What is Bitcoin? Your Best Guide in 2021

  • 09/28/2021
  • admin
  • No Comments


So you are wondering what is bitcoin. Perhaps you might already have an idea what is it but you want to know more about this mysterious new technology. You are in luck! We are about to embark down the bitcoin rabbit hole to explore what bitcoin is and what makes it so revolutionary.

Our years of experience as bitcoin holders, users, and traders gave us the required understanding of the ins and outs of this new asset class. Being an early adopter puts us in a unique position to share what we have learned and experienced firsthand.

Bitcoin is the most famous, most valuable, and widely accepted cryptocurrency in the entire world. It is ranked no. 1 in terms of market capitalization and always the first to list in trading venues especially in regulated exchanges.

Stories of early adopters making their riches investing in bitcoin and other cryptocurrencies abound on the internet. What makes it even more amazing is the fact that it is not yet too late in the game! In fact, many crypto community members believe it is just the beginning!

Before we begin we would like to remind our readers that what you read in this article is not investment advice. It should be taken as educational content only. If you plan to invest in cryptocurrencies please consult your financial adviser to determine if this asset class is the right investment for you.

What is Bitcoin?

What is Bitcoin?

In simplest terms, bitcoin is money in digital form. It is a digital asset that first appeared in 2009 to act as a digital or virtual currency that mimics the functions of a currency like the US dollar. The chief architect of bitcoin was Satoshi Nakamoto, he wrote the whitepaper which reveals a novel decentralized alternative financial system.

This was made possible through the implementation of a peer-to-peer technology called blockchain which allows direct transactions between parties without the need to rely on any central authority or an intermediary to ensure that transactions are consummated.

Like money, it was intended to be a medium of exchange, a store of value, and a unit of account. As a medium of exchange, it is widely accepted in exchange for goods and services. As a store of value, it is an asset that can preserve the purchasing power of consumers. And As a unit of account, it is an acceptable currency to establish a measure of value.

Central to the creation of bitcoin is the concept of decentralization. The decentralization of bitcoin was achieved through the implementation of a consensus mechanism that allows random consensus participants called miners to write the succeeding records or blocks on the bitcoin network. This consensus mechanism is called Proof-of-Work (PoW).

Blockchain Technology

The underlying technology that makes bitcoin works is blockchain technology. We highly recommend you to read our comprehensive article about blockchain technology for an in-depth article on this subject.

This technology allows the creation of a trusted public infrastructure that enables users to exchange value and information without the need to rely on or “trust” a central authority or intermediary.

It is a type of distributed ledger technology which means it is resistant to a single point of failure and inherently robust as the copy of the entire transaction of records (blocks) is copied throughout the entire network.

Blockchain can also be considered a special type of database where all participants in the network can view and inspect all transactions recorded. Furthermore, blocks recorded cannot be deleted, reversed, or modified. Changes can only be introduced by creating new blocks.

Blockchain ensures that there is always one version of the truth. That is why we love to call blockchain “codified trust.” Verifiable truth can now be encoded in applications because of this technology.

The word blockchain was never mentioned in the whitepaper of bitcoin, nonetheless, Nakamoto described the records that are added in the bitcoin network as sequential blocks that resemble a chain. The crypto community adopted the term blockchain throughout the development of bitcoin.

Proof-of-Work: Consensus Mechanism

New records or blocks are added to the bitcoin blockchain network through a consensus mechanism called Proof-of-Work. It is a consensus mechanism where random bitcoin network participants are chosen to write the next record or blocks.

This is done through a competitive selection process of “cryptographic mining” or in common crypto community parlance “mining.” A term used to describe the “mining” process which is difficult, expensive, and has some elements of luck similar to when mining real physical Gold or other precious metals in the real world.

Mining equipment competes with each other to solve an arbitrary cryptographic problem. The one that solves the problem first will be given the chance to write the next block. Mining devices are equipment with high computing power and are rewarded with newly minted bitcoins for work done.

Previously, one could mine bitcoin using the power of the CPU. But those times are long gone. There is so much competition in mining bitcoin that you can only really compete if you have specialized devices called ASIC or really powerful and efficient sets of graphic cards.

The proof-of-work consensus mechanism or sometimes called the Nakamoto consensus is an effective tool for decentralization and ensures that there is no centralization of control in the recording of blocks in the bitcoin blockchain.

Double-Spend Problem Solved

Bitcoin’s blockchain and its consensus mechanism make bitcoin transactions irreversible, unstoppable, immutable, censorship-resistant, transparent, and not controlled by any single entity. This helps solve the double-spend problem with digital currency like bitcoin.

The double-spend problem is unique to digital currencies because digital information is easily reproduced. One can double-spend by sending the same digital currency to two different merchants. Fortunately, this has never been successfully done on the bitcoin network.

