mine Bitcoin independently is difficult due to the sheer size of other operations to mine and uncover Bitcoin. As demonstrated by the visual below, different corporations and even nations utilize hundreds, if not thousands of individual computer systems to mine for information (PakWired, 2017).
How to Create a Bitcoin Wallet and What to Look For
To hold onto and store the digital passcodes of all Bitcoins collected or obtained through purchase, it is necessary to create a Bitcoin core wallet. There are a few different Bitcoin core wallet services out there. The easiest to use realistically depends on what a person is looking to do. If they just are interested in Bitcoin, using the Bitcoin.com wallet is the best way to go. However, for individuals who want to hold onto varying cryptocurrencies at the same time without having a half-dozen different digital wallets open, it’s best to take advantage of a service capable of handling these varying currencies. Wallets such as “Jaxx” support multiple cryptocurrencies, so for those interested in holding onto different digital currencies at once, it is necessary to investigate this.
Before getting into the actual Bitcoin wallet download, it is important for a user to understand the difference between a cold and hot wallet. According to Medium (2018), it is easiest to look at a cold wallet as a savings account and a hot wallet as a checking account. A cold wallet doesn’t let you directly make purchases with the digital currency. The money must first be transferred out to a hot (or “checking”) account. The hot account can be used to make purchases. There are Bitcoin wallet download options available for mobile devices like Apple and Android that make it possible to purchase goods directly through the Apple Pay service (or the alternative Google and Samsung payment equivalents).
So, why would someone want a cold wallet if it’s nothing more than a savings account? Cold wallets are far more secure. Cryptocurrencies are extremely safe with ample protection, but hot wallets, because there are the back and forth usage of the money, opens up the possibility of stealing the passcode to the block and stealing the money. Because a bank or government does not protect a cryptocurrency, once it is gone it’s gone. Very little (if anything) can be done about it.
There are dozens of different Bitcoin core wallet options out there. While these instructions look at Bitcoin.com specifically, most other Bitcoin core wallet signups work in a very similar fashion.
While on the website (such as Bitcoin.com) a user will click to “Get a Free Wallet.” This opens up an option for downloading the application to a computer or mobile device. It is possible to download a Bitcoin wallet Android application, Apple wallet, or to download it directly to a desktop running MacOS, Windows or Linux. With the Bitcoin.com website, it provides individual links to these different downloads. If someone is interested in downloading a Bitcoin wallet Android or Apple application, they should open up Google Play or the App Store and download the free Bitcoin core wallet.
Once the Bitcoin wallet has completed its download and installation the user needs to set up a cold storage paper wallet. When looking at the best Bitcoin wallet, here is where Bitcoin.com comes in handy. The paper wallet can be accessed here. The account information will appear here. It is very important to save the information locally to the computer. Clicking “File,” “Save,” and then saving the information to the computer or pressing “Ctrl” and “S” to save the file can execute this. After the file has finished downloading the user needs to disconnect the Internet (literally unplug the computer from a hard connection or shut off the Wi-Fi). This ensures nothing is siphoning off keystrokes or other information.
Once the user has disconnected from the computer they need to open the downloaded file and then type in any random assortment of characters into the text box. This creates additional randomness to the file. By doing this, the block representing the Bitcoin address now has both a public and private key-pair. This makes it extra difficult for an outsider to steal the Bitcoin out of the account. The file should be both saved and printed out for record purposes (the printer needs to be disconnected from a Wi-Fi connection at this point as well). Once a user has done this they have completed the process of creating an offline Bitcoin address. (Bitcoin, 2018).
The final step is to import the private key into the created wallet. Once this has been completed, the Bitcoin account sign up will be complete. The user needs to open their online wallet (on the software or within their best Bitcoin wallet application). They then need to select "Settings," followed by "Addresses" (this is specific to the Bitcoin.com website but other wallets will work in a similar manner). From here, the user needs to select "Import Address" and then copy and past the cold storage private key. Clicking "Import/Transfer" will add the address and now make it possible to transfer Bitcoins into the account or use the Bitcoins as a method of payment.
How to Use Bitcoin Wallet?
Once an individual has completed their Bitcoin account sign up they will need to know how to use bitcoin wallet. This is straightforward. When on a website that accepts Bitcoin, it will request their passcode for transferring Bitcoins. The wallet will have this information displayed on the application. The passcode is entered in to begin the file transfer. Authentication for the transfer may take several minutes (depending on the purchase size and the transfer fee paid) but once authenticated, the purchase will be complete.
There are now hundreds of varying cryptocurrencies on the market today. Some are designed for the long haul while others will likely dry up and disappear before the end of the year. Bitcoin set off the digital currency faze. By using blockchain methods of encryption and security protection, Bitcoin created a new form of currency that provides additional benefits to the consumer. The best cryptos out there offer additional benefits to consumers or businesses, which is why these digital currencies will stand the test of time. For those who are interested in obtaining Bitcoins, there are only three real ways to do this, and some are either difficult or time consuming to accomplish. However, for those who are serious about Bitcoin and want to begin collecting Bitcoins for investment or purchase purposes, it is crucial to follow through with these steps and tips.
Tell Us –
Do you have a Bitcoin Wallet? Has managing it made your life easier or more complicated then traditional payment methods?