How to Get Bitcoins

With a firm understanding of what Bitcoin is and how bitcoin wallets work, chances are that you’re interested in getting some of the digital currency for yourself. The question is: How can you get bitcoins?

Based on an understanding that bitcoins originally come from mining processes, you might think this is the best way to get some for yourself. Sadly this has become increasingly difficult as Bitcoin has grown in popularity. As more powerful, mining-specific devices have been introduced and the number of bitcoins out there to be mined has fallen, it is becoming increasingly unrealistic for average individuals to participate.

Another way to get bitcoins is to earn them like you would any other currency: by providing goods or services in exchange for the digital currency. There are websites that list offers for jobs that pay in bitcoins, rather than traditional currency. You can also ask your current employer to pay you in bitcoins, which can be a good option for international freelancers in particular.

However, there is no shortage of options for buying bitcoins. Purchasing options include cash, the use of credit and debit cards through online services, bank wire transfers, the use of PayPal or other digital payment services, or the exchange of other digital currencies for bitcoin. In some urban centers, it is possible to buy bitcoins from a bitcoin ATM, or you can even opt for a face-to-face exchange to reduce your monetary footprint. Those interested in buying bitcoins should do some research for the best options available in their locale, as these services tend to differ from country to country.

Additionally, though not yet approved, the idea of investment trusts specifically designed to allow people to purchase shares in the digital currency without having to buy or store bitcoins themselves is emerging. While the Bitcoin Investment Trust is an option that’s already up and running, Bitcoin Superfund and Winklevoss Bitcoin ETF are proposed alternatives awaiting approval as well.

Of course, the same best practices for safety and trust when sending money in exchange for anything also apply in the pursuit of bitcoins. Because Bitcoin services are not regulated in the same way as traditional currencies, it is vital to find trustworthy vendors and recommended that you obtain their real-world identities and confirm sufficient trust is in place before providing any funds in exchange for bitcoins.

While there are plenty of avenues available for procuring bitcoins, walking down them can be treacherous and more complicated than it might seem, and it will depend greatly on where in the world you live. However, as the digital currency gains mainstream popularity and more purchasing options are added to the current roster, the process will only become easier.

Is Bitcoin a Good Investment?

Questions about the value of bitcoins as an investment will likely differ depending on who you ask.

Those with a vision of a fully-distributed future in which the lack of a centralized overseer becomes key to an asset’s value will tell you that, yes, bitcoins are poised to become only more valuable in the future. Others who put more value in the traditional trust afforded by banks and government institutions would likely steer you away from bitcoins as an investment.

While determining how “good” any investment will be is ultimately a guessing game, there are some tried and true ways to determine an asset’s worth. One of the simplest ways to think about bitcoin as an investment is to consider its rise against the U.S. dollar. Recently, bitcoin prices eclipsed $1,000 and have reached beyond $1,500. If you had invested in the digital currency when its worth was still hovering around $150 just a few years ago, or when it was first introduced in 2009 and worth nothing against the dollar, you would probably be convinced that it made for a good investment.

Furthermore, an underpinning concept behind Bitcoin is that there will only ever be 21,000,000 tokens, meaning that it may stay consistently valuable or increase in value relative to other types of currency which can be printed endlessly. Other reasons that the asset seems like a good investment include its growing popularity, network effects, security, immutability and status as the first ever in a growing world of digital currencies.

That being said, there is at least one significant argument for limiting bitcoins to a small portion of your portfolio at the most. Bitcoin is known for stark jumps in price, high peaks and deep valleys that would make it difficult to have confidence in the asset as a long-term money maker that can be depended on. Tying every dime you have to such a volatile asset would be imprudent. A good rule to follow is never to invest more than what you would be willing to lose

How to Keep Bitcoins Safe

If you are thinking through the process of accruing bitcoins, you may be wondering where to keep them once you’ve done so. After investing time and resources into the digital asset, can you be sure they are locked safely away for when you want to use them?

In truth, bitcoins aren’t “stored” anywhere. As a purely digital entity, it is not as if they are held in bank vaults or stuffed under mattresses. They are accessible through Bitcoin addresses, which require a set of digital keys for entry. So, the question of how to securely store bitcoins comes down to the security of these keys.

Every Bitcoin address has two keys: a “public key” and a “private key.” Bitcoin addresses are derived from public keys, and these Bitcoin addresses are shared. Think of it like sharing your email address with someone: they can send you an email but can’t get into your inbox to read your mail. Similarly, nobody can get into a wallet and take bitcoins from it with a public key; it can only be used to send bitcoins. Therefore, it is safe to share.

A private key is what allows users to take bitcoins from a wallet or to send them to others, and it is what must be protected to keep a user’s bitcoins safe. Whoever holds the private key is considered to be the “owner” of the bitcoins at that address, although technically it’s possible to possess somebody else’s keys without owning the bitcoins they lead to. There are a few different methods that users employ for protecting their private keys.

