Elementary Explanation Of How Bitcoin Works
To most people, adopting crytocurrency and bitcoin can seem like a financial concept made in a parallel universe. Yes, it’s a very complex and complicated concept, but it doesn’t mean it’s impossible to learn it. When you think about it, many people started off with no idea about bitcoins and how it worked. But look at them now, they’re probably investing left and right in various cryptocurrencies like pros. Possibly profiting very nicely as well! So, in this article, we’ll try to simplify how Bitcoin works using a betting game analogy:
Imagine playing a betting game with your friends, but none of you have any money on hand. You decide to use a ledger to record the transactions, like your winnings and losses. But you don’t want to put your trust in one friend to record everything. So a lot of you decide to make a ledger simultaneously.
This way, at the end of each game, those who kept ledgers can compare their records to see if it all evens out. This means that cheating the system would be virtually impossible unless everybody else is in cahoots with you. Which ultimately defeats the purpose of cheating in the first place.
The ledger is not hidden or exclusive to the ledger keepers; you can view it anytime you want. To add your transactions to the ledger, all you have to do is broadcast your transactions to the ledger keepers. You pay as little or as much as you want to make sure they put your name down on that ledger as soon as possible.
Your friends who keep the ledgers up to date get compensation for their hard work with a reward in the form of money. This money comes from an external source—say, a vault with a limited amount of money. The money in the vault wasn’t part of the money circulating in the betting pool. But it became so once it was acquired by your ledger-keeper friends.
This simple analogy is exactly how Bitcoin operates, albeit on a much more complicated level. Bitcoin runs on a global computer network, and each transaction is compiled into new blocks. These new blocks are then connected to the last block on the blockchain. And the bitcoin miners are the ledger-keepers who work hard to record transactions and mine those precious bitcoins.
Is Bitcoin The Future Of Money
Bitcoin is fast becoming integrated into the everyday lives of people living in developing countries. National currencies are unstable and hyper-inflated. Adopting cryptocurrency and Bitcoin is proving to be a much more viable solution to solving the financial woes of their citizens. Here are 4 reasons why Bitcoin has a massive appeal for the masses in developing countries:
1 – You Don’t Need Banks
In developed countries, it’s relatively easy to sign up for bank accounts and credit cards. But in the developing world, it’s a vastly different story. It’s much harder to get credit and setting up a bank account is no walk in the park. But Bitcoin changes all that. You can save your own bitcoins yourself. All you need is a secure wallet to keep your digital money safe.
2 – Fast, Cheap and Borderless Payments
With Bitcoin, you can send any amount of bitcoin to anyone in the world in a matter of minutes. When you send money through banks you pay costly bank fees. You also need to wait for several hours or a few banking days. But with Bitcoin, as we’ve mentioned previously, you don’t need banks to send or remit payments to other people. All you need is their bitcoin address and voila! Your payment should arrive in the next 10 or so minutes.
3 – Bitcoin Can’t Be Manipulated By Anyone
Governments and banks can dictate the production and movement of their national currencies which ultimately leads to inflation. Unlike fiat currency, however, Bitcoin is a decentralized virtual currency. This means there is no controlling entity that tells the Bitcoin network what to do. Everything has been hard-coded into the network. The underlying technology behind Bitcoin, the blockchain, is tamper-proof and can’t be manipulated by anyone, not even its developer, Satoshi Nakamoto.
4 – Bitcoin Will Help Authorities Catch Criminals
Contrary to popular belief, Bitcoin is not anonymous. Rather, it is a pseudonymous currency. Your alphanumeric public keys provide a certain level of anonymity, but computer experts can trace who owns which wallets and the number of bitcoins each wallet contains. Now the masses who make small transactions don’t have anything to worry about. It’s the criminals who move large amounts of bitcoins that catch authorities’ attention and who they focus their research on. Not o the millions of people who make minute transactions.
3 Red Flags Of Cryptocurrency Scams
There are many different kinds of cryptocurrency scams that are victimizing people who are new to the crypto world. Con artists prey on those who don’t know the difference between a legit crypto platform and a fake one. And who don’t know a Ponzi scheme from a legitimate affiliate program. These scammers fool people into thinking that their well-designed websites give them a semblance of legitimacy. But on closer inspection, these sites won’t pass muster. Here are some giant red flags you should be aware of when adopting cryptocurrency and Bitcoin:
1 – Website Has No SSL Certificate
It’s very important for a website that deals with cryptocurrencies to have an SSL (Secure Sockets Layer) certificate installed. Websites with no SSL only display HTTP before their domain names and websites with SSL show HTTPS. Many scam websites are here today, gone tomorrow types of sites. This means once they’ve scammed a certain number of people, they’ll shut down that site and move on to a fresh domain. It’s quite easy to transfer website files from one domain to another; this is why these scammers can set up shop very quickly.
