An introductory guide to bitcoin
Bitcoin is the current buzzword and is grabbing the attention of everyone from a commoner to politicians and financial experts and critics. It has been hitting the news headlines constantly in the recent times. The digital currency has be comparing to gold and had almost touched the US $20K mark. Recently, it has been facing a low. Much has be talk about its fierce price surge and downfalls.
Undoubtedly, the cryptocurrency has taken everyone by a storm. Many people perceive it to be the future of currencies. Many are even apprehensive. Although people are awed by the currency, most of them have no knowledge about it. While people aware of the digital currency, they don’t have any idea about its origin, the way it works, its legal status, and the risks and benefits associated with it. From technology to economics, bitcoin involves various aspects. If you’ve been curious about it, then here is an introductory guide to bitcoin that will answer most of your questions.
What is bitcoin and how does it work?
Bitcoin is a cryptocurrency or a digital currency that is intangible and present virtually. Although the currency is consider to be the first establish cryptocurrency, there have been attempts in the past to create virtual currencies. Bitcoin was invented in 2009, when a mysterious figure called Satoshi Nakamoto posted a paper called ‘Bitcoin – A Peer to Peer Electronic Cash System’.
The virtual currency works on the blockchain technology and is decentralise. This means that no middlemen, i.e., no government or bank or any other authority controls it. Hence, two parties can transact in the currency with no authoritative figure in between. For instance, sitting in Singapore, you can trade in bitcoins with a person in the US. But, how is this currency created? And, how do you transact in it?
Creating bitcoins – bitcoin mining
Bitcoins are not created, they are mined. How? As mentioned above, bitcoin is a decentralised currency. Hence, no particular government or bank has the authority to mine bitcoins. It can be mined by any individual or group, provided they have the ability to do it. Bitcoin works on blockchain or a vast public ledger where all the confirm transactions are stored in the form of blocks. When transactions occur, they get record in the form of blocks, and these blocks are broadcast to miners for verification. Miners act as auditors and verify these transactions. They get bitcoins in return. The process involves a lot of computing power and mathematical work. Every miner has to verify 1MB worth of transactions, and they only get bitcoins if they are the first to do it.
Remember, unlike paper currencies, bitcoins are finite – only 21 million bitcoins can be mine.
Where can you find bitcoins and how do you make money from it
Bitcoins can be found on specific exchanges create for it, in bitcoin ATMs, and one can even get bitcoins by selling a product or service. Similarly, there are various ways of earning money with bitcoins. From transacting with them to trading, you can make profits through bitcoins in various ways.
You can start by buying bitcoins at cryptocurrency exchanges like Coinbase or CoinHako in return for regular money. Since you are buying bitcoins, you will need a wallet to store them. You can obtain wallets through the exchange itself. For extensive privacy and security, you can use hardware wallets like LedgerNanoS or Trezor. You can transact in bitcoins to make money from them.
This is another way to earn profits with bitcoins. Mining demands sophisticated computers and a lot of electrical power. This can be expensive. If you’re still interested, you can go for alternative options like mining pools and cloud mining where miners pool resources or use a datacenter and shared hashing power to mine bitcoins.
Bitcoin trading is similar to stock market trading. If you love the markets and have sufficient experience, then you can try this option. But, since bitcoins are highly volatile it is recommended to trade in the cryptocurrency only if you understand it well.
While these were the top three ways, there are various other ways of making money from bitcoins. You can play games or watch ads to earn bitcoins. Additionally, you can also earn it as an income by selling your products or services in exchange for bitcoins.
What are the benefits and risks associated with bitcoins
If you Google something like ‘should I buy bitcoins’, then you will get various search results. Some will highlight all the good things that the currency has to offer and others will warn you against it.
Bitcoins are decentralised, which is the currency’s biggest advantage. There’s no third party in between when you transact in bitcoins. Hence, the deal is instant and quick. The blockchain technology that it is based on makes the transaction secure. Transaction details get store on this public ledger. Being a huge chain of coded events, it is difficult to delete or reverse any verified deal. And, with no intervention of a third party, the ledger is open to all. This minimises the chances of fraud.
The biggest risk factor associated with bitcoin is its volatility. Bitcoins value is not controlling by any governmental authority. It is determine by what people will pay for it. Hence, the value of bitcoin may be $10,000 today, and it may increase to $14,000 by afternoon or even fall to $8000 depending on what people are paying for it. The cryptocurrency is also not yet legal. Also, the transactions are secure, but you cannot trace the real person behind them. This is because transactions are pseudonymous. People don’t use anonymous identities while buying and selling bitcoins. In case of fraud, it gets very difficult to trace the actual individual.
On the brighter side, the currency is still evolving, and one may be able to do a lot more with it.
Hope this introductory guide to bitcoins answers most of your queries. If you want to buy or trade in bitcoins, it is recommended to take professional advice.
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