It’s not uncommon to treat something new and unfamiliar almost like a fictional story. After all, you’re not quite sure what to make of it, and you don’t understand enough to operate beyond guesswork. For a lot of beginners, that’s exactly what bitcoin seems to be – something along the lines of fiction. But – and this is worth taking note of – the fact that it’s the most widely known form of digital currency today is a clear sign that bitcoin has crossed the realm of the real world. Factor in the point that it’s used and accepted for many transactions around the world makes it deserving of the attention it has gathered so far.
If you’re a beginner to bitcoin, this quick overview will help you wrap your head around it. What bitcoin is, what it actually does, and how people earn from it.
Going Down History Lane
Bitcoin is regarded as the first established cryptocurrency; that is, it’s a digital asset that’s secured with cryptography and can be exchanged like one does a normal currency. There were other cryptocurrency versions that were launched prior to bitcoin being released to the public in 2009, but none that was fully developed. The inventor is credited only with the pseudonym Satoshi Nakamoto, and whether it was an individual or a group of people remains unknown until today, because the identity has been anonymous from the start.
Nakamoto, nevertheless, stated that the goal of bitcoin is actually simple and straightforward: to create a “new electronic cash system” that is “completely decentralized with no server or central authority.”
Bitcoin in Simple Terms
Simply put, bitcoin is a digital currency. That means that there’s no need to mint coins or print bills when using it. It’s decentralized, meaning that it’s not controlled by any particular authority, government, or even financial institution – the way regular currencies are. It’s also completely anonymous; the owners of bitcoins are not identified with anything that will connect them to their digital assets: no name, no account number, and no social security number. Instead, bitcoin makes use of blockchain technology and encryption keys to link buyers with sellers. And, similar with gold or diamonds, bitcoins can also get “mined.”
People use energy-intense and very powerful computers to “mine” bitcoins and make more of them. To date, there are approximately 16 million bitcoins around. That leaves only 5 more million available for mining because bitcoin developers had decided to make the ceiling quantity at 21 million. Now, this is the anatomy of a bitcoin. Every bitcoin can be divided into smaller parts; the smallest fraction is equivalent to one hundred millionth of a bitcoin referred to as a “Satoshi,” after the name of its credited inventor Nakamoto.
And what does the mining entail? The process actually involves computers solving a very challenging mathematical problem that only gets more difficult progressively. When a problem is solved, it allows one block of a bitcoin to be processed and the miner is then rewarded with his new bitcoin. All users must establish a bitcoin address in order to claim the bitcoins they were able to mine. Think of the address sort of like a digital mailbox with a series of letters and 27-34 numbers. But contrary to a regular mailbox, though, there’s no user’s identity that’s linked to it.
On Using Bitcoins
While mining is quite popular to get your hands on bitcoins, there are other ways to acquire these digital coins. First off, you can transact with bitcoins and utilize them as a means to pay for products or services. For that you need to set up your bitcoin wallet, but doing so is actually surprisingly simple. If you have a PayPal account, then you have an idea that having your own virtual wallet would be on the same range – easy to set up and wouldn’t require a lot of your time. Then just choose a notable digital assets exchange platform and you’re good to go. You’re now ready to buy, sell, and manage your digital assets.
You may also look into websites that pays in bitcoins for completing particular tasks. Once you have your bitcoins, you can opt to lend them out and, in turn, earn interest. A good exchange platform will also allow you to trade your regular currency (USD, MYR, SGD, EUR, CNY, and AUD, for instance) for bitcoins. It might likewise be interesting to keep a tab on merchants that accept bitcoin payment for a wide range of merchandise – from gift vouchers all the way to pizza.
Dealing with Risks
Like with most things that are new and still in the process of being developed, bitcoin presents a fair amount of opportunities as well as risks. While its complete anonymity and lack of regulation may pose glitches every now and then, it also presents a lot of advantages for those who lean more on the inquisitive side and are willing to learn about this digital currency.
It remains to be seen whether or not bitcoin can actually replace government-controlled, centralized currency. But one thing’s for sure: the technology is certainly growing and evolving, so it won’t hurt in the least to be familiar with bitcoins.
As an entrepreneur, you owe it to yourself, your business, and your customers to always be on the lookout for ways to improve. That means actively scouting for opportunities to make things easier, to build a more efficient system, and to serve your customers better. The fact that bitcoin is now accepted by over 100,000 establishments around the world definitely means something, so it’s worth your time and effort to at least have a basic understanding of it – regardless of what industry your business is in.
Have you tried using bitcoins? If so, how was your experience with it? And perhaps just as interesting to note: how do you think digital currencies will affect businesses in the succeeding years? We’d love to know your insights; share us your thoughts in the comments section.