2 – The Offer Is Too Good To Be True
If you’re trying to get the best rates for your dollars or bitcoins, it’s only natural that you’d want the best possible deal. Since cryptocurrencies are decentralized, most crypto exchanges have their own exchange rates. However, these rates don’t vary by much. If a website offers rates that are significantly lower or higher than other established exchanges, then it’s a giant red flag. It’s better to do business with a trusted platform with higher fees than to try to get the best deal out of an unknown website that could possibly swindle you out of your entire fortune.
3 – Beware Of Ponzi Scams
Some Ponzi scams are not as obvious especially if they’ve been around for a few weeks or months. This is because their first members would already have received their profits (derived from payments by new recruits). There would be posts of glowing reviews on the Internet. At first glance, you might be fooled into thinking it’s a legitimate crypto operation. Especially if you personally know someone who’s made money from the scheme. Check out those positive reviews, and you’ll see they’re basically saying the same thing. We’d even like to bet they would have their affiliate or referral links somewhere on the review.
4 Strategies For Bitcoin And Cryptocurrency Investors
Investing in highly volatile bitcoins and other cryptocurrencies is risky business. These currencies are all electronic or virtual in nature, and thus have no physical presence. They don’t even have intrinsic value. However, no one can deny that right now these cryptocurrencies are extremely valuable. Those who invested in the early days, and held on to their investments, are living the high life now as multi-millionaires, and even billionaires!
If you want to be like these wise investors sometime in the future, then follow these 4 investing strategies to increase your chances for success.
1 – Prepare For Volatility
It’s basically a given for cryptocurrencies that they are going to be extremely volatile. One minute the price is sitting at 5 digits, and the next it’s at 4 or even 3 digits! It’s absolutely unpredictable, and if you don’t take its volatility seriously, you could get in a lot of trouble. You could panic and sell off your crypto so you can minimize your loss.
However, if you’ve braced yourself for scenarios like this, then you’d probably just shut down your computer, or turn off your TV, and lie down and sleep off your doubts. Tomorrow is a different day, the price could go back up, and all will be fine with the world. Being prepared for volatility is tough, but it’s definitely doable and something to be remembered when adopting cryptocurrency and Bitcoin.
2 – Proceed With Caution
Do your research before you start investing in bitcoins and other cryptocurrencies. When you’re dealing with hard-earned money, you don’t want to lose everything in one day. You’re investing to make a profit sometime in the future. Don’t go all in without studying what you’re putting your money into.
3 – Diversify Your Portfolio
Don’t put all your eggs in one basket, so to speak. Don’t just invest in bitcoins. If possible, invest in other cryptocurrencies as well as traditional assets like stocks, bonds, and mutual funds. At least if bitcoin prices drop, then you’re not going to be totally in the red. Your other investments will help keep you afloat.
4 – Store Your Virtual Coins In Cold Wallets
Investing is a long-term game, and it is not advisable to keep your cryptocurrencies in online wallets such as your exchange’s wallet, or even your mobile app wallet. Keep your private keys in cold wallets such as paper or hardware wallets since these aren’t connected to the Internet. You can keep small amounts in your online wallets, but the bulk of your investments should be offline.
Keeping Your Bitcoins Safe: Hot Wallets vs. Cold Wallets
There are basically two general types of wallets to keep your bitcoins, and other cryptocurrencies, safe. There are cold wallets and hot wallets. There are pros and cons for each type of wallet so you can make an informed decision when choosing which wallet to go for.
Hot wallets are called hot because they are connected to the Internet. This generally means it’s easier for hackers to hack into and steal your valuable coins from you. Examples of hot wallets include those free wallets at your favorite bitcoin exchange website like Coinbase, and mobile app wallets.
Desktop wallets are another form of hot wallets especially if you install them on a system that’s connected to the Internet. However, you do have control over your private keys, and you can encrypt your wallet to prevent hacking attempts. The only downside to desktop wallets is if your computer gets destroyed or stolen, then you can pretty much say goodbye to your bitcoins.
There have been many instances of theft in hot wallets. Some hackers have even managed to steal millions of dollars’ worth of bitcoins! Hot wallets are great for storing small amounts and transacting on the fly. But if you’ve got quite a sizeable number of bitcoins, then it’s best to move these to offline storage or cold wallets.
Cold wallets are the preferred storage method of people with a significant amount of bitcoins. Examples of cold wallet include paper wallets and hardware wallets. Paper wallets may sound a bit funny at first because we’re talking about storing digital currencies here, but it’s precisely why it’s one of the best types of wallet for long-term storage! With paper wallets, there is zero chance of anyone hacking anything on paper. The downside is it can be stolen, or it can get burned, or destroyed. To keep your paper wallet safe, consider putting it in a safe environment like a safety deposit box.
The second type of cold wallet is the hardware wallet. It’s a physical offline device that’s pretty much like a glorified USB that can be plugged into your computer when you need to make a transaction. There are three main brands that are very popular among crypto owners. These are Trezor, Ledger Nano, and KeepKey. All three will cost you some money but will definitely help keep your virtual treasure chest safe.
5 Interesting Facts About Blockchain Technology
Blockchain is the technology that makes Bitcoin and other cryptocurrencies very secure. It’s an open-source and distributed database that is stored in nodes or computers within the network. When new transactions or blocks are added to the blockchain, it will automatically update itself. Here are 5 very interesting facts about this ultra-modern technology.
1 – It’s Tamper-Proof
Once an entry has been added onto the blockchain, it will be nearly impossible to remove or alter it later. If you want to alter an entry, you’d have to basically alter all the transactions that came after it. Doing this is mathematically impossible, so even genius fraudsters would have to look elsewhere to steal bitcoins without too much effort. Being tamper-proof is also the reason bitcoin payments are final and irreversible.
2 – It’s 100% Transparent
Anyone with access to the blockchain can see all the transactions that have ever occurred in the past. You can even look up the first ever block (block 0) that was mined by Bitcoin founder, Satoshi Nakamoto, in 2009. This genesis block contained the message “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”
3 – Criminals Can’t Hide Behind The Blockchain
If criminals think they can hide behind the relative anonymity that Bitcoin provides, they’re sorely mistaken. Many have tried to evade the long arm of the law by converting their stolen loot to bitcoins and transferring them to different wallets, but with the transparent nature of the blockchain, computer experts can spot and trace all the bitcoin transactions these criminals have ever done.
4 – Blockchain Technology Is Not Limited To Cryptocurrencies
Many different startups have started to experiment with implementing blockchain technology in various industries. Once such example is Ethereum with their smart contracts technology which basically runs on blockchain. Since the blockchain is decentralized, two parties can make transactions between themselves without needing the services of a middleman. This not only saves you money, but it also saves you a lot of time and conflict.
5 – Blockchain Can Still Be Improved
While this technology has definitely improved the lives of many people, it can still be improved. For one, as time passes by, the blockchain will grow to be several hundred gigabytes of data. This will cause a lot of bandwidth and storage problems on personal computers. Let’s hope the brightest minds in the crypto space can find a solution to this predicament soon.
Should You Trade Or Invest In Bitcoins?
Trading and investing may sound the same, but in reality, they are as different as day and night. Trading refers to a short-term method of trying to profit from buying and selling of bitcoins while investing refers to a long-term strategy where a buyer will hold on to their bitcoins for a long time and ride out any dips in the market price. There are many trading strategies that can be considered when adopting cryptocurrency and Bitcoin
The Bitcoin Trader
The Bitcoin trader thrives on the exciting volatility of bitcoins. They’ll try to time the market and buy bitcoins when the price dips and then they’ll wait for the price to go up before they sell their bitcoins. Trading is a high-risk game because you’re betting for the price to go up or down. Not everyone can trade, however. The most successful traders are those who have nerves of steel and can detach their emotions from their trades.
Traders don’t get scared of dips in the price because they are optimistic it’s going to go up again, sooner or later. They are looking to maximize their profits, too, so they’ll mostly invest a lump sum and buy at the lowest price they can possibly go for, and then they’ll wait until the price is high enough for them to make significant profit.
Trading takes a lot of guts. It takes a lot of thought and analysis. If you’re an emotional type of person who gets physically sick with every dip in bitcoin price, then you’re better off investing, and not trading, in bitcoins.
The Bitcoin Investor
Bitcoin investors are different from traders. They’re in it for the long haul. They’re not looking to take advantage of short-term fluctuations in the exchange rate. If the price goes down by hundreds or thousands of dollars, they’re probably going to get worried. But they’re not going to pull out their investment because they’ve already decided they’re going to hold it for the next 10, 20, or 30 years.
A wise investor will practice the dollar-cost averaging method to manage risk. This means whether the price goes up or down, they’re going to buy bitcoins and hold them. This strategy is perfect for long-term investments as you’re essentially spreading the risk. Though profits may not be as significant as short-term trading, the bitcoin investor probably sleeps easier at night as they’re not worried about how the charts are going to look tomorrow or the day after.
The 5 Advantages Bitcoin Has Over Fiat Currency
Bitcoin is the first successful cryptocurrency in history, and it became successful because of the many positive merits not found in traditional or fiat currency (this is your country’s national currency). In this article, you’ll find out about five advantages Bitcoin has over fiat currency.
1 – Bitcoin Is Decentralized
Unlike fiat currency, Bitcoin is not controlled by any bank or government. No single entity controls or regulates the Bitcoin network, not even its founder Satoshi Nakamoto. Without a controlling entity, bitcoins are technically inflation-proof since no one can devalue its price by manipulating its supply. Only 21 million bitcoins will ever be mined or created, unlike fiat currency which is printed when the government sees fit to print more money.
2 – Extremely Easy To Use
Opening bank accounts is not a simple thing to do. You’d have to go to your bank, wait in line, fill out forms, submit your IDs, etc. It’s a time-consuming process. But with Bitcoin, all you need to do to get started is just create a free wallet, and that’s it! You’ll then be able to receive your first bitcoins in just a few minutes.
3 – Fast Transactions
Most banks don’t work 24/7. Instead, banks are open for business during certain hours of the day on weekdays (some banks are open on weekends, but they’re far and few in between). But with Bitcoin, you can transact with anyone, any time of the day, wherever you and the other person may be located. Your bitcoins will arrive in just a few minutes.
4 – Highly Portable And Durable
Since bitcoins are electronic, they can’t get burned down by fire, and they’re not going to get wet in water. You can bring them anywhere with you, and they won’t even take too much space. Whether you have an online wallet, or an offline wallet, your bitcoins are easily within reach anytime you wish.
5 – No More Exorbitant Bank Fees
Bank fees are the bane of anyone who has ever done any business with a bank. To have a bank account to store your money in, you need to pay fees. In order to use or withdraw your money, you need to pay fees. If you want to send funds to someone else, you pay bank fees. The list goes on and on. But with Bitcoin, you’re bypassing all these fees. Digital wallets are free, and transaction fees are very, very minimal.
Why Your Business Needs To Start Accepting Bitcoin Payments Now
While many businesses have already joined the Bitcoin revolution by accepting bitcoin payments, many are still hesitant to make the jump. They are afraid that with Bitcoin’s volatility, they may end up essentially giving their products or services for free. What this means is that they think they are going to get shortchanged if the price in bitcoin drops and would, therefore, lose all their profits. But this is absolutely not the case! In this article, you’ll find out exactly why you shouldn’t miss out on accepting bitcoin payments.
1 – Instant Bitcoin Conversion To Your Local Currency
Bitcoin’s volatility is a business owner’s biggest concern. But with payment gateways like BitPay and Coinbase, you can easily bypass Bitcoin’s volatility. These services will instantly convert your bitcoin payments into your local currency which you’ll receive in your bank account the following business day. This means that if your customer paid you $100 worth of bitcoins, then you’re going to get exactly $100 in your bank account.
2 – No Chargebacks. Ever.
One of the most common things business owners hate with credit card payments is the very real threat of receiving a chargeback. Some customers are just fickle-minded and dishonest. They would file chargebacks for the smallest reasons like they’re not happy with the color they got, or they regretted the purchase, or something similar. But with bitcoin payments, you don’t need to worry about chargebacks because all bitcoin transactions, once verified by the Bitcoin network, are final and irreversible. This means those bitcoins you’ve received are yours (unless of course, you chose to have them instantly converted to dollars).
3 – No Costly Processing Fees
Credit cards are widely accepted worldwide, and merchants like receiving payments from anyone with a valid card. While credit cards are convenient, there are fees that merchants need to pay. Credit card fees can range anywhere from 3% to 4% per transaction plus another few cents for each transaction made. If you receive card payments from 99% of your customers, you’re basically paying a small fortune in credit card fees!
With bitcoin payments, the transaction fees you have to pay are nowhere near what you pay the credit card companies. In fact, the fees are practically negligible as they essentially come down to just a few thousand Satoshis (1 Satoshi = 0.00000001 bitcoin) or a few cents!