As bitcoin aims to democratize technology with its incredible technological mechanism, let’s see the transaction properties that makes this pioneer of cyptocurrency such a viable means of exchange.
Bitcoin is the first established cryptocurrency that was created in 2009 by an anonymous individual or group, named Satoshi Nakamoto. The goal was to start a new electronic cash system which was decentralized and hence free from the control of a central authority or server.
The first details of how a bitcoin would work were described in a whitepaper published by Satoshi Nakamoto at an online cryptography forum in 2008. It was marked as a ‘peer to peer electronic cash transfer system’.
The white paper also successfully attempted to portray how the different parts of the bitcoin protocol will work and can be kept secure.
Other digital tokens or cryptocurrencies have imitated the basic idea of Bitcoin its blockchain to address perceived problems with new blockchains.
The first release of bitcoin was version 0.1 that was written by Satoshi Nakamoto. The hard coded genesis block is the very first block in the bitcoin blockchain. According to Satoshi anyone could download the source code and run it to join the bitcoin network.
Bitcoin being a decentralized cryptocurrrency can’t be found in any places that deal with traditional money. Hence in order to procure your first bitcoins one should check out these four places that are listed below:
Cryptocurrency exchanges are best place to exchange your regular fiat currency for bitcoins. These exchanges are online places that accept payment in traditional money for the corresponding amount of bitcoin against it. Coinbase is one of the reputed cryptocurrency exchanges from where one can acquire his first bitcoins.
Next there are bitcoin ATMs at many places where you can exchange your fiat currency for corresponding amount of bitcoins via a money vending machine that is similar in function to a general ATM machine.
You can directly acquire bitcoins from person primarily from any classified community against regular cuurency. Here you are trading your bitcoin for cash.
One can also obtain bitcoin by selling any products or services for bitcoins.
The following five things are absolutely necessary to be sorted before buying bitcoins:
Now let’s take a look at the step by step guide to buy bitcoins:
One should always remember to transfer the bitcoins from the exchange’s wallet to more secure wallet because exchange wallets are vulnerable to hacks as they are not the primary services of the exchanges. Technically speaking, the wallets, don’t store bitcoins instead they store the ‘private key’ that is similar to your bank account password that is guarded with ultimate security features.
Bitcoins are stored in special wallets that are somewhat similar to bank accounts that hold your funds. Before obtaining any bitcoin, you need a place or a wallet to store them.
Rather than actually holding your bitcoin, it holds the private key that allows you to access your bitcoin address (which is also your public key) so that you can transfer funds. Well designed wallet software makes using bitcoin more convenient and intuitive. It usually holds several private keys.
Wallets can either be present on your computer and/or mobile device, on a physical storage gadget, or even on a piece of paper. Here we’ll briefly look at the different types.
Electronic wallet is either downloaded software, or is a secure space for the bitcoin address that is hosted in the cloud. The former is simply a formatted file that resides on your computer or device and facilitates transactions.
Cloud based wallets tend to have a more user-friendly interface, but you will have to trust a third party with your private keys.
On installing a wallet directly on your computer, you get the privilege to control your keys. Most of them have relatively easy configuration, and are free. The only major disadvantage is that they require frequent maintenance in the form of backups.
If your computer gets stolen or corrupted and your private keys are not also stored elsewhere other than the system, you lose your bitcoin.
They also require greater security features because if your computer is hacked and the hacker gets a hold of your private keys, he also gets hold of your bitcoin.
The Bitcoin Core protocol the original software wallet, the program that runs the bitcoin network..
Currently most of the wallets in use are “light” wallets or a SPV (Simplified Payment Verification) wallet, which doesn’t download the entire ledger but sync to the real thing.
Online (or cloud-based) wallets offer greater convenience than their counterpart for you can access your bitcoin from any device if you have the right passwords.
It is mostly free, easy to set up and come with desktop and mobile apps which make it easy to send and receive bitcoin.
With your private keys stored in the cloud, the disadvantage of online wallet lies in its vulnerable security feature as you have to trust the host’s security features, and that it won’t vanish with your money or close down and deny you access.
Mobile wallets are special apps for your smartphone to store bitcoins and are especially useful if you want to pay for something with bitcoin in shops, or if you want to transfer funds while on the move. All the online wallets and most of the desktop ones mentioned above have mobile versions.
Hardware wallets are small physical devices that are intermittently connected to the web to enable bitcoin transactions. They are the most secure as being generally offline, they are seldom hackable. But they do stand the chance of being stolen.
Paper wallets are the simplest of all the wallets; these are pieces of paper on which the private and public keys of a bitcoin address are printed stored safely for use when required.
They are ideal for the long-term storage of bitcoin. These wallets are more secure because being away from virtual attacks as they’re not connected to a network. They are, however, easier to lose especially from fire and water.
Many bitcoin investors use a hybrid approach while choosing wallets for their bitcoin funds. They hold a substantial amount of long term bitcoin fund offline, while storing the smaller liquidity in a mobile wallet account. Your choice of wallet will depend on your bitcoin investment strategy, and your ease with technology
Whatever option you go for, one should be very cagey while dealing with the storage of bitcoins.