However, it is important to note that it is a possibility and other smaller and much weaker cryptocurrencies have been victims of double-spends in the past. This can only be carried out if the person who wants to double-spend can get 51% of all mining computing power of bitcoin or what the crypto community calls hashing power. They call this attack vector a 51% attack.

Many experts agree that it is almost impossible to achieve a 51% attack on bitcoin due to the sheer amount of resources needed to achieve this. Quantum computers might be able to achieve this but are several years away and by the time they become commercially available the bitcoin network would have upgraded to mitigate this risk.

Bitcoin Information

Who Made Bitcoin?

Satoshi Nakamoto is credited as the creator of bitcoin, but in reality, no one really knows who Satoshi Nakamoto is. No one knows if Satoshi Nakamoto is a pseudonymous name used to describe a single person or a group of individuals.

Satoshi Nakamoto’s Namesake

There have been a number of people implicated as Nakamoto there is even a Japanese American named Dorian Prentice Satoshi Nakamoto living in California thought to be the real creator of bitcoin. Dorian strongly denies any knowledge about bitcoin or to have ever been connected with the project.

Growing List of Candidates

The list of the possible real identity of Satoshi Nakamoto is a diverse and long one. In 2017 a software engineer at Tesla by the name of Sahil Gupta wrote an article speculating Elon Musk to be the real Satoshi Nakamoto. But nothing could be weirder than the article of an American journalist who suggested Nakamoto’s real identity is the international drug dealer, Paul Calder Le Roux.

The real identity of Satoshi Nakamoto is still up for debate but there is a common consensus that the true identity of Satoshi Nakamoto focused on a number of cryptography and computer science experts such as Hal Finney, Nick Szabo, and Adam Back.

Faketoshi?

Most of the people who were thought to be Satoshi Nakamoto strongly denied any affiliated with the name but one Australian computer scientist by the name of Craig Wright insists that he is the real Satoshi Nakamoto going so far as to litigate (but to little effect) anyone that says he is not.

In reality, the creation and development of bitcoin to what it is today cannot be really credited to a single person. The development of bitcoin was largely the effort of the amazing bitcoin community of developers who lent their talent, energy, and time to create perhaps one of the most important financial technology in our times.

When Was it Created?

Bitcoin Whitepaper Publication and Domain Registration

Satoshi Nakamoto published the bitcoin whitepaper on October 31st, 2008. We can consider this the conception of bitcoin. It is the first time ever the word bitcoin was mentioned in any publication. Interestingly the bitcoin.org domain name was registered a couple of months earlier on October 31, 2008.

Genesis Block

The actual creation of the bitcoin network was on January 3, 2009, when Nakamoto mined bitcoin’s first block. This was known as the Genesis Block. Inscribed on the codebase of this block is the message “The Times 03/Jan/2009 Chancellor on Brink of the second bailout of banks.”

This message gave the crypto community a clue of the identity of Satoshi Nakamoto and the motivation behind his or her initiative. First, he or she or a member of the group is from the United Kingdom. Second, Satoshi was well aware of the shortcomings of the traditional financial institution and bitcoin was a way of showing discontent.

First Commercial Transaction

The first commercial transaction of bitcoin was on May 22, 2010, when a programmer by the name of Laszlo Hanyecz paid for two Papa John’s pizzas for 10,000 bitcoins. In today’s exchange rate this is around a whopping $375 million dollars. This also marks the first time bitcoin becomes a medium of exchange.

Bitcoin was created more than a decade ago but due to the complexity and novelty of the idea, many believers think we have just barely scratched the surface of the potential of this revolutionary technology.

Where Was Bitcoin Created?

Knowing where Bitcoin was created might help us discover some of the motivation and influence that contributed to the design of the network. Unfortunately, Satoshi Nakamoto never revealed his country of origin.

Bitcoin was created through the collaboration of many talented computer scientists, coders, cryptographers, and other contributors. Most of the development and interaction of these people were made online hence we can say that bitcoin was created on the internet.

Some may argue that bitcoin was created where Satoshi Nakamoto first mined the first block of the bitcoin network. Unfortunately, no one knows the nationality of Satoshi Nakamoto and where he/she/they reside.

An Asian Construct?

While the name Satoshi Nakamoto seems to suggest that the creator of bitcoin was Asian there are several pieces of evidence that tell us otherwise. From Satoshi’s excellent command of the English language and the times, he/she/they are actively engaging the community.

Not knowing where it was created does not diminish the amazing value of this revolutionary tech that can potentially contribute to the advancement of humankind. The technology that powers bitcoin will be essential to the next evolutionary step of the internet.

Why Bitcoin?

Bitcoin was created to address the failures of the prevailing financial system, many of which were designed to favor the privileged few. The people who believe in bitcoin are well aware of the fragile and unsustainable state of the archaic financial system which for hundreds of years never really evolved.

