How do Bitcoins Work? A beginner’s guide
The Bitcoin craze is slowly catching up, with the Bitcoin price hitting an all-time high of $49,951 as of February 15th, 2021. The new gold has now become a prized asset, with every investor wanting a share of the coin.
But what is a Bitcoin, you may ask? A Bitcoin is a virtual currency that does not have a physical form. It is unregulated, and no government or authority dictates its pricing, distribution, or exchange. Anybody can buy a Bitcoin and use it to pay for coffee, online shopping, or even buy groceries in stores that accept this mode of payment.
The best part is, the Bitcoin network is highly secure, and it is encrypted using three different cryptographic methods. By cryptography, we mean that it is based on the mathematical formula of encoding and decoding data.
How Bitcoins Work
Bitcoins are based on a technology known as Blockchain, which is one of the elements that protect it from being hacked. Every time you use Bitcoin to make a transaction, blockchain records and indexes the transaction in a ledger. This creates a searchable database of all Bitcoins, making it difficult for another person to use the coin again.
Other peers in the Bitcoin network can search and find the transaction. The Bitcoin currency is just a number stored in a digital wallet or hard drive to be used in transactions instead of carrying physical coins, as is the case with fiat currency.
How to Get Bitcoins
There are three main ways how you can get Bitcoins;
- You can mine Bitcoin using powerful specialized computers. This simply means that these computers are dedicated to processing the Bitcoin transactions for everybody else on the network.
As more and more people begin to use and buy Bitcoin, the mathematical calculations behind the transactions become more difficult. Therefore, the computers that end up completing these sums are occasionally rewarded with a Bitcoin deposited in the owner’s digital wallet.
2. You can accept Bitcoin as payment for goods and services online. Several websites now accept Bitcoins as payment for their goods and services. For instance, you can now pay for your Tesla vehicle using Bitcoin on the Tesla website.
3. You can buy Bitcoins using physical cash. Some people now accept other traditional stores of value like real estate and value stocks in exchange for Bitcoins.
Should You Get Some Bitcoins?
Yes! And I’ll let you know why.
Some people like the idea that Bitcoin is decentralized. No bank or government controls digital Cryptocurrency. If you are distrustful of such institutions, Bitcoin is the best place to save your money. Considering that more and more retailers now accept Bitcoin, it can only get more secure to have and use
Bitcoin is also secure. You can spend your Bitcoins anonymously, although all Bitcoin transactions are recorded on the public Blockchain, adding an extra layer of security. Unless you told them, nobody would know exactly which transaction belonged to you.
Bitcoin has also so far served as a valuable investment for the long term. Considering that only a fixed number of Bitcoin will be mined(no computers will mine any more Bitcoin beyond the year 2140), it is protected against any form of inflation.
Risks of Using Bitcoins
The biggest source of concern for using Bitcoin is its volatile price. This makes it a riskier investment than other traditional investment vehicles like stocks and real estate. Do not be surprised when your Bitcoins lose value when you first buy them.
You will also climb a slight learning curve when you first begin to use Bitcoin. You need to become familiar with the knowledge and technology required to safely buy and store your Bitcoin. Some people would rather just stick to simpler, traditional forms of fiat currency.
The question of security also often comes up when discussing the risks of Bitcoin. Only a private key allows you to buy and spend Bitcoins. When someone else obtains your private key, they could transfer your Bitcoins to themselves. The best way to store your Bitcoins securely is to have your private key stored in an app or device that is not connected to the internet.
