Full Information About Bitcoin – Meaning, Benefits, Risks
This article explains all you need to know about Bitcoin, benefits of investing in bitcoin, the risk involved, bitcoin wallet, safety measures and talked about “what will happen when the owner of bitcoin dies”
For some years now so many people are talking about bitcoin, some made good comments about it, while some other are of the opinion the bitcoin should be scraped if possible.
Although everyone opinion is based on their experience and information gathered about bitcoin.
It is true that bitcoins has enriched some people, they will be ever grateful. On the other hand, some had gone bankrupt all in the name of bitcoins.
Not everyone has given bitcoin a chance. Most people out there need to get good understanding about bitcoin before taking a decision on it.
On this article we will use easy words to explain how bitcoin works and every other thing surrounding it. After reading this post you will have full knowledge to take a decision weather or not to invest in bitcoin.
What is Bitcoin?
Bitcoin is a kind of money which can only be held in an electronic form, but at the same time it can be used exactly the same way just like the traditional currency in your wallet.
What this means is that Bitcoin is not printed on paper like the Dollar, Euro and Pound.
Bitcoin is a part of something called a “Blockchain” and only exists in an encrypted form virtually. This is why it is called a Cryptocurrency.
What differentiates this cryptocurrency from traditional currencies is that in the case of cryprocurrency there is no central bank or country that governs it, it’s totally a decentralized currency.
A currency being decentralized means that it’s value, price or purchasing power can nerve be affected by any economic factor or geopolitical effects of the world.
This is one of the greatest advantage and key drivers of bitcoin popularity. This feature is what makes Bitcoin very much stable than other market linked investment option in the world.
We used the term “cryptocurrency” when we said bitcoin is a cryptocurrency, lets talk more about cryptocurrency in general.
What is Cryptocurrency?
A cryptocurrency is a virtual or digital currency specifically designed to function as a medium of exchange.
It make use of cryptography security to secure and verify all its transactions, and to control the creation of new units of a particular cryptocurrency.
Essentially, cryptocurrencies have limited entries in a database that nobody can change unless specific conditions are completely fulfilled.
There are hundreds of cryptocurrencies existing in the world and bitcoin is one of them.
Our focus will be on bitcoin which is the leading cryptocurrency.
Towards the the ending of this post we will list and explain other high rated cryptocurrencies.
Take 2 min to watch this short video on cryptocurrency.
What is the Value Bitcoins
Bitcoin started at the value which is as good as nothing. As at March 2010 the price of bitcoin was at the rate of US$0.003 for 1 Bitcoin.
The price of bitcoin to United States Dollar has been fluctuating incrementally ever since then.
At a point in December 2017 the value raised to a whopping $17,900 and in February 2018 it the exchange dropped to $6,200 for 1 Bitcoin.
Most crypto experts predicted that bitcoin value will continue to rise. Some are the opinion that the value could hit $100,000 before 10 years time.
But don’t just base your decision on predictions by these experts, they may be wrong.
Where did Bitcoin come from?
Bitcoin was actually invented by a person or maybe group of people using fictitious name known as “Satoshi Nakamoto“.
Do you know anyone who knows who this person or people are?
Despite many efforts to unmask the person(s), there is still no reliable evidence of who they are.
It does not really matter trying to dig out the person or people behind it. Satoshi Nakamoto actually designed the Bitcoin system in an open source form.
What this means is the the code is available for everyone to see and inspect. There is no secret to it and no influence on it from the developers or programmers.
Over the years the code has been altered / improved for specific reasons to make it more efficient. Therefore, the code and the entire system has some difference – from the initial outline Satoshi Nakamoto proposed.
It will be necessary to mention that there is a common misconception that Satoshi Nakamoto invented Bitcoin all by himself or themselves.
Just like many big breakthroughs in science and technology, the bitcoin invention was built on shoulders of great giants.
Over the years many top rated scientists, engineers and mathematicians have been involved in research around the entire cryptography systems.
Satoshi Nakamoto was able to pull all of this work together into one single plan and then start the implementation.
If you have come across Satoshi Nakamoto whitepaper you will notice that he references all the other work on which he relied to complete the invention of bitcoin.
What are the benefits of bitcoin.
Security is the biggest advantage of trading in Bitcoins. It is actually very save than using debit or credit cards as well as wire transfers, giving the multiple level of security built into the purchase, trading and storage of Bitcoins.
It also increases safety – as cyber criminals will be unable to link transactions to your wallet or access your confidential and private financial details.
2. Total Control and Tax Free
Currently no regulations governs bitcoin and cryptocurrency exchange in general.
AS long as transactions cannot be traced to a particular group, individual, party or government, access to the information on whether someone owns or Bitcoin or not is not available.
What this means actually means is that, you won’t be tax for any gain by any government. No government of nation will ever tax you or seize your asset.
Therefore, you have 100% control of things you do with your cryptocurrency.
3. Low Cost Fees
Cryptocurrency transaction fees is very low. It is almost free when compared with the traditional methods of payments such as; Wire transfer, Online Banking, Debit card and Credit card.
What’s most great about bitcoin is that your transfer fee will only be paid once, it is not based on the percentage of money you are transferring.
It does not matter if you are transferring to whole bitcoin in the world, you only need to pay fee for one transaction.
4. Easy Portfolio Diversification
The only thing that affects bitcoin price is the law of demand and supply.
This makes the digital currency a perfect way to easily diversify your portfolio and hedge against any economic volatility or geopolitical pressures, which are often too common nowadays.
One of the biggest advantage here is the anonymity of Bitcoin, this means that it can’t be traced back to the user.
What is a Bitcoin Wallet?