Satoshi Nakamoto’s timing in releasing bitcoin at the height of the financial crisis of 2007-2008 was impeccable. The distrust of people towards centralized financial institutions was at an all-time high and we see governments around the world scramble to save the economy. Their solution: Quantitative Easing (Q.E).

Quantitative Easing

Q.E. It is the unlimited printing of money where we see central banks inject money into the economy of a particular country by purchasing huge amounts of government bonds. Ironically, much of the newly minted cash was used to bail out banks which were the main culprits why the financial system failed in the first place due to the common practice of Fractional-reserve banking.

Fractional-Reserve Banking

Fractional-reserve banking is a common monetary policy where banks are allowed to lend out cash that they do not really have. This puts them at risk of not being able to give back the money that depositors have entrusted unto them to safeguard. Insurance companies will cover some of the losses but not all.

The Emancipation of Money

Unlimited printing of money is considered fraud and businesses that rely on other people’s money are considered a Ponzi scheme, both illegal. Those who dare engage in these activities are prosecuted with the full weight of the law. Central and Retail banks do this on a daily business because they can.

The cost of rebuilding the collapsed monetary system is ultimately passed on to the regular citizens in the form of new or increased taxes, increased banking fees, and other schemes. Financial institutions that make tons of money off customer deposits and amplify them by practicing fractional-reserve banking get bailed out by central banks but the regular citizens aren’t so lucky.

Bitcoin disintermediates banks as trust between transacting parties is not required. That is why some describe cryptocurrencies like bitcoin as a trustless value transfer network, you are always guaranteed that the transaction will push through, no matter what.

Since bitcoin does not require users to go through the banking system, it effectively emancipated money. Bitcoin is the very first online public infrastructure that allows users to send, receive and store value online without relying on a central authority.

An Unstoppable Currency

The perceived existential threat of bitcoin to the status quo of the financial industry and the prospect of removing the money power from the government resulted in an active and deliberate attempt to undermine its credibility. Critics describe bitcoin as a bubble and a Ponzi scheme with no intrinsic value.

They even go to the extreme of categorizing bitcoin as criminal money with the sole purpose of circumventing Anti-money laundering and Anti-terrorist financing around the world. Sadly, mainstream media caught on to this narrative focusing only on the negative use cases of bitcoin.

These people seem to ignore the fact that fiat particularly the US dollar is used exactly the same way. It is a well-known fact that the US dollar is the preferred choice of criminal and terrorist organizations as a medium of exchange.

From time to time banks and other licensed financial institutions get embroidered in the facilitation of multi-year, multi-billion money laundering activities. Regulators only give these institutions a slap on the hand and a hefty fine.

This is in sharp contrast to bitcoin-powered free markets like the silk-road whose founder, Ross Ulbricht, was found guilty of several criminal acts due to the operation of the website. He was sentenced to a double life sentence plus forty years without the possibility of parole.

Bitcoin like fiat (Cash) can be used to do good or the opposite. It is just an alternative online version of cash, the first digital public infrastructure that no single entity can control. A financial instrument that cannot be weaponized, manipulated or stopped by anyone due to its decentralization.

Safe Haven Asset

Bitcoin has become a safe haven asset for many people around the world especially those who become collateral damage from governments that have weaponized the financial system. Safe-haven assets are assets that maintain their value or outperform other assets when financial markets crumble.

Powerful countries that want to impose their own will on other weaker countries use economic warfare in an attempt to remove a leader of another country that they deem a hindrance to their agenda. This is done under the pretense of liberating people who are suffering under an oppressive regime. However, these very same people suffer the most.

Take for example the country, Venezuela. It has been cut from the global financial system because of economic sanctions imposed by the western powers led by the U.S. government. No matter what justification they might have, no one can deny that the one who suffers the most are the citizens who have nothing to do with governance.

Bitcoin has become a safe haven for most people in the country. Venezuelans use bitcoins and other cryptocurrencies to protect their wealth and to preserve the value of their assets. Data of trading volume at a peer-to-peer trading website, LocalBitcoins shows parabolic growth as hyperinflation plagues the economy of the country.

The authoritarian regime of Nicolas Maduro, the current president of Venezuela, took notice and created its own cryptocurrency. Petro is a cryptocurrency issued by the government of Venezuela whose value is supposed to be pegged to the value of crude oil, but without decentralization, it is not considered a real cryptocurrency.

How to Start Using Bitcoin?

Using bitcoin is not that complex. What makes it complicated for new users is the fact that now for the first time ever they will have TOTAL control of their money and no one else ALL the time. This means they will have sole responsibility for its proper safekeeping. If you lose access to your bitcoin there will be no one to help you to recover your access.

Take for example the case of James Howells, a British man who accidentally threw away his hard drive that contains his access details to his wallet. Now he is offering $70 million just to be allowed to excavate the landfill to find his hard drive.

