Bitcoin Guide

Below you’ll find almost everything you need to know about Bitcoin:

Bitcoin Basics          

Bitcoin is a top-rated decentralized digital cryptocurrency allowing instant payments across the world. It works on P2P technology without a central authority monitoring the transactions. It’s based on a technology known as the blockchain, which acts as a digital ledger for storing transaction data.

As you may know, it was developed by an unknown Japanese person: Satoshi Nakamoto, who proposed the idea in 2009. Since then, the popularity of Bitcoin has only increased. There are several cryptocurrencies out there similar to Bitcoin.

However, Bitcoin is one of the most popular and dramatically well-known digital currencies. Also, it is legalized in several countries, including the US, Canada, Australia, etc.

But how are bitcoins created, and where to store them? Well, this question brings us to our next topic.

What is Bitcoin mining?

The process wherein miners solve complex mathematical problems using special computers is known as Bitcoin mining. Bitcoin mining helps in generating new bitcoins into the existing lot. As of now, a total of 18.5 million Bitcoins have been mined out of the total 21 million.  

The mining process is extremely complex, energy-consuming, costly, and sporadically rewarding. Whenever a miner solves a hash puzzle, he’s rewarded with tokens. Because of this reward or incentive, more miners get into the process of Bitcoin mining.  

The purpose of Bitcoin mining is to monitor and legitimize Bitcoin transactions. It’s because there’s no central agency or organization that looks over the genuineness of the transactions.

How does Bitcoin mining works?

The miners are actually doing the job of auditors. They help ensure the legitimacy of Bitcoin transactions. This concept was launched by the founder of Bitcoin, Satoshi Nakamoto, with a motive to keep Bitcoin users honest. Also, it’s the mining process that helps in preventing the problem of “double-spending.”

Do you know what double spending is? If not, read along. The process wherein a Bitcoin holder spends an already spent Bitcoin. Now, this issue is not possible with physical currency. For example, you have a $10 bill and buy a beer for that $10. Now, the bill is gone; you cannot spend that same bill to buy cupcakes, right?

However, with a digital currency like Bitcoin, double spending is somewhat possible. Possibly a user could create a copy of his original Bitcoin and send it to a merchant while saving his original Bitcoin. This is what’s known as double-spending.

The 1MB Limit

The 1MB limit is the storage limit of a block for transaction data. It means one can store 1MB of transaction data in a block at max. This limit was devised by Satoshi Nakamoto, which is considered a bad move by Bitcoin miners. Its because they believe if the limit increases, the Bitcoin network could process more transactions at a faster rate.    

Whenever a miner confirms or verifies 1MB of transaction data, he becomes eligible for a reward. Note that not every miner that confirms the transactions will be eligible for the reward. Yes, you may not get a reward even after successful verification. As a miner, to get a reward, you need to:

  • Verify at least 1MB worth of transaction data
  • Be the first person to submit the right or the closest possible answer to the mathematical problem.

What if mining stops

Miners are the people who mint the currency. So, even if miners stop the mining process, Bitcoins won’t cease to exist. However, there won’t be any more Bitcoins added to the world. As per the info, there  18.5 million Bitcoins have been mined to date out of the total 21 million. There will be a shortage eventually if all the existing Bitcoins are bought.

Bitcoin advantages and disadvantages

Bitcoin as a cryptocurrency is one of the most widely accepted assets. Several countries across the world have legalized Bitcoin usage. This is the reason we’re separately talking about the advantages and disadvantages of Bitcoins. Let’s briefly discuss them below: –

Advantages of Bitcoins

Fast & affordable transactions 

Sending or receiving money has never been this easy. Regardless of the destination or the amount, you can send the currency almost instantly. This is also the case with other cryptocurrencies, but not many of them are supported everywhere.

Also, Bitcoin transactions are quite affordable. It means you won’t have to pay a high fee for sending or receiving money. Sometimes, there’s no fee at all. And this is something you can take advantage of as a business.

A decentralized issuance

There’s no government body or central bank that controls Bitcoins. As a result, there is no politics involved as it is in fiat currency. There’s simply no authority that can ask for or freeze your Bitcoins.

Also, the transactional data is pretty secure. Two keys, a private and a public one, ensures perfect confidentiality of the consumer data. It means no one can know who you sent the money to or what amount.

Low risks of fraud

Blockchain is what works in the backend of Bitcoins. Blockchain, as you may know, is a digital ledger. It stores your payment information in the best way possible. Also, it enables you to transact without revealing much of your information. This way, hackers cannot get their hands on your assets. Consequently, you won’t end up being a part of scams of frauds.

Disadvantages of Bitcoins

Volatility

Volatility is somewhat a matter of concern when it comes to Bitcoins. You must have seen the recent dips in the prices of Bitcoins. And it’s not that every time the currency will only dip. You’ll also find it touching super high prices too. But this is what we call volatility which is high in this case.

So, investing money is risky. However, the risk prevails in the case of stocks and mutual funds too. So, if you play small and play safe, you can manage this volatility pretty well.

Non-Regulated currency

The absence of a regulatory body poses a risk to the users. It’s because different countries have different laws regarding crypto. Also, it’s still not clear whether or not the existing judicial system applies to cryptocurrency. And this can somewhat increase the chances of scams and frauds.

Fragile

Bitcoins are usually stored in wallets of different types. The two main categories are hot and cold wallets. A hot wallet means you have a digital copy of the wallet and its Privat key in your online computer. So, if your system bricks or you lose your hard drive, you’ll lose your Bitcoins with it. It’s because you won’t be able to regenerate the keys once lost.

