Bitcoin is very simply, a Decentralized Digital Currency – in other words, it’s kind of like Virtual cash or gold. And it is transferred from person to person – which means there’s no Bank or Government control or prerequisites to be able to own or transfer bitcoin.
The symbol for bitcoin is a capital letter ‘B’ with two parallel vertical lines running through it. Another symbol for bitcoin is ‘BTC’ (kind of like how the symbol for the American dollar is ‘USD’).
Bitcoin is a Cryptocurrency – and Cryptocurrencies have been around since the 1980’s. But there was a major problem called ‘double spend’ that prior digital currencies or cryptocurrencies faced; where if somebody spends a unit of that currency, it was very difficult to tell if it’s already been spent – and that’s the biggest problem that bitcoin has solved, and it why it has gained so much popularity!
And the way bitcoin solved the problem of double spend is by its Distributed peer-to-peer network, which works kind of like bittorrents.
The first bitcoin was actually issued in 2009 by someone named Satoshi Nakamoto (this is believed to be his pseudo-name). So, no one actually knows who started bitcoin per se.
Quantity of Bitcoin in Circulation:
There will actually only ever be 21 million bitcoins in circulation! And in 2009, we had the first bitcoins that were released, and there’s a predetermined amount of bitcoin that are released every 10 minutes (more about that later – keep reading).
Bitcoins will gradually be released over the years – till the year 2140.
Bitcoin is divisible down the eighth decimal place (0.00000001) – just like the US Dollar is divisible to a Penny (0.01), you can almost infinitely breakdown bitcoin to a very very small amount.
Is It Possible To Hack The Bitcoin Network?
Since the bitcoin protocol or network (blockchain) is not controlled from any central location that’s governed by any specific country, it’s very difficult to hack the system! In fact, to even hack the bitcoin network for 10 minutes would cost around half a billion dollars ($500,000,000)! So, there’s a lot of trust and a lot of vetting of the protocol/blockchain.
Bitcoin is basically controlled by the consensus of market participants (no one government, no one person, and no one group actually controls the bitcoin network – which is why it’s gaining so much popularity).
Why Is Bitcoin So Important:
- There’s some aspects of cryptocurrency that show huge prospects for really changing the world! Let’s look at these facts;
Out of the 7+ billion people that live on the planet, about 6.5 billion people don’t have access to basic financial and banking services, like Checking accounts, or credit cards. And in the US alone, it is estimated that about 18% of people don’t have access to these financial services.
Bitcoin makes it very easy for anybody (without government permission or control), to have access to virtual banking! I think that’s really gonna change the world!
- Bitcoin cannot be devalued like Fiat currencies can: Fiat currencies are currencies that are backed by nothing but the trust that people have in the government.
Since the 2008 financial crisis, fiat currencies like the US dollar, Nigerian naira, and Zimbabwean dollar, are gradually becoming devalued
So, the way that bitcoin handles this problem is that, there’s a pre-determined amount of bitcoins that are going to be released over the years – and what that does, is that it’s inherently designed to be deflationary (and really control inflation).
- Bitcoin transaction fees are so inexpensive: Cross-currency purchases and transfers are expensive and have friction (a lot of government red-tape). If you wanna move millions of dollars, that costs a lot of money! But with bitcoin, it’s very inexpensive – there are stories of people moving millions and millions of dollars for just a few pennies!
Before we talk about how bitcoin actually has value, let’s talk about ‘what is money?’
Money is very simply, any means for exchanging goods and services. In the recent history we’ve used fiat currencies like Gold, USD, Naira, Pounds and so on (as widely accepted forms of ‘money’).
Four Properties of Money And Why Bitcoin Fits The Description:
- It needs to be divisible (broken into small amounts): A form of money and payment such as Gold, can be broken into smaller units – like a bar, an ounce, 1 kilogram, etc. In the same way, the dollar can be broken down into pennies or quarters. Bitcoin is divisible into the eigth decimal places (0.00000001 btc – called satoshi.