Download a Bitcoin Wallet

You need a couple of things before you can use bitcoin. First, you need to download a bitcoin wallet. There are many types of bitcoin wallets. There are Hot and Cold wallets, a Custodial or Non-custodial wallet, a Full-node or Light client wallet.

Types of Wallets

Hot and Cold Wallets

Hot wallets are only accessible online while cold wallets are accessible offline. Cold wallets usually take on the form of hardware wallets that have a physical switch that is used to sign a transaction. Hot wallets on the other can need you to access a website or app to sign transactions.

Cold wallets are far safer than hot wallets. Users of cold wallets need to be physically present to have access to the device’s switch to trigger transactions. Hot wallets on the other hand can be accessed online within the reach of hackers or other bad actors in the space.

Still, so long as they don’t have your mnemonic phrase and private keys (more on this later) or the credentials you used to create the wallet on wallet custodians then you should be relatively safe using hot wallets.

Non-custodial and Custodial Wallets

Non-custodial wallets are wallets that allow users to create wallet addresses with users having the option to back up their mnemonic phrases or private keys. These secret phrases and keys can then be used to import or recover wallets in other bitcoin wallet software or devices.

The bitcoin wallet you can download in bitcoin.org is a sample of a non-custodial wallet. When you install the application you will be given the mnemonic phrase for the wallet.

Custodial Wallets are wallets created by crypto custody providers where users do not have access to their own private keys or secret phrase. This means these wallets cannot be recovered or imported to other wallets. Access to these wallets is usually through the crypto custody provider’s portal or website.

Custody solutions providers such as Coinbase cryptocurrency wallet is a sample of a non-custodial wallet. This should not be confused with Toshi the non-custodial wallet project that was acquired by Coinbase and was later renamed Coinbase Wallet.

Full-node and Light Client Wallet

A full-node wallet keeps the whole transaction history of bitcoin. Users who plan to use this wallet should have ample space on their computers. There is really no advantage to using a full-node wallet for the end-user but those who do help secure the bitcoin network by increasing decentralization through their participation in operating a node.

Light Clients are wallets that do not need to download the full historical data of transactions of bitcoin. It has all the functionality of a full-node but does not contribute to the decentralization of the bitcoin network. These types of wallets are usually preferred in devices that have limited storage.

Which One Should You Use?

No matter what kind of wallet you choose, they all function the same way. They all serve as the address of your bitcoin similar to a bank account number. Which one to choose is a matter of personal preference and security risk tolerance.

Wallet Custody Service Providers

Beginners who want to experience bitcoin without too much hassle might want to just sign up for a bitcoin wallet from a custody service provider like Coinbase and later switch to non-custodial wallets. This experience is similar to just opening a new email.

Users of bitcoin wallets from wallet service providers will not have to deal with safekeeping their private and secrets keys. In the event that users lose access to their wallets, they can always ask the assistance from the tech support of wallet service providers.

However, wallet service providers keep the private keys of the wallets created in their platform. Hence, users are always at risk of being restricted access to their own money stored in those wallets. The risk associated with using wallet custody providers can be compared to depositing money into a bank.

Exchange Wallets

There is a common consensus among the crypto community. The worst places to store cryptocurrency assets are the exchange wallets. These are hot custodial wallets offered by exchanges to its customers.

For operational efficiency, most centralized exchanges lump together the digital assets of their customers. This creates a high concentration of digital assets that attract both external and internal risks.

Moreover, digital currency holders who store their digital assets in crypto exchanges share in the daily business risks of that exchange’s operations. From bad business decisions, hackers attacks, regulatory and compliance issues, weak security infrastructure, and other internal risks.

Non-Custodial Universal Light wallets

Our preferred choice for a wallet is a non-custodial Universal Light wallets. There are a number of them available online. One of the more popular ones is from Binance, TrustWallet. This wallet is non-custodial which means you get to know your private keys and supports many of the popular blockchains not only that of bitcoin.

How to Install a Bitcoin Wallet

The installation process of a bitcoin wallet is similar to that of a regular application with some additional steps to ensure the safety and accessibility of your wallet. Remember, you are solely responsible for the safety and maintaining access to your wallet. For demonstration purposes, we will show you how to install the Exodus: Crypto Bitcoin wallet for desktop installation and the TrustWallet for mobile.

Procedure How to Set Up the Exodus Bitcoin Wallet for Desktop Computers

1. Download the installation file from the Exodus website.

2. Run the installation file once done downloading. This should immediately install the wallet on your desktop.

3. After installation, you will receive a notification window stating that Exodus wallet has been installed and a shortcut of the program was copied on your desktop or can be found in the app menu.

4. Run the Exodus wallet. This will bring you to its main dashboard where you can find the different features of Exodus. You can access the wallet feature by clicking on the “Wallet menu” as shown below.