Cold wallets are wallets that are not connected to the internet. Pen drives, memory cards, and even paper can be examples of cold wallets. And if you lose this physical copy, you can end up losing your money. However, if you create multiple backups and proceed with caution, you can avoid this.   

Bitcoin vs. other cryptocurrencies

Bitcoin undoubtedly has the best market value presently. However, this never means it’s the best crypto available out there. It’s the reason we have listed several cryptocurrencies which are as reliable as Bitcoin or maybe better. Read along to know how other cryptocurrencies compare with Bitcoins.

Bicton Cash or BCH  

You can think of Bitcoin Cash as an offshoot of Bitcoin. It was created in 2017 using a ‘hard fork.’ The reason why Bitcoin cash came into the picture was:

  • Because of the slow transaction speed of Bitcoin.
  • The inability of the Bitcoin network to reach a consensus.

The Bitcoin has a maximum block size of 1MB for storing transaction data. However, for Bitcoin cash, the transaction size for a block is 8MB. It means the Bitcoin cash can process transactions faster.

Pro: Faster transactions as compared to Bitcoin 

Con: You need special mining equipment to mine Bitcoin Cash.

Ripple or XRP

Ripple is another famous cryptocurrency that uses RippleNet for transactions. RippleNet is a payment network that financial giants like American Express and Santander use. However, Ripple performs in a quite unique manner as compared to Bitcoin and other cryptocurrencies. Because of which some entities question its ability to be a cryptocurrency.

Pro: Superfast transactions

Con: You can use RippleNet without using Ripple.

Stellar or XLM

You can think of Stellar as a payment network operating in a pretty similar way to RippleNet. It can process transactions in different currencies. Also, Lumens or XLM, aka ‘stellar,’ underpins this cryptocurrency. You can use Lumens for making payments, but it also plays an anti-spam role. It’s because, for every transaction, there’s a transaction fee to be paid in cryptocurrency itself.

Pro: It’s integrated with banks and supports transactions in multiple currencies.

Con: Not widely used.

Ether or ETH

Ether or ETH is crypto of the Ethereum blockchain. It helps the users to create and release their very own decentralized apps known as dapps. Also, it allows its users to craft smart contracts for automatic contract enforcement. As the transactions go through, the network destroys small amounts of ether coins so as to prevent spamming.

Pro: You can use this crypto beyond Ethereum Blochian too. Also, it offers fast transaction speed.

Con: This can be a reason behind inflation as it’s uncapped. 

Litecoin or LTC

According to Litecoin’s founder, Litecoin is ‘silver to bitcoin’s gold”. When all of the Bitcoins which are

21.5 million are mined, Litecoin is likely to come into the picture. And it comes with a huge cap of 84 million, which is four times higher than Bitcoin. Also, Litecoin works on fundamentally different technologies as compared to Bitcoin.

Pro: Transaction speeds are fast

Con: Market capitalization is low as compared to Bitcoin

EOS

This cryptocurrency works on a blockchain platform known as EOS.IO. EOS.IO is known to replicate the functionalities of a computer’s operating system and hardware. Similar to ether, this blockchain

the platform offers tools for creating dapps that include database, authentication, and user accounts.

The responsibility of other operations and processing is distributed over the network. Now, this will help process hundreds of thousands of transactions every second in the years to come.  

Pro: It’s in integration with EOS.IO and offers fast network speeds

Con:The supply is uncapped, which can cause inflation.  

NEO

NEO is both the network and the cryptocurrency. It’s also similar to Ethereum, which means you can create smart contracts and decentralized applications. But what makes it different from others is that the ‘NEO Team controls NEO.’ And according to this, the user has to submit a valid identity to stay and use the network.  

Pro: It’s in integration with the NEO network, which complies with regulations in numerous jurisdictions.

Con: It’s not truly decentralized

Bitcoin value and price

Now, let’s understand what’s the value of Bitcoin and its price.

Take the barter system, for example. In the olden days, people used to exchange their items with what they needed from merchants. Let’s say you have four sacks of beans, and you need one sack of sorghum. Back then, there was no money. So, to get a specific quantity of sorghum, you had to exchange a specific quantity of a commodity that holds some value.

So, to get one sack of sorghum, you had to give three sacks of beans. Now, according to this, sorghum is more valuable than beans. It’s because you can get your hands on less sorghum by giving more beans. And this is what value is.

Example

1 American Dollar equals 70 INR in India. It means if you have $1 in India, you can purchase goods worth 70INR. So, the value of $1 is 70INR in India. And this will change as you compare different countries.

However, as Bitcoin can be used across the border, its value stays stable across the globe. And it’s determined by several factors. One such factor is the supply. Take the example of gold and silver. Now, you would know that gold and silver are available in limited quantities. It’s the reason they’re still valuable.

Similarly, as only 21.5 million Bitcoins can be mined in total, Bitcoin has such a high price. Bitcoin is highly divisible up to 8 decimal places (divisible part of Bitcoin is known as Satoshi). And this is something common fiat currencies lack. For example, you can divide a dollar into only 2 decimal places. Smaller parts of dollars are known as cents. This is another factor that pushed the value of Bitcoin a bit higher.

Also, as the userbase and acceptance increase, the value will rise in the future. So, bitcoin is a highly valuable cryptocurrency.

Talking of the price, 1 Bitcoin is equal to about $34,000 as of 24th July 2021. Keep in mind that Bitcoin is volatile, because of which this price is can change within seconds. So, for the latest price, you can refer to this link.