You need to have lived under a rock (figuratively, of course) in the past few years for you not to have heard about bitcoin at one time or another. Indeed, the word has become so popular that it reached a point that it’s being talked about by people from all around the world. But for those who do not move in tech-related circles, the big questions still remain: what exactly is bitcoin, and how does it work?
For beginners and people who are simply curious, here are some of the most common queries related to this much talked about cryptocurrency.
1. What is bitcoin?
To put it in a nutshell, bitcoin is recognized as the most widely known and adopted cryptocurrency today. In 2009, it was launched by an anonymous creator going by the pseudonym Satoshi Nakamoto, and has since developed and undergone changes – and still continues to evolve.
It operates on a technology called blockchain. To understand how bitcoin works, think of it as digital ledger entries that are distributed across a decentralized computer network. This network doesn’t have any central authority, nor does it have any government overseeing its operations, making everything autonomous. Utilizing sophisticated encryption, bitcoin offers a thoroughly modern way to send digital currencies independently, very much like simply wiring money to a friend.
2. How do you buy bitcoin?
You can use conventional currencies like USD, IDR, SGD, and MYR to buy bitcoins. But if you really want to ride the wave, so to speak, then you can purchase bitcoins with the use of other digital currencies like Ethereum. Find a reputable digital assets exchange platform to manage your bitcoins.
3. Where can you buy bitcoin?
The most common place to trade, buy, and sell bitcoins is via online exchange platforms. While definitely convenient, these exchanges may present a high level of risk if they’re not secured and properly regulated. That’s why it’s important to do your research before making any investment decision.A notable example of a regulated platform is BITRADX. It’s been certified by the Indonesian government with a business license to operate as an international trading platform in the country. It will also be regulated under the Commodities and Futures Trading Regulatory Agency (also referred to as Bappebti). This is to make sure that its valued investors are protected and the platform adheres to the Indonesian government’s legal terms.
Many investors of bitcoins are firm believers that bitcoins (together with other cryptocurrencies) have the technology to create a revolutionary change in the financial world. That being said, such investors regard bitcoins as assets similar to gold, and they usually employ a long-term buy-and-hold strategy called HODL (the term was originally a typo error for ‘hold’ – and somehow stuck). If you want to have a go at HODL, you’ll need to have a safe bitcoin wallet to keep your digital currencies until you’re ready to move them around.
Not all online brokers offer bitcoin funds, but those that do offer investors with the option to buy future bitcoin contracts, meaning you can invest in bitcoins without needing to own the underlying asset.
5. How does bitcoin actually work?
Simply put, bitcoin records each transaction that takes place in its network, located in all of the nodes across the entire network. This means that a transaction cannot be altered or deleted simply by changing a single point.
Every user in the bitcoin system is given a public-private encrypted key pair, and their public keys serve as their respective address or account number. For example, if Ana sends a bitcoin to Mary, she’ll have to send it using Mary’s public key address. The transactions are then validated and added to the blockchain ledger by means of a method referred to as “mining.” This process is also how new bitcoins are continuously added to the system.
6. What is bitcoin mining?
As stated earlier, bitcoin mining is the procedure of adding new bitcoins into the system, as well as a way to validate and confirm transactions.
Mining requires someone to solve a particularly challenging cryptographic puzzle. Imagine playing a big game of Keno (a lottery-like gambling game) wherein the winner is decided by chance and solely determined by probability; that’s how bitcoin mining is. The participant in the network who solves the puzzle first is entitled to claim newly minted bitcoins as their reward, together with the accumulated transaction fees that their block acquired.
7. How do you actually mine for bitcoins?
Because bitcoin is an open system, it allows anybody to join the network and become a miner.
It is important to take note, however, that mining is not easy. In fact, it’s far from it. To begin with, miners need to have specific hardware that’s designed to be able to solve cryptographic mining puzzles utilizing dedicated microchips (popularly called ASICS); or have the capacity to rig a series of graphics processing unit (GPUs), which are known to solve cryptocurrency mining puzzles considerably better than the usual CPUs.
And the hardware is just the beginning. Once you have acquired it, it might make sense for you to join a mining pool to collaborate your efforts with those of other miners from different parts of the world. If your pool solves a mining puzzle, every member in it is entitled to a pro-rated amount that matches the effort they contributed in the mining power.
8. How many bitcoins are there?
Bitcoin has a very interesting and unique feature: it is limited to 21 million coins to ever be mined. Currently, about 17 million have already been produced. That’s almost 80% of the total supply allocated for it.
Another thing to note is that the rate of new bitcoins created is set at an average of a block (currently at 12.5 BTC) every 10 minutes. This spells out that the “block reward” likewise decreases over time; about every four years, the number of bitcoins that can be found in a block is slashed in half. When bitcoins were first released, there were 50 BTC for every block; in 2020, there will only be 6.25 BTC per block.
You may not be familiar with bitcoins, but most people start from the ground up. And this list of questions should be able to give you at least a basic understanding of this thoroughly modern digital currency.
What are your thoughts and insights on bitcoin? Share with us in the comments.
Note: FLOChip has repositioned itself as a software development agency. Thus, moving forward our blogs will be focusing on bitcoin, blockchain, and other tech related topics. Enjoy reading!