5. The left side of the windows shows the different cryptocurrencies Exodus supports. By default, bitcoin is selected. You can find your bitcoin address by clicking on the “Receive button.”

6. The bitcoin address window will show you your bitcoin address and a QR code that represents this address. You can also toggle between two bitcoin address formats. You can use either of the two to receive bitcoin.

7. To transfer bitcoin to other users, click on the “Send” button.

8. Indicate the bitcoin address, the amount of bitcoin, and then click the “Send” button.

These are the bare basic functions you need to know if you want to start using bitcoins. If you want to know more about Exodus wallet you can read our comparison review of Exodus and Jaxx. Next is the installation of the TrustWallet for mobile.

Procedure How to Set Up the TrustWallet on a SmartPhone

1. TrustWallet is both available for Apple and Android platforms. Click on the platform compatible with your mobile device. We will use the Android version for this tutorial.

2. Install the app by tapping on the “Install” button. Once the installation is done open TrustWallet. Since we are still setting up your wallet you will see this page. Tap on the “Create Wallet” button to start the wallet creation process.

3. Once the wallet creation is initiated the application will ask you to agree with their privacy policy as well as their term of service. It is just a matter of marking the checkbox at the bottom of your screen and tapping the “Continue” button for the next procedure.

4. TrustWallet also asks its users to back up their wallets by saving the 12-word secret phrase. To proceed you need to mark the checkbox and tap on the “Continue” button.

5. The next page will show you your Mnemonic keys or 12-word secret phrase. This set of words are very important. Anyone that has access to this or has a copy of it will be able to recover your wallet and access your digital assets. Make sure you have a copy of the secret phrase. To ensure you do TrustWallet as users to type them in order to check

6. Upon tapping the “Done” button you will be greeted by a notification window saying that a new wallet has been created. Closing this window will reveal the main dashboard where you will see several cryptocurrency balances. To get your bitcoin address tap on the bitcoin row.

7. This will bring you to the bitcoin balance window where you can interact with the bitcoin wallet address. To get the address you have to tap on the “Receive” button to see the address and its QR code. Alternatively, you can tap on the “Copy” button to copy the bitcoin wallet address into the clipboard and paste it later. To transfer bitcoins you just have to tap on the “Send” button.

 

What Constitutes a Bitcoin Wallet?

In this section, we will be discussing some of the important elements of a bitcoin wallet. This will help new users to familiarize themselves with the wallet as well as get to know what to expect when using bitcoins to do transactions. First, let’s take a closer look at the bitcoin address since this part will be the most users will be interacting with.

Bitcoin Address Formats

Bitcoin users should be able to recognize the bitcoin address format. Remember all bitcoin transactions are irreversible and being able to quickly recognize a valid bitcoin address is important. Bitcoin address format also has different rates for transaction fees. Using the correct one can save users on transaction fees.

A typical bitcoin wallet address looks like one of these:

1A1zP1eP5QGefi2DMPTfTL5SLmv7DivfNa
3WrnqRhWNLy73CNJ9ZmQviec8t1WpErnyi
bc1quhszyf0vghn8etf6hmxrxhvxat06jshdwy3tyy

It is a random alphanumeric string. Whenever a Bitcoin user wants to send bitcoins to another user they need to get the bitcoin address of the recipient. If they want to receive bitcoin they will have to give their wallet address. A QR code is commonly used to send or receive bitcoin to make transactions easier and less prone to error due to mistyping the address.

Some custodial wallet services allow you to send and receive bitcoin using an email address or a mobile number associated with your bitcoin address. These transactions are done internally within the wallet provider’s payment network, not on the blockchain.

There are 3 types of bitcoin wallet addresses. You can differentiate the different wallets by examining the prefixes of the different types. The first one starts with 1, the second starts with 3 and the 3rd starts with bc1. The different formats signify different implementations of some technology within the bitcoin network.

The bitcoin address that starts with “1” is commonly called the legacy address format. This is the first bitcoin address format.

The one that starts with “3” is commonly known as the compatibility address format. This is the most widely used format as it can interact with the legacy address format and the third format.

Bc1” format is the Segwit address format. This is not that popular but has generally lower fees than the previous two due to its implementation of the Segwit.

Mnemonic Phrase/ Secret Recovery Phrase

These are random words that serve as the secret word phrase used to backup or recover a Bitcoin wallet address. It serves as the master key from which private keys and public keys are derived from. The 12-word secret phrase that was shown during our installation of TrustWallet is a sample of a Mnemonic Phrase. Anyone that knows these 12 combination secret words will be able to use them to import or restore the wallet

Public and Private Keys

Each time a bitcoin wallet address is created the wallet creates a pair of private and public keys from the Mnemonic Phrase. Multiple private and public key pairs can be created using a single Mnemonic Phrase or a set secret phrase. The private key can be used to import a single wallet address. The primary purpose of the private key is to attest ownership of the public key and thus used to sign transactions.