To hold a private key, it’s possible to encrypt bitcoin wallets with a private password, but this is generally the most basic level of security and one that could potentially be breached by computer hackers or viruses. Others opt to keep their access offline completely. Instead, they hold private keys in disconnected databases so that they remain safe from threats on the internet.

As a different approach to protection, many users utilize multisignature addresses, which allow several parties to hold a fraction of an address to a key or to hold one of many keys that are connected to a single address. When one user wants to access the bitcoins, these other holders will have to approve the transaction as well. The number of signatures necessary can be customized and users can set it up so that the multiple verification is provided by individual devices that are each controlled separately.

Among the range of options available for securing bitcoin wallet private keys, each has specific pros and cons that users will have to weigh. The important thing is to make sure your investment is protected in a way that gives you access as you need it while keeping out everyone else.

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What Makes Bitcoin Valuable?

The digital currency Bitcoin has a dedicated following, regularly makes headlines and inspires countless investors to consider making digital currency part of their portfolios. Yet it enjoys the backing of no government or third-party entity like a bank, and it can be hard to understand where its perceived value comes from. So, you may be asking, what makes bitcoin valuable?

Fundamentally, bitcoins derive their value just as anything else does: because people want them. Like any other currency, bitcoin follows the basic rules of supply and demand. Currencies have always been useful tools to make trade easier, enabling holders to convert goods into a widely tradable commodity through sale, then use the proceeds of that sale to purchase nearly anything they wish.

While fiat currencies derive value from the governments that back them, currencies like gold are valuable in and of themselves. Currently, bitcoin isn’t like other currencies in that it is not universally accepted. There are limits on what it can be used for. While not backed by a government or valuable by themselves, bitcoins are still used as a store of value, a placeholder for the goods and services that they can be exchanged for, as with traditional currencies.

Bitcoin derives its unique value from the fact that despite its lack of official backing or wide acceptance, it has generated an ecosystem in which many people are willing to trade and accept it. In fact, some perceive bitcoin to be more valuable, or more useful, than other currencies in that it is a better option for certain purposes, such as seamless digital transfers and use across borders. Also, because there is a cap set on the total number of bitcoins that will ever exist, the currency cannot be devalued through inflation as others can. Finally, a key benefit of bitcoin is known as “censorship resistance,” its ability to be used for transactions that could normally be censored by other payment networks.

So, in short, the answers to the question of what makes bitcoin valuable are some of the things that make every currency valuable and some that make bitcoin different from others.

 

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What Are Bitcoin Wallets?

What Are Bitcoin Wallets

If you’ve made the decision to buy some bitcoins, you may now be asking yourself how to store the digital currency. In name, the answer is what you might expect from experiences with fiat currency. But the details require a little explanation.

The private keys that are necessary for accessing a Bitcoin address are stored on a “bitcoin wallet.” In general, wallets grant you access to your public Bitcoin address and allow you to sign off on transactions, but they differ based on how you choose to access them. Factors to consider when choosing the best bitcoin wallet for you  include security, anonymity and control.

Desktop wallets allow users to create an address for sending and receiving bitcoins and provide a place to store the private key for doing so. This can be done by downloading software to an individual computer.

Mobile wallets, accessed through apps, allow users to transact on the go. While “full Bitcoin” clients download the entire Bitcoin blockchain, mobile wallets are designed to utilize only a small fraction of the blockchain and rely on other nodes within that network to access the remaining necessary information.

Custodial wallets, which store Bitcoin keys on the internet through a third-party website, also allow users to access their bitcoins from almost anywhere. There is, however, the potential danger associated with entrusting someone else with that information.

Bitcoin paper wallet services provide users with a Bitcoin address and two QR codes, one that links to that address and another that provides the private key necessary for transferring bitcoins stored on it. The thinking is that this eliminates the digital storage of the key and, therefore, the potential of a cyber attack.

There are also wallets that store private keys on physical devices, like USB sticks, external hard drives and hardware wallets.

Ultimately, the choice of bitcoin wallet will come down to an individual user’s preferences. Whatever they decide, it will be a crucial aspect of their experience with the digital currency.

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What is Bitcoin Mining?

What is Bitcoin Mining?

One of the fundamental questions many people have about Bitcoin revolves around the tokens themselves. Questions about its value, security and history, all eventually lead to one place: Where do bitcoins come from?

While traditional money is created through (central) banks, bitcoins are “mined” by Bitcoin miners: network participants that perform extra tasks. Specifically, they chronologically order transactions by including them in the Bitcoin blocks they find. This prevents a user from spending the same bitcoin twice; it solves the “double spend” problem.

Skipping over the technical details, finding a block most closely resembles a type of network lottery. For each attempt to try and find a new block, which is basically a random guess for a lucky number, a miner has to spend a tiny amount of energy. Most of the attempts fail and a miner will have wasted that energy. Only once about every ten minutes will a miner somewhere succeed and thus add a new block to the blockchain.