- It needs to be durable (stand the test of time): If you keep a bar of Gold on a desk and leave it for many years, odds are it’s not going to evaporate. Same thing with say a $10 note – it isn’t likely to just evaporate into the air. Bitcoin isn’t even real! It is a virtual/digital currency (so, it is very very durable)!
- It needs to be Fungible (commoditization): 1 USD is equal to the value of another 1 USD (they’re interchangeable). Each unit is equal to the value of another unit – they’re all created equal in value! 1 BTC is equal to 1 BTC anywhere anytime!
- It needs to be verifiable: There needs to be a way to verify that it’s real and not counterfeit. The bitcoin network (blockchain) does an excellent job of verifying each and every transaction carried out on the network (anywhere in the world)!
Why Bitcoin is So Attractive:
Bitcoin is limited and scarce (like gold): On planet earth, there’s only a set amount of gold (just like there’s a limited amount of bitcoins). There will only be 21 million bitcoins that are ever mined (like you can only ever mine a certain amount of gold).
- Decentralized: There is no central government or location that controls or manipulates the bitcoin network. It is a peer-to-peer network (like torrents). The election of a politician for example, cannot have any real effect on the value of bitcoin (it is protected from inflation).
- Can be anonymous:
- Transparent (open source): The code and structure of how the cryptocurrency networking protocol is built to be transparent – anybody can go and evaluate and look at the code, and how the network works.
- Trusted: Because the bitcoin network has been vetted for over 5 years by industry experts – it’s trusted! People place their trust in the bitcoin protocol (even more so than they’re putting their trust in their own governments)! It is virtually impossible to hack the bitcoin system – since it costs about half a billion dollars just to fool the networks for 10 minutes.
- Easy to buy and sell: It’s actually quite easy to buy and sell bitcoin
- Extremely low transaction fees:
- Irreversible (no chargebacks): Merchants and online stores love it! Because bitcoin transactions cannot be reversed after they’re made (as opposed to credit card transactions).
Bitcoin is not backed by anything tangible: Bitcoin is not backed by anything, except for the trust that people have in the bitcoin system.
The real value of bitcoin is determined by what people are willing to pay for it (which is why we’ve seen the value of bitcoin go up so much within the past couple of years) – because so much of the demand is increased.
Anonymity: The cryptic nature of cryptocurrency transactions make it possible for people to carry out transactions anonymously – this freedom is beneficial in a lot f cases (but unfortunately, fraudulent transactions can also exploit the anonymous nature of bitcoin transactions).
How Does Bitcoin Work?
Let’s say you take some money (somebody gives you cash or writes you a check), and you take that money to a bank and you deposited into your bank account. Well bitcoin kind of works like this – where if someone gives you bitcoins, they are stored in a Public ledger; and everybody has access to this ledger – every transaction is actually recorded in this public ledger, and sending and receiving bitcoins is as easy as sending and receiving an email.
Your coins are actually stored in wallets. There are 3 ways to store your bitcoin;
- Local hard drive wallet: Your coins are actually stored on your computer
- Paper wallet: Here, you physically write down the codes that are associated to your bitcoin, and keep it away from the network
- Hosted online wallet: There are companies that help you host your bitcoins online on their hosted wallets – so you can access your wallet from anywhere in the world (this type of wallet has the biggest security risk), but there are companies with strong security measures that I recommend;
Remitano (for Nigerians)
Luno (for Africans)
The Two Parts of A Bitcoin Account:
- Public Key: This is kind of like your account number, or your email address. A bitcoin key is actually made up of 27-34 alphanumeric characters like so;
Your public key is what you actually give out to anyone that is supposed to send you some bitcoin (the same way you’d have to give out your account number to someone that’s meant to send you money).
- Private Key: Private key is the protection tool/mechanism of your wallet. It is kind of like your password (like in online banking, you need to know your password log into your bank app or website).
A Private key is the password (also alphanumeric) you need in order to access your bitcoin wallet/account in the public ledger.
How Do You Get or Buy Bitcoins?
There are 3 ways to acquire bitcoins;
Buy bitcoin from a person or exchange: You can acquire bitcoin by purchasing it from an individual or a bitcoin exchange. Bitcoin exchanges are online websites where people meet to buy from and sell bitcoin to one another (kind of like the stock market).
