Understanding Bitcoin: A Guide for Beginners
Yes, you read that right. If you haven’t heard about Bitcoin at this point in time, that means you’re living in a cave (or any place without an internet connection).
The whole world is abuzz with opinions and news about one of the most interesting inventions since compound interest! Investors and businessmen are clamoring for a piece of that pie; and even the original Wolf of Wall Street Jordan Belfort has something to say about it!
There are stories of people making it big through Bitcoin in short amounts of time left to right. You hear and read about people mining and investing into this trend, eager to cash in on Bitcoin’s success. Chances are, the buzz has already made its way to you. Isn’t that why you’re reading this guide?
Worry not, for you have come to right place! This guide will get you in the loop on what Bitcoin is and what it could possibly do for you!
First Things First
The biggest question on your list is probably is a ‘what’ question. What on earth Bitcoin? To get that out of the way, let’s look at something with which you’re familiar already; money.
The closest thing you have right now that is most similar to Bitcoin is the content of your wallet. Those Ninoys and Rizals that are found in your coin purse. In a nutshell, Bitcoin is money. It’s used as a form of barter which can be used in the exchange of goods and services; plain and simple. It’s used to pay for stuff that you can buy. If you’re assuming that much, then you’re on the right track.
With that thought in mind, what makes it so special? What’s with all the commotion? This is where the similarities end. Bitcoin isn’t just any kind of money. It’s a cryptocurrency.
New to the ear? If you have plans of getting into Bitcoin, you’re going to be hearing and reading this a lot. To understand this term, it’s best to explain the etymology of the word.
The term Cryptocurrency is a compound word; it’s made of two other words. Those words would be ‘cryptography’ and ‘currency’. Let’s look at these two words separately.
Cryptography is a very old term. It refers to the art of encryption; making secret code for short. It’s the security practice of making something unreadable or unusable for everyone else except for an intended recipient. This has been done for the longest time and was especially useful in both World Wars when communication had to be kept secure between allies.
Cryptography involves transforming data into another form using mathematical functions known as algorithms. These algorithms convert your original content into something unreadable. Your recipient is then given the means of decrypting the algorithm. When they get the unreadable content, they use the means of decrypting the data and turn it back to its original form.
On the other hand, you already know about currency, right? It’s a form of barter that’s used in a certain region wherein everyone agrees that it can be used to buy goods and services. That’s about as simple as it gets.
Now when you put these two words together, you come up with something completely new, but the meaning is pretty simple to decipher. A cryptocurrency is a currency that has been encrypted so that only the intended user may be able to take advantage of it. It’s secure.
Wait a Minute
Isn’t that what banks are for? Isn’t money already secure?
That’s the thing. Cryptocurrencies can’t be put in banks. Cryptocurrencies can’t be put in wallets or vaults or safes. That’s because they’re an online cryptocurrency.
Given that they’re online, they have no physical form. They only exist online. You can’t hold them. You don’t have any vouchers or claim stubs to show anyone. They’re just there; and the system used to maintain them will amaze you. That will be discussed further below. There are still a few more things you need to understand about Cryptocurrencies.
Another thing to take note of is the fact that cryptocurrencies aren’t country-specific like regular tender. If pesos are to the Philippines and dollars are to America, then yen is to Japan, right? Cryptocurrencies don’t follow this trend. That’s because this currency isn’t produced by just one country. On top of that, they’re also not controlled by one bank. They’re an online form of wealth beyond the reach of any government or country.
Take a few moments to realize what that means. A form of barter that isn’t affected by the global economy has a lot of benefits. First, it’s immune from inflation and depreciation like regular barter. The value of your cryptocurrency stays the same even if your country’s economy collapses. Now that’s secure!
Second, your money is globally acceptable, as long as you can access it over the internet! There are no vaults in which to break. There are no wallets in which to pick. Everything is just up there, with your name on it.
How does that work?
Now that you know what Bitcoin is and what makes it different, it’s time to understand the system working behind this revolutionary financial market; the blockchain.
But before going there, let’s go back to the earlier point; about Bitcoin being an online currency. You can’t hold it, right? So how do you know that you have it? How does everyone know what anyone has?
