Cryptocurrencies are decentralized
digital currencies secured with cryptography
Bitcoin is the top cryptocurrency due to
its first-mover advantage
Bitcoin was created by Satoshi Nakamoto
Bitcoin is only in its infancy period
with huge growth potential
Why cryptocurrencies?
Cryptocurrency is a new type of digital money used to exchanged agreed-upon
values. It is just like regular currency, except it uses cryptography to secure
transactions and control the creation of its native currency.
In centralized financial systems—such as the U.S. Federal Reserve
system—government and banks control the supply of currency. They essentially
"print" units of this currency, which is called fiat. When centralized entities
operate in this fashion often times the "fiat" system can be inflationary. By
contrast, a lot of cryptocurrencies like bitcoin have a capped supply, although
some digital assets do not. This means currencies like bitcoin are produced by a
cryptocurrency protocol at a predetermined, set rate. The supply is capped at a
specific amount. Bitcoin's cryptographic financial system is built on a
peer-to-peer, open source, and decentralized network. The currency is not
controlled by one person or organization, and their specifications are not
easily altered without consensus on the network.
The great thing about cryptocurrencies is that you can send and receive money
anywhere in the world at any given time. You don’t have to worry about bank
hours, formal permission or any other limitations. You can make and complete
payments in bitcoin without anyone’s personal information being tied to the
transactions, therefore it also protects against identity theft. The fees
involved are usually also low, compared to legacy systems like Western Union.
Bitcoin payments are irreversible and secure, meaning that merchants don’t have
to worry about the cost of fraud.
Introducing Bitcoin
Bitcoin pioneered the field as the first decentralized cryptocurrency back in
2009 and the decentralized control is by use of Bitcoin's distributed ledger,
called the blockchain. Bitcoin is by far the most popular digital currency and
it has tens of thousands of programmers and entrepreneurs around the world
developing new services and apps. Like most other cryptocurrencies, Bitcoin is
not controlled by any single government or central bank, and no one can decide
who is allowed to send or receive money. Bitcoin transactions are censorship
resistant. This means that no one, including banks, or governments, can block
you from sending or receiving bitcoins.
Bitcoin was the first decentralized digital currency and has had time to gain
acceptance among both merchants and consumers. It is considered very safe
compared to other digital currencies, it has no third parties, and the protocol
is open source (i.e. its code is peer-reviewed by a large community of
developers). It is also the first digital currency to implement the blockchain
as a core component. All these factors have helped attract the open source
developer community to the currency. The no-VAT ruling in Europe has also helped
to enhance the popularity and value of the currency, and today most countries
around the world allow bitcoin as a payment method. Many companies now also
accept bitcoin as a method of payment. From restaurants and coffee shops, to
real estate companies and online shops, Bitcoin is now accepted by a wide
variety of establishments. It also has a strong advantage over its competitors
because of important network effects like adoption-rate and developer mindshare.
The Past, Present, and Future
Bitcoin was created by an anonymous person or group who called themselves
Satoshi Nakamoto. Nakamoto published the invention on October 31, 2008, to the
Cryptography Mailing list called metzdowd.com. The research paper was called "Bitcoin:
A Peer-to-Peer Electronic Cash System". It was implemented in its first client
and released to the open source community in January 2009. The Bitcoin network
came into existence on January 3, 2009, with the release of the first Bitcoin
software and the issuance of the first bitcoins. Satoshi Nakamoto continued to
collaborate with other developers on the bitcoin software until mid-2010. Around
this time, he handed over control of the source code repository to the bitcoin
developer Gavin Andresen. Nakamoto also transferred several related domains to
various prominent members of the bitcoin community, and then stopped his
involvement in the project. Prior to his absence and handover, Satoshi Nakamoto
made all modifications to the source code.
At first, the initial exchange rates for Bitcoin were set by individuals on
online forums. The first “famous” transaction was the infamous 10,000 bitcoin
pizza purchase, worth around 20 million USD eight years later. Today, however,
most bitcoin exchanges are made through online trading platforms. In 2013,
several mainstream websites began accepting bitcoin. Wordpress started in
November 2012, followed by OKCupid in 2013. In 2014 several major vendors
started to accept bitcoin, including TigerDirect, Overstock.com, Expedia, Dell,
and Microsoft.
With bitcoin’s transactional volume increasing every day, a cap on supply, and
an ongoing reduction in bitcoins produced, bitcoin values should continue on an
upward trend. Compare this to most all fiat (paper) currencies which lose value
every year due to inflation.
The digital currency has not gone viral yet, and many of the apps, upgrades, and
protocols that will make it truly ready for common use are still being
developed, so the potential is still huge. We’ve probably only scratched the
surface of what Bitcoin can do.