Public keys are just the wallet addresses themselves. In other words, bitcoin wallet addresses are actually the public key associated with a private key. Users of non-custodial wallets have in their possession the private key of their bitcoin wallet address or public key. While those who use custodial services do not have access to them.

Transaction ID TXID

Each time a user sends or receives a bitcoin, a transaction ID or TXID is generated. It is also called a transaction hash or simply hash. It is a unique identifier id for bitcoin transactions. It is a long alphanumeric string that serves as a label for each transaction.

A transaction ID by itself is not much use. Bitcoin users copy this transaction ID and use them to inspect the transaction in the blockchain via a blockchain explorer. Bitcoin has several blockchain explorers one of the more famous ones are from BTC.com, Blockchar, and Blockchain.com.

Transaction Confirmation

Confirmation is the act of verifying transactions in the blockchain. This is done by consensus participants called miners. New users of bitcoin should familiarize themselves with the concept of confirming bitcoin transactions to understand the latency of bitcoin transactions.

A new block or record is added to the bitcoin every 10 minutes. This means on average bitcoin transactions are confirmed in 10 minutes. The slow confirmation time is one of the challenges in the bitcoin network which has been a major pain point for users especially when the network is heavily utilized.

Bitcoin transactions are confirmed multiple times even long after the transaction has been consummated. The number of confirmations made in a particular transaction can be examined using blockchain explorers. Different organizations require different numbers of confirmation.

It must also be noted that confirmation depends on the load of the bitcoin network. If the network is congested then it may take a whole lot longer.

Transaction Fee

Each bitcoin transaction has an accompanying transaction fee. These fees have no fixed value and depend on the usage of the network. If more people are using the network then one should expect higher fees. Due to the higher fees first transaction schedule, during heavy network usage, we see an explosion of network fees with many users competing with each other to have their transaction processed.

Where to Buy and Sell Bitcoin

Purchasing bitcoin is a whole lot easier nowadays with more and more venues to buy bitcoin. Listed below are some of the easiest ways to purchase it. BTC is the ticker symbol of bitcoin, sometimes they use XBT to refer to bitcoin in the forex market.

The following is a comprehensive list of options where interested buyers can buy bitcoin. They are listed in no particular order. Please note that the availability of these services changes over time and depends on the regulatory environment.

Digital Wallet Service Providers

People who are just starting to explore bitcoin and other cryptocurrencies more often than not find themselves buying their first bitcoin via a built-in feature on Digital wallet services providers.

Here is a list of some reputable bitcoin custody solutions providers that allow users to purchase bitcoin using fiat:

Peer-to-Peer Exchange

Another great way to purchase bitcoins is through P2P exchanges. They are trading venues where users can directly trade with each other. Trades in these exchanges are usually protected by an escrow service and reputation system.

What really stands out with P2P exchanges is the sheer number of payment options available, many of which are not available in other types of trading venues.

Listed below are some of the most well-known and successful P2P exchanges in the world:

Instant Crypto Exchange

For fast and easy purchases of bitcoin, one might want to check out instant crypto exchanges. This exchange allows you to purchase bitcoin without having to know how to work with order books because it does not have one. Most do not require you to register an account and there is no requirement to undergo KYC procedures.

Here is a list of some of the most popular instant crypto exchanges in the market:

Centralized Exchanges (CEX)

CEXs are trading venues where users can buy and sell cryptocurrencies after they deposit their cryptocurrency into the CEX’s platform. Users of centralized exchanges entrust their cryptos by depositing their cryptocurrency into the wallets assigned to them by the exchange operator. Despite the risk, many use them as they usually have the highest trading volume and best liquidity.

These are some of the top centralized exchanges we recommend:

Bitcoin ATMs

Bitcoin ATM functions like your typical ATM machine but instead of only supporting cash it also supports bitcoin transactions. Throughout the years, Bitcoin Teller Machines (BTMs) have been expanding steadily as the adoption of cryptocurrencies spread across the globe. According to a prominent BTMs monitoring site, Coin ATM Radar there are almost 15,000 BTMs worldwide with 71 Countries having at least one.

KYC verification is usually required when using BTMs. While there are some BTMs that might allow anonymous transactions they usually cap the maximum amount that can be transacted. To ensure full service it is recommended to have proper identification with you when using BTMs. Remember since we are interacting with fiat when using BTMs, compliance will be an integral part of the transaction.