This also means that any time a miner finds a valid block, it must have statistically burned much more energy for all the failed attempts. This “proof of work” is at the heart of Bitcoin’s success.

For one, proof of work prevents miners from creating bitcoins out of thin air: they must burn real energy to earn them. And two, proof of work ossifies Bitcoin’s history. If an attacker were to try and change a transaction that happened in the past, that attacker would have to redo all of the work that has been done since to catch up and establish the longest chain. This is practically impossible and is why miners are said to “secure” the Bitcoin network.

In exchange for securing the network, and as the “lottery price” that serves as an incentive for burning this energy, each new block includes a special transaction. It’s this transaction that awards the miner with new bitcoins, which is how bitcoins first come into circulation. At Bitcoin’s launch, each new block awarded the miner with 50 bitcoins, and this amount halves every four years: Currently each block includes 12.5 new bitcoins. Additionally, miners get to keep any mining fees that were attached to the transactions they included in their blocks.

Anyone can become a Bitcoin miner to try and earn these coins. However, Bitcoin mining has become increasingly specialized over the years and is nowadays mostly done by dedicated professionals with specialized hardware, cheap electricity and often big data centers.

To mine competitively today, you need to know what you’re doing, you must be willing to invest significant resources and time, and — last but not least — you need access to cheap electricity. If you have all of this, you too can give it a shot and become a Bitcoin miner.

 

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What Is a Blockchain?

Bitcoin depends on a distributed ledger system known as the blockchain. The blockchain is possibly the most powerful innovation associated with Bitcoin, as countless industries from financial services to healthcare have begun contemplating how to leverage the technology for their own uses. So it’s worth asking: What is a blockchain?

The essential power of blockchain technology is its ability to distribute information. Because it is distributed across all of the nodes, or individual computers, that make up the system, the term “blockchain technology” is often swapped with “distributed ledger technology.” A blockchain’s database isn’t held in a single location, which could be infiltrated or controlled by a single party, but rather it is hosted by numerous (in the case of Bitcoin, tens of thousands of) computers all at once.

The blockchain network automatically verifies itself at certain intervals, creating a self-auditing system that guarantees the accuracy of the data it holds. Groups of this data are known as “blocks,” and as these blocks are cryptographically chained together, the pieces of data get buried and harder to manipulate. Altering any piece of data on the blockchain would require a huge amount of computing power.

One significant disadvantage of a blockchain, compared with other types of databases, is that this distributed setup requires constant computing power from several different sources to keep up.

Like Bitcoin, the invention of the blockchain as we understand it now is usually credited to the person or group that goes by the name of Satoshi Nakamoto. But actually, the idea of a mutual distributed ledger can be traced back to a 1976 research paper called “New Directions in Crypto Currency” For many years the concept was seen as insecure and overly complicated, but when it was finally paired with Bitcoin, the technology’s security and distribution benefits became clear.

Now, new uses for the blockchain are being developed by companies like Microsoft and Deloitte, which believe that its decentralized and verifiable nature give it huge potential beyond digital currencies.

Only time will tell how far blockchain technology can go. If the present is any indication, it will be utilised far and wide.

 

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What Is Bitcoin?

Bitcoin means different things to different people. For some, it is a future of freely moving currency untied to any central bank. To others, it is a purely digital entity of questionable value and dubious origin. But what is Bitcoin, in the most basic sense?

In most casual conversations, you can get away with knowing that bitcoin is, basically, a digital currency. But of course, it’s much more complicated than that. In fact, it is two much more complicated things.

Bitcoin has been with us since 2009, when a person (or group) under the pseudonym Satoshi Nakamoto introduced a platform (Bitcoin, uppercase) that hosts a digital currency (bitcoin, lowercase).

Bitcoin the platform is built on the concept of “proof of work” data that is expensive and time-intensive to produce but can be easily verified. In Bitcoin’s case, proof of work is created through the process of “mining.” To mine a bitcoin, a computer must complete a complicated algorithm, essentially going through the work of an extensive calculation in exchange for some newly minted currency. That piece of digital currency is worth whatever the market decides through supply and demand.

Transactions are connected to a user’s Bitcoin address, which is stored on its general ledger, called the blockchain. If that address is linked to a real identity, transactions can be traced back to the user; if it isn’t, they can’t. This relative anonymity makes the platform appealing for things like incognito purchases over the internet.

A key component of Bitcoin’s blockchain is the fact that it is an open, distributed ledger. Through the distributed nature of this ledger, the transactions on the blockchain are verified by the consensus of every member, offering security and trust without a third-party overseer.

One of the most important things to keep in mind when thinking about what Bitcoin (or bitcoin) is: there is no single answer. Bitcoin is a platform that hosts a digital ledger on which people can mine, store and trade bitcoins, a digital form of currency earned through a computer algorithm and tied to no central authority.

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