This ends today’s lecture and hopefully you now have a first grasp on what
Bitcoin is and why you should start learning about it and using it.
In Lesson 1, you learned that Bitcoin is a decentralized
cryptocurrency invented in 2009 by Satoshi Nakamoto and that
it can be freely transferred between people all over the
world, without the control or the limitations imposed by
conventional payments through banks or government
authorities.
In Lesson 2 you will learn:
Bitcoin isn’t 100%
anonymous
Bitcoin wallets are
used to protect and access your money
Bitcoins are stored
in a public ledger called ‘the blockchain’
Bitcoin isn’t printed
like regular money, it’s discovered, or ’mined’, by a
network of computers worldwide
Authority and Anonymity
As mentioned in Lesson 1, Bitcoin is not controlled by any
third party. It's the first decentralized peer-to-peer
payment network and it’s solely powered by its users.
Bitcoin awards you freedom from government control, but at
the same time it’s your own responsibility to safeguard your
money. There’s no formal entity to complain to if you
misspend BTC or lose access to your wallet’s password.
Bitcoin is pseudonymous rather than anonymous, this means
that the value within a wallet is not tied to real-world
people or email addresses, but rather to specific bitcoin
address(es). Owners (those in control of bitcoin addresses)
are not explicitly identified, but all transactions are
registered on a digital ledger called the blockchain. The
blockchain is public and all transactions are recorded and
visible via tools known as ‘blockchain explorers’.
Additionally, bitcoin exchanges, where bitcoins are traded
for traditional currencies, are often required by law to
collect the personal information of users.
How Can I Store My Bitcoin Safely?
To start using bitcoin you’ll need to use a bitcoin wallet.
A wallet stores the information necessary to handle your
bitcoins. Wallets are often described as a place to hold or
store digital currency. But, bitcoins are inseparable from
the transaction ledger, the blockchain. A better way to
describe a wallet is as “something that stores the digital
credentials for your bitcoins and allows you to access
them”. Bitcoin uses public-key cryptography, in which two
cryptographic keys, one public and one private, are
generated. You could say a wallet is a collection of these
keys.
There are also several types of wallets to choose from.
Software wallets connect to the network and allow you to
spend bitcoins in addition to holding the credentials (the
cryptographic keys) that prove ownership. There are also
online wallets that offer similar functionality. In this
case, the keys to access the money are stored with the
online wallet provider rather than on the user's hardware or
software app. There are also physical wallets that store the
credentials offline, which could, for example, be just the
keys printed on a piece of paper in your pocket, or
remembered in your head. Because a piece of paper can't be
hacked, this is the most secure method of storing bitcoins
(assuming your physical wallet can be kept safe).
The Blockchain
All bitcoin transactions are stored in a public ledger
called the blockchain. It’s not maintained by an authority,
but by a network of communicating nodes and miners running
open-source bitcoin software. Transactions are sent to this
network using readily available software applications (such
as wallet apps). These nodes can validate transactions, add
them to their copy of the blockchain (the ledger), and then
forward these additions to other nodes. The blockchain is a
distributed database, which means each network node verifies
and stores its own copy of the blockchain.
As I explained before, bitcoin prices were first set by
enthusiasts on bitcoin forums and exchanged both offline and
online. Nowadays everything has moved to online exchanges
where participants offer bitcoin buy and sell bids, just
like on other commodity exchanges.
The price is subject to the market forces of supply and
demand which, at this point in time, go hand-in-hand with
the trends and whims of speculators. The price can move
suddenly and sharply up or down in response to news events.
Buying and Spending
You can buy bitcoins online from Bitcoin.com
or
Coinbase.com using a credit
card, or by using an exchange via a bank transfer of fiat
currency. Bitcoin can also be purchased locally using
services like Localbitcoins or Bitcoin ATMs.
So where can you spend your bitcoins? Well, the currency is
up and running with some of the most popular ecommerce
platforms and point-of-sale systems. Additionally, hundreds
of thousands of merchants and vendors, both online and
offline, already accept bitcoin for payments.
A Brief Word on Bitcoin Mining
In traditional money systems, governments simply print more
money when they need to. This leads to inflation which
reduces the value of each unit of the currency previously
printed. But in bitcoin, money isn’t printed—it's
discovered.
Computers around the world ‘mine’ for coins by competing
with each other. To succeed in mining you’d need a
specialized mining computer, as they are much faster than
your regular laptop and specialized to complete mining work.
Mining is competitive business today and
requires specialized equipment to earn return. Mining is the
act of processing and verifying transactions on the Bitcoin
network and securing them into the blockchain. Each set of
transactions are processed into blocks, secured by the
miners, and added to the blockchain.