Here are some few online exchanges that I personally use and recommend;
Barter (sell product or service): You can provide products and services in exchange for bitcoin.
Mine bitcoin (run software to find bitcoins): Bitcoins are released into the system every 10 minutes or so – and miners actually mine for these bitcoins (using their computers of course, not diggers). Bitcoin mining works kind of like the lottery system, where the CPU power that you have, and the more that you mine, the better your odds are of getting some bitcoin for free (for your efforts).
Bitcoin mining requires a mining software and powerful computers.
If you want to dabble into bitcoin mining as a beginner, I’d strongly recommend you Sign Up with GENESIS MINING.
How To Make Money With Bitcoin:
You can mine for bitcoins then sell them for whatever the market value is: Bitcoin mining as a means of earning bitcoins online, is increasingly becoming more difficult – the more competition there is, the more computing power it takes to actually mine for these bitcoins, and the more cost is associated (more hardware you have to buy, and more electricity you’ll have to pay for).
So, before you say ‘I want to start mining for bitcoins’, you really have to do a cost analysis to figure out if it’s gonna be profitable or not.
That’s why I recommend;
Genesis Mining – because they do all of the hard work for you! You just invest some money (bitcoin), and earn some mining profits at the end of the day.
The second method of earning bitcoins is my favourite way – which is by Investing or trading in bitcoins.
It involves buying and holding bitcoin (which can be risky sometimes), and it also involves short-term trading.
Offer discounts in products/services for payment in BTC: This method of profiting from bitcoin is used by merchants and online stores.
If you sell products or provide services, you can offer substantial discounts to people who want to pay for your products or services in bitcoin.
So, if you’re someone that sells phones – and the value of your phones is $150… You can tell your customers that they can either buy your phones for $150 a piece, or pay only $75 (when they make their payment with bitcoins). Recently, people have been purchasing homes with bitcoin, purchasing Lamborghinis with bitcoins, purchasing Ferraris with bitcoin, and so on (at heavily discounted rates – when they pay with BTC).
Big merchants such as Amazon and eBay now accept bitcoin payments!
Bitcoin Price Speculation:
Recently, bitcoin has risen in value over 10,000% over the past couple of years! And, through the rise in price, we’ve also seen many crashes in price of over 50%. But, the price always recovers after each crash! Bitcoin price is always fluctuating (but will always make an upward trend in the long run)!
There are a lot of people that are speculating that “bitcoin is a bubble, don’t chase it“, which is not a well balanced advice in my opinion. I think the better option should be to educate yourself about bitcoin and its tendencies, so that you could better predict when and how its price behaves (in order to become a better investor).
When you invest in something like bitcoin, don’t be so much in a hurry to cash out! You have to have the patience and idea that it is a long-term investment! You’ll gain so much more if you look toward future gains than momentary gains.
You should ponder on this question, “Will bitcoin become widely accepted as a form of payment and store of value?” In other words, “Will the mass majority of people in the world use bitcoin as a means of exchange over other fiat currencies like the dollar – and, will they see value in it?”, if that remains true in the near future, I think the price of bitcoin will stay very very valuable!
In June of 2011, the bitcoin went from about 50 cents ($0.5) to $32 in about 60 days, and then over the course of a few months, crash down to $2. That was kind of like the first excitement about bitcoin; and a lot of the early adopters cashed in big time!
In April of 2013, there was another big bubble – where the price of bitcoin went from around $35 up to $266, and then crashed down to $50 in the span of a few days!
In November 2013, there was yet another bubble – where the price went from $100 up to $1242; then crashed down to $575!
Notice how each bubble and crash gives bitcoin a much higher value than it had prior to the latest bubble?
Well, that’s kind of the trend as the years go by – in fact in 2017, bitcoin rose to over $21,000 in value (holy shit)! Since then, it has settled between $6,000 and $7,000 (as of the time of writing this article).
The future of bitcoin still looks good! You should invest in it with your spare cash though.