Aside from compliance, it must be noted that BTMs exchange rates carry a premium. This premium helps BTMs operations to pay for their operational expenditures. Hence BTMs are not the best place to get the best rates but the convenience it brings

General Steps in Buying Bitcoins on BTMs

  1. The first step is verification. This step varies from one BTM to another but generally, this process determines the limits of your transactions.
  2. Indicate your bitcoin address where you want your bitcoins sent. Some BTMs allow the generation of bitcoin addresses where you can receive your bitcoin by providing you with a paper wallet (paper with printed secret key or recovery phrase).
  3. Deposit your Cash into the BTM.
  4. Make sure that bitcoin has already been sent. Take note that it takes time to confirm depending on the bitcoin network utilization.
  5. Keep your receipt just in case a dispute arises.

Many BTMs have two-way functionality where users can also sell their bitcoin for cash.

General Steps in Buying Bitcoins on BTMs

  1. Verify your identity.
  2. Some BTMs may allow users to indicate where they want to receive their money via bank or e-wallet. Select if you want to get physical cash or sent to your online account.
  3. Deposit your Bitcoin to the specified deposit address given by the BTM.
  4. Keep your receipt for proof of transaction and might be useful in the future.

The proliferation of BTMs is a clear testament that bitcoin is slowly but surely easing into the lives of the general public. It is not a question of if it will achieve mass adoption but when. Institutions were slow to adopt bitcoin but recent development and a clearer regulatory environment will help accelerate this.

Electronic Kiosks

Electronic Kiosks are similar to BTMs but it does not involve the dispensing or receiving of cash. Here users will be able to buy or sell bitcoins online. Electronic Kiosks are essentially computer terminals found in commercial shops and centers that allow users to do transactions. Cash can still be used using electronic kiosks but will have to pay via the cashier.

Another difference between BTMs and Electronic Kiosks is the number of other services on electronic kiosks. BTMs are usually focused on banking services while electronic kiosks may have several other functions like topping up prepaid phones, paying bills, and accessing e-wallets.

Convenient Stores

Some stores allow the purchase of bitcoins directly from the cashier counter. In France, some 5,200 tobacco shops started selling bitcoin through their partnership with Keplerk, a French fintech startup. Patrons of Tabac will be able to purchase 50 EUR, 100 EUR, or 250 EUR bitcoin vouchers which they can redeem via a wallet app.

Like BTMs this option does not give the best exchange rate but it offers a familiar way of buying bitcoin for newcomers in the space. Anyone without prior experience using bitcoin will have a familiar option to purchase one.

Get Bitcoin For Free

Believe it or not, you can get free bitcoin in various ways. In the following section, we will share with you how we are able to get bitcoin totally free!

Faucets

Bitcoin faucets are one of the many ways we can earn free BTC. Faucets are websites that allow you to get small amounts of bitcoin by simply visiting their sites. One of the longest-running faucets is Freebitco.in. This faucet website allows users to claim every hour and multiple them using the favorably fair dice game. However, you can also lose your bitcoin if you lose the wager. The wallet that holds your free BTC on Freebitco.in also doubles as a crypto wallet which gives out 4% APY.

Bitcoin faucets are hard to come by nowadays some of the most popular ones have already closed or are planning to close soon like the long-running moonbit faucet which is closing shop after many years of operation. There are however other faucets where you can get a fraction of BTC albeit indirectly, just convert the tokens or coins you collect from these faucets into BTC.

Airdrops

Another way to get free bitcoins is by participating in airdrops. While there are no real airdrops for bitcoins there is a multitude of airdrops from other cryptocurrencies that you can convert to BTC using centralized exchanges (CEX) or decentralized exchanges (DEX).

A good example of an airdrop was done by Gigabyte now called OByte. To qualify for the airdrop users must connect their bitcoin wallet address with the OByte wallet app. The process was complex but those who did it correctly received OByte coins equivalent to the amount they have in their bitcoin wallet during the snapshot (The bitcoin wallet balance at a specific moment in time).

Promotional Giveaways

The cryptocurrency space is replete with free cryptocurrencies and giveaways. Many of these giveaways are done by project teams who want to spread awareness about their project. This comes in many forms but the most common platforms they use are Twitter and Telegram.

To qualify the promoters usually ask participants to do some simple tasks like retweeting, liking, following, or joining chat groups. The lucky winners can easily exchange these tokens or coins to BTC using the various ways we have discussed earlier.

Bounty Programs

Another effective way to accumulate BTC without actually buying cryptocurrency is by participating in Bounties. Bounties are a series of marketing activities designed to spread awareness of an upcoming project or help increase the exposure of a particular cryptocurrency.

Bounties leverage Facebook, Twitter, Linkedin, YouTube, Instagram, Telegram, and other social media platforms to increase their brand mileage. People who join bounties are called bounty hunters and some proficient bounty hunters are making more money than traders.