This ends today's lecture. Now you know a little more about
bitcoin. Let’s recap:
Bitcoin isn’t
strictly anonymous
You can make use of a
wallet to protect and access your money
Bitcoins are stored
in a public ledger called the blockchain
You can buy bitcoins
online, with a credit card, at exchanges, or via ATM’s
Bitcoin isn’t printed
like regular money, it’s discovered or ’mined’ by a
network of computers worldwide
In the next lesson, we will discuss more about Bitcoin
price.
By the way, If you would like to move ahead a bit,
you can start using bitcoin today by installing the
Bitcoin.com Wallet or
Coinbase.com Walleton your computer or mobile device.
In Lesson 2, you learned that bitcoin is pseudonymous rather
than anonymous and that you can make use of a wallet to
protect and access your money. You also learned that
bitcoins are stored in a public ledger called the blockchain,
and that you can buy bitcoins on exchanges, with a credit
card, or by using ATMs. We explored how bitcoin isn’t
printed like regular money; it’s discovered, or ’mined’, by
a network of computers worldwide.
In Lesson 3 you will learn:
Bitcoin has a value
set by the laws of supply and demand
Because of its
current adoption phase and limited distribution,
exchange rates are often influenced by news
Bitcoin has a fixed
supply that is limited to 21 million units total
Bitcoin's Value
How is the value of bitcoin determined? Well, all currencies
and commodities have an exchange value, agreed upon by the
seller and buyer. Bitcoin is a currency because it is a
limited medium which people have agreed possesses value.
This agreement is no different from ancient merchants who at
one time did the same thing with materials such as
seashells, precious stones, gold, or silver. The difference
between bitcoin pricing and the pricing of paper money is
that bitcoin’s value is set solely by the supply and demand
within the community. There is no governing body like a
central bank e.g. The Federal Reserve to influence or
control the flow of money. Given that bitcoin is in its
infancy, and has yet to fully find its identity and
function, the price is easily influenced by news and rumours.
Large markets like the EU, China, Japan or the US may
announce new bitcoin regulations, either favourable or
restrictive to bitcoin’s growth, causing the price to rise
or fall respectively. Other factors that can influence the
value of bitcoin are internal issues. Examples of this
include miners’ conferences or a meeting to decide changes
to the Bitcoin protocol. The price may sometimes dip if an
agreement on a subject cannot be reached, or seems to be too
far off.
Supply & Demand
The supply of bitcoin is limited to 21 million units. This
was set according to the initial design of the Bitcoin
software, and this limitation is fixed into the bitcoin
algorithm. As more and more people come to use Bitcoin, the
increased demand combined with the fixed supply will force
the price to go up. Because the number of people using
Bitcoin in the world is still relatively small, the price of
Bitcoin (in comparison to a more traditional currency) can
fluctuate significantly on a daily basis. As more people
continue to use Bitcoin, the value of the network increases.
In early 2011 one bitcoin was worth less than one USD, but
in early 2017 one bitcoin was worth more than one thousand
USD. If Bitcoin continues to grow, a single bitcoin could be
worth more than a hundred thousand dollars.
Due to the limited number of bitcoins in circulation, and
the fact that new bitcoins are created at a predictable and
decreasing rate (currently 12.5 bitcoins on average every 10
minutes), the demand for bitcoin must follow the supply
increase to keep the price stable.
Like any other money, the value of Bitcoin will grow with
more user adoption and trust. This can be measured by its
growing base of users, merchants, and startups. As with all
currencies, bitcoin's value is determined directly by people
willing to accept them as payment.
This ends today’s lecture. Now you know that bitcoin has a
value set by the laws of supply and demand, and because of
its relatively early phase of adoption and limited
distribution, prices are easily influenced by news. You have
also learned that the total supply of bitcoin is limited to
21 million units.
Tomorrow you will learn more about how bitcoin wallets work.
If you want to stay updated on bitcoin prices, stop
by Bitcoin.com or
Coinbase.com!
Lesson 4. Today is all
about how to safely store your Bitcoin (BTC) in a
Bitcoin wallet.
Yesterday, you learned that bitcoin has its value set by
the laws of supply and demand and that prices are easily
influenced because of Bitcoin’s relatively small,
steadily growing distribution. You also learned that
Bitcoin's total supply cap of 21 million affects the
price.
In today’s lecture, you’ll learn that there’s a wide
range of choices when it comes to bitcoin wallets. You
will learn that bitcoin wallets do not actually “store”
or “hold” bitcoins. Rather, wallets store your private
keys needed to handle the bitcoins you own which are
stored on the blockchain ledger.
Wallets
As mentioned above, you’ll need to get yourself a
bitcoin wallet to store the private keys necessary to
access your bitcoins. Wallets are often described as a
place to hold or store bitcoins, but your bitcoins are
actually stored on (and are inseparable from) the
blockchain transaction ledger. Your wallet is a tool
that stores the digital credentials