Who’s keeping track of everything? Remember that no government or bank holds control over cryptocurrencies. With that in mind, you’re probably wondering how tabs are being kept on everyone.
Are you familiar with how accountants keep ledgers of the accounts they manage? These ledgers are like large log books that contain transaction dates, amounts, and any other pertinent information when it comes to money. Because that’s what accountants do, right? They manage the money and make sure everything is accounted for.
With Bitcoin, you also have that kind of system. There is a ledger; but not a physical ledger. It’s a global online ledger. To place this idea in the right perspective, take a look at a similar idea already in-use; Google Docs.
Are you familiar with how this works? Google Docs allows multiple users to edit and work on the same file at the same time. This is how people across the world work with each other, thanks to the marvels of technology. That same technology is used by the Bitcoin system.
Now imagine a large, online document that is edited and curated by multiple users online. That’s how the online ledger of Bitcoin works. But in the world of the internet, you don’t call that system an online ledger. You call it a blockchain.
It’s called a blockchain because of how it operates. It’s a mixture of simple elements and complicated process; but the way it works will amaze you.
So you’ve got that online ledger/document, right? That document is like a large (ridiculously) large file that contains every transaction concerning Bitcoin used in the whole wide world. That has to be emphasized again; the whole wide world.
Now a transaction in this sense is an exchange between two parties. It can be something as simple as this:
Pedro gave Juan 5 Bitcoin.
That’s already an example of a transaction. When you make a transaction, you use an online application known as a “wallet”. This isn’t your typical wallet, though. It’s a form of software that allows you to access the large network of online users that deal with and trade in Bitcoin.
So what happens here is Pedro accesses his online “wallet” and through that, he notifies the network of users around the world that he will be sending Juan’s online “wallet” the amount of 5 Bitcoin.
Pedro doesn’t exactly “hand over” the 5 Bitcoin to Juan. There’s nothing to hand because there’s no physical form. What happens instead is that Pedro’s transaction is sent to the Bitcoin network. This network consists of servers located in different parts of the world, which are then updated and curated by people known as “miners”. There will be a separate section on these miners in a while.
When Pedro’s transaction reaches the network, these “miners” get to the task of verifying this transaction using a complicated mathematical and mechanical process. Once Pedro’s transaction has been verified, it is added to a collection of other verified transactions called a “block”.
As miners contribute enough verified transactions to grow a block to a certain size, then the block is added to a chain of other completed blocks. That’s why the system is called a block-chain. This is because it’s a long chain of blocks that are full of transaction data; plain and simple.
Everyday, people are trading and buying Bitcoin from already-existing users. The blockchain is updated on a constant basis. As the blockchain grows, the value of Bitcoin increases as well. This process also increases the amount of Bitcoin in circulation!
Remember that point about the miners? Here’s where they come in. Despite being labelled as “miners”, these people don’t necessarily go digging in the ground for cryptocurrency.
Go back to Pedro and Juan’s Bitcoin transaction. When Pedro sends the transaction data to the network, here’s where the miners start to work.
Using computers designed for verifying transactions, miners race against each other to become the first person to verify a set of transactions. This complex process involves high-powered machines, guesswork, encryption, and a lot of luck.
When Pedro’s transaction hits the system, miners will start scrambling to verify the data. In way, you can consider these “miners” as Bitcoin’s “accountants”. These are the people that are working day and night to keep the blockchain updated at all times.
At this point, you’re probably wondering why would there be people doing so much for this system? Is that really pro-bono work? How are these accountants/miners compensated for keeping the blockchain secure?
Bitcoin Value and Mining
Here’s where the mining process comes in. You already know that miners are in charge of verifying a transaction before it is added to the global ledger. If one miner can’t verify one transaction that another one can, the transaction still doesn’t make it through. There has to be a consensus among these miners to ensure the integrity of the system.
Here’s the fun part. When a miner has successfully contributed to the block chain by being the first one to verify a certain amount of transactions, they are rewarded by the system. Guess what reward they get.
No, they aren’t paid in dollars or pesos. What else would a financial system pay its accountants than with the very same currency it uses!