Lots of people are already familiar with digital wallets. A Bitcoin wallet is not very different from a digital wallet. A bitcoin wallet is a software that allows for the storing of bitcoin electronically.
Having this, you get a private key, which is your confidential number. The key is just like your ATM card PIN.
Without your ATM card pin you can’t access the card, same applies to the bitcoin wallet PIN.
With the help of the bitcoin wallet you can send and receive cryptocurrency, as well as checking your cryptocurrency account balance.
The bitcoin wallet can be on the internet (online), installed on your phone or your PC.
You definitely need a wallet before you invest or trade on bitcoin.
Different Types of Bitcoin Wallets?
1. Web Wallet
The web wallet allows you to store, send and receive digital currency through the web browsers, such as; Google Chrome, Mozilla Firefox, Internet Explorer etc.
This type of wallet are usually hosted by a service provider, who will be very much responsible for managing and ensuring its security.
The web wallet is probably the most convenient form of wallet, especially for those new into cryptocurrency.
2. Desktop Wallets
The second type of wallet is the desktop wallet. this allows you to install the wallet on you computer.
On good thing with this type of wallet is that it gives you total control on the wallet, but the security of the wallet falls on you as well.
On this type of wallet, your private key will need to be stored on your hard drive.
The problem here is that – if in any case or somehow the file gets corrupted, and you don’t have any backup, you may end up losing all your digital currency.
If you prefer the desktop wallet then you must make sure that you have a strong password and good backup.
3. Mobile Wallets
The mobile wallet is just like the desktop wallet. But in this case it will be installed on your smartphone.
With this option you can access your wallet at any point in time with your smartphone. It creates room for accessibility on the go.
While it is very easy to use, to scan the QR codes is easier as well.
4. Hardware Wallets
Hardware wallet is a type of electronic device that is designed for the specific purpose of storing Bitcoins.
The main benefit is that it is far much safer from malicious attacks.
What Happens When the Owner a Bitcoin dies?
Bitcoins are a virtual currency protected by uncrackable cryptography.
The cryptography feature makes it a secure way to store wealth but at the same time it creates a big risk when Bitcoin owners die, because their digital money would be totally out of reach forever.
This is the major problem for the relatives of those individuals who invested in bitcoin.
Bitcoins are stored in a virtual wallet. Each of the wallet uses a string of random characters called the “public key“.
The public key is visible as an address for use for sending and receiving cryptocurrency. There is another key called the “private key” which allows the owner access to the contents on the wallet.
Therefore, if a Bitcoin owner dies without giving anyone the private key, his wallet can be discovered but the money in it can not be accessed.
To avoid this, the owner has to make sure that someone has a copy of the private key.
Although risky, but the private key should be written down, stored in a flash drive, or entrusted with someone that can manage them.
How can I keep my Bitcoin Safe
After creating a Bitcoin address, you will receive two keys, a public key and a private key just as said above.
In real instance, the public key is just like your bank account number which will be used to send money by other to send money to your account.
While the private key is just like your banking app password, which you can use to send the money to other Bitcoin addresses.
Therefore, the private key should be kept safe and confidential as it’s the only way to access your wallet.
There are many ways to secure the private key. The main basic way is to encrypt the Bitcoin wallet via a password.
However, encrypting is still open to hacking and malicious attacks, this is why some people will prefer to keep the access totally offline, while some others will choose to hold their private key via an unconnected database, to protect themselves from threats.
Also, you may choose to protect your digital money via the use of multi-signature addresses.
The multi signature address allows multiple parties to gain access to a part of the address or hold one of the several keys, where all the keys will be needed to access the Bitcoin address.
Each time any of the users wants to use the wallet, all the signatories would need to approve of the transaction. This is just like having a multi signatory joint account with a bank.
There are also other way to secure your bitcoin investment, they will be explained below.
1. Make sure you secure your wallet with a strong password. To make your password very strong make sure it’s up to 12 characters long, and it’s should contain at least a; capital letter, small letter, number, and special character.
2. Most online wallets offers option of 2-factor authentication, this ensures that before you can log into your wallet, you will need to perform an additional step.
This additional step may be in the form of an email sent to your registered email address – with a link or code, or text message to your registered phone number just like the One Time Password (OTP) most banks send for online transactions.
3. Make sure you have a solid backup that protects your wallets against any kind of human error or computer failure.
With the backup, if your computer crashes or your smartphone get stolen, you will still able to recover your wallet.
4. If you have a huge amount of stored Bitcoins, you may consider using Cold Storage to secure them.
With the Cold Storage your wallet will be available in physical form, rather than just being stored online or on your PC. The cold storage may be in the form of paper wallets or flash drives.
Choosing the Right Bitcoin Platform
Choosing the right bitcoin platform is one of the first and a very important decisions to make while buying and selling Bitcoin.
- Registration Country: The laws that govern bitcoins exchange would depend on where it is located. The regulations will vary from one country to another. It is best for you to choose a platform based on your hone country.
- Modes of Payment: Check to know if the platform allows supports your preferred mode of payment, such as the; Wire Transfer, Internet Banking, Credit Card, Cash etc.
- Fees: Compare and contract the fees being charged by different platforms, also find out if there is any other hidden charges.
- Order Book Volume: This is a list of buying and selling orders on a platform. If the volume is high it means high liquidity, meaning that lots of people are making use of the exchange to buy and sell Bitcoin. The effect of this is that you can easily find a buyer when you want to buy or sell at a particular price-point.
- Transparency: Try to find out whether the exchange clearly mention all its fees and other charges and if it publishes its audit information.
- Speed of Deposits: This is about how quickly your wallet will get credited or debited with Bitcoin after performing a transaction, and how fast your bank account gets credited when you sell the digital money to them.
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