Bitcoin Forks

Sometimes bitcoin developers disagree with each other with what features should be included in future versions of the bitcoin network. If no consensus is reached then a Fork may happen. This means there will be two versions of the blockchain network of bitcoin running concurrently. The chain that has the higher hashing power (more people mining) becomes the incumbent version of that cryptocurrency, while the lesser hashing power will become a totally new network.

A good example of this is when the bitcoin cash network forked from the bitcoin network back in August 2017. All bitcoin holders would get the same amount of coins they have on their wallets. This is essentially free money as the version did not die down but become a totally separate cryptocurrency. Those who want the incumbent BTC can sell this Bitcoin Cash (BCH) and buy BTC.

A Word on Mining Bitcoin

The term bitcoin mining has been thrown around the internet. To be clear, real mining of bitcoin entails actual participation in the bitcoin consensus mechanism. This means you have to have your own machine mining bitcoins, not any other altcoins.

However, the high cost associated with setting up your own bitcoin mining machines as well as required technical knowledge are major barriers to entry for most people. If you want to learn more about mining bitcoin we suggest reading our comprehensive article about bitcoin mining. Learn the various ways to mine bitcoin and discover the best mining strategy for you.

Cloud Mining

Leveraging the popularity of bitcoin, enterprising cryptocurrency enthusiasts began offering cloud mining services to interested bitcoin miners who are willing to shell out cash to mine cryptocurrencies without having to actually own or set up the miners. They call this bitcoin cloud mining. Basically, customers rent hashing power from miners and they earn whatever earnings this hashing power gets from mining.

The problem with this cloud mining is the relative opaqueness of operations of many of the companies that offer them. There is no way to check and validate if indeed they are really running a mining operation or check if what the customer is getting is the correct amount they should be given. Most cloud mining contracts include a clause that states that they can unilaterally terminate a service contract if operations expenses become too high.

Altcoin Mining

Another way to accumulate bitcoin using mining is by mining other coins or what the industry commonly refers to as altcoins. There are some coins in the crypto market that are ASIC resistant. ASIC is the acronym for Application-Specific Integrated Circuit. Bitcoin ASIC miners are specially designed devices that are highly efficient in mining bitcoin making them the preferred choice by miners. Unfortunately, they are really expensive and complex to set up

A good example of a simple altcoin miner is the Coinminer. This program mines Monero (XMR) and can effectively do so even by only using the computing power of the desktop central processing unit (CPU). This XMR is then converted to BTC. Unfortunately, coinminer has been labeled by many security and anti-virus software firms as a harmful program.

Merge Mining

The ever-increasing mining competition as well as the diminishing block rewards of bitcoin that halves every 4 years makes mining for regular people unattractive. However, despite these challenges the bitcoin network is still considered the most secured, robust, and trusted blockchain network in the whole world. As such other cryptocurrency wants to leverage this fact.

They do this through merge mining. In simple terms, two or multiple blockchains are mined concurrently using the same device and resources mining bitcoin. Through this form of mining, miners are able to augment their earnings. Some good examples of merge mining are Rootstock RSK, Hathor network, and Blockstack.

Both Hathor and Blockstack want to leverage the security of bitcoin by utilizing the mining activity on the BTCs network. Hathor reveals it merged mining while Blocktack calls theirs Proof-of-Transfer (PoX).

Block Reward Halving and 4-Year Bitcoin Market Cycle

Every 4 years the amount of block mining rewards is halved. This means miners lose half the amount of rewards they get every 4 years. However, despite this cut, bitcoin miners continue to mine, and for good reason. The block reward halving marks the start of another bull market cycle for bitcoin.

Many pundits believe bitcoin has a 4-year market cycle. This means every 4 years the cryptocurrency community expects a massive bull run from BTC as well as a subsequent massive correction that may take years to recover. This has been proven time and time again, the recent all-time high from bitcoin seems to support this hypothesis.

Concluding Words

Bitcoin has once again captivated the minds of many investors around the globe. Several years have passed since it reached this level of interest globally. The last time we have seen this kind of enthusiasm was way back in late 2017 and early 2018, where the price of the first cryptocurrency was going parabolic and achieving new all-time highs every couple of days.

However, the euphoric atmosphere abruptly changed in early 2018 as the bitcoin market experienced a massive correction which marks the beginning of a multi-year downtrend for not only the leading cryptocurrency but the whole cryptocurrency industry.

Fast forward into late 2020 and early 2021, the whole crypto community is ecstatic as bitcoin price movements follow those of the bull market of 2017. While there is always a concern of a looming massive correction, many experienced bitcoin traders know that the sudden dips and surges of bitcoin prices are just part of what makes it such an exciting asset to invest in.

You have taken the first step by learning more about this amazing new asset class that is revolutionizing how we transfer value online. Now is the time to get your hands dirty and fill your bags with this cryptocurrency. Be part of this movement to disrupt the archaic, unfair, and inefficient traditional financial sector and make money in doing so.



Drop Your Comment