That’s right. Miners are rewarded with Bitcoin. And no, this reward doesn’t come from someone that already has them. These rewards are generated by the system itself. It’s new currency for circulation. That’s how more and more Bitcoin is finding its way into the market.
And that’s not where all the buzz about Bitcoin is coming from. All the commotion is coming from its value.
That’s not a typo. 1 measly piece of imaginary money is worth that much in today’s market. You want to know the best part of it? That amount used to be at $700 in January of 2017, was at $6000 very recently, and it only took about a few weeks for the its price to jump to that amount!
This is what has everyone’s panties in a bundle. Imagine investing 6000 dollars today and then cashing out 8000 after a month without doing anything? That’s the magic of Bitcoin. That’s why everyone’s so hyped about it. The mixture of risks and high returns has everyone looking at the damned thing, wondering if that’s their way to wealth.
In fact, this system is so volatile and uncontrolled that North Korea (yes, not south), has started dealing in Bitcoin to drive its failing economy upward! That’s how powerful and ungoverned virtual tender can be!
If you’re now raring to go and test your luck with cryptocurrencies, worry not, this guide has you covered as well.
If you’re looking to invest in this trend, there are two ways that you can cash in on some of the action. The first and most obvious one is to buy Bitcoin.
Despite being the most direct, it may also be the most expensive, given the phenomenal jumps in value it made in the past few months. Naturally, it’s hard to buy into a good that has a high market value, and Bitcoin has a really high market value.
Think of it as the stock market. You’re buying shares at a certain price. Depending on how your investments grow, your investment grows along with it. The same can be said with Bitcoin. You buy the currency and keep it with you and sell out when it’s valued at something higher than when you originally bought in.
The second method is through mining. Remember those accountants/slash miners that get rewarded Bitcoin for their efforts? You can be one as well!
No, you won’t need a degree in accounting or experience as a hedge fund manager. It’s not that hard. On the other hand, it’s not easy either.
You’re going to need to invest in mining equipment. These are computers specifically designed for the sole purpose of validating transactions. On top of that, you’ll also need to increase your electricity bill budget as you’ll be using this machine non-stop.
Where to buy?
Now if you’ve decided to buy and stock Bitcoin instead, you have a few great options here in the Philippines. The investor community here is quite active and you won’t find a shortage of opportunities to get in on the action. Here are a few ideas.
Open up a browser and visit this one. This site has been ranked by millions of users as one of the easiest to use and most popular. Here, you’ll be able to create an account and online “wallet”. From there, you should be able to interact with people that are buying/selling Bitcoin in exchange for money.
Naturally, you’ll need to enter your bank details as this is the only convenient way of completing your purchases. Another thing you can also do is to pay for online expenses using the Bitcoin that you already have!
If Coins.ph is the most popular, this one is the oldest. The moment the buzz hit the global market, it’s already been there, offering users a simple and direct way to deal with other traders and buyers.
Because it’s the oldest, it’s also one of the most reputable platforms in the country. There are few scammers and there’s a rich community of veterans that also serve as a good source of insider knowledge on the industry.
Relevance of Bitcoin In Hotels
We said bitcoin was money, right? And you know better than anyone that money is best spent on travel right?
Well youll be pleased to know that Expedia is now accepting Bitcoin payments for bookings! Youre not hallucinating. If you mine, trade, or even just keep Bitcoin, the world is now open to you.
And if youre a hotel thats looking to tap into more markets? What better market to tap then the market thats making overning millionaires?
The dizzying amount of hotels and resorts listed with Expedia would love to have you and your ethereal currency in their lodgings. How does that sound for ‘advanced’ booking?
Are you now watering at the mouth? Be sure to check with your bank teller to see if you can actually support a venture into cryptocurrencies first. What you’ve seen here so far are the advantages. Remember, if there are huge gains that can be made from something, then there’s also a possibility for huge losses as well.
In fact, some experts have dubbed the cryptocurrency industry as being more volatile than the stock market! Despite these risks, millions of people all over the world are seeing business and money in a new perspective thanks to this new trend in the online economy.