- Assume Bitcoin to be a limited resource similar to a gold mine, but think digital. Its very much visible and individuals who potentially want to reap of the profits, want to gain ownership of it while the prices are low. Upon ownership, the person has the ability to spend, invest or transfer it at will. But hold on a second! You need to carry it in something, right?
- So, eager individuals like you and I need digital wallets to carry a multitude of currencies. These may include other coveted cryptocurrencies as well, such as Ethereum, Ripple and Lightcoin which are relatively cheaper alternatives to Bitcoin. There are separate wallets to hold each cryptocurrency.
- Additionally, you can exchange bitcoins with other people who own bitcoins as well, sort of like Pokemon cards (throwback to the 90s and 00s, huh?). Only caveat is that there are no duplicate cards to share; hence, using financial jargon, double spending is not allowed when it comes to crypocurrency. Ideally, the owner cannot spend the same bitcoin anywhere else after a transaction is confirmed, regardless of the amount being transferred. This is necessary to stop any possibility of online fraud.
- Coming back: Wallets are locked by a "private" key which is only in your possession. The key is long line of jumbled up characters , which mainly goes like this: "cB45a213Ds…" The Wallet signs transactions through this key in order to verify it. This is so that no hacker or third party illegally acquires ownership of bitcoins through the network.
- Remember the gold mine from point one? There are a number of individuals now who have installed insanely powerful supercomputers that run sophisticated softwares to mine bitcoins. The software solves intricate mathematical problems for the sole purpose to either verify pending bitcoin transactions or discover hidden ones in the digital space. The incentive is, the puzzle solvers receive bitcoins in return for a correct solution.
- Once the transaction is verified, the bitcoin block is added into a "public registry" called the blockchain. The Blockchain is an ever growing book that contains all transactions that have ever taken place since the Bitcoin first arrived at the financial scene in 2009.
In Satoshi Nakamoto’s comprehensive white paper, he describes this novel concept, this new and disruptive idea of Bitcoin in the following abstract:
“A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”
As you read this and having gone through step-by-step explanation of Bitcoin prior to the statement above, you can almost visualize the long term target cryptocurrency is aiming for. Basically to remove the middle-man in exchanges, which are banks and financial institutions in this regard.
Technology enthusiasts can find the complete technical guide about Bitcoin in this link here.
About Bitcoin Platforms
Next, let us proceed towards the methods to exchange and accept bitcoins. People have multiple options to be a part of this fast growing network. Navigating across Bitcoin.org and reading up user comments on reddit.com’s “Bitcoin” subreddit, I picked out some of the authentic sources targeting various platforms.
- Web Platforms: Coinbase, cex.io and Greenaddress are among the safest platforms providing the most convenient user-experience for their customers and investors. (Personally I'm going to use Coinbase when I shift to the states).
- iPhone Users: Blockchain is popular among iPhone users with the highest rating otherwise people use Coinbase which is mentioned above. Breadwallet is also an option but has faced rate inconsistency issues in the past.
- Android Users: Several options available for Android phones namely: Mycellium, Electrum and Airbitz among others.
- Hardware: People looking for a hardware wallet can go for Trezor or LedgerWallet. It is reviewed as secure and supports all major cryptocurrencies.
- Desktop Softwares: Electrum, Bitcoin Core
The diagram below gives provides a visually informative way of using bitcoins, generally showcasing how a transaction occurs which I have explained earlier.
Cryptocurrency, is already making a mark in the digital age. We are living digital and we are making use of services that were otherwise unavailable 15–20 years ago, not restricted to cryptocurrency. The stage for advancements in fintech is set and we’ll surely see more APIs, web apps and services make an appearance that make cryptocurrency relatively more convenient and easy to use.
I am stoked of what 2018 will bring to us in the technology space. The real question is, are you?
Spread and share knowledge. If this article piqued your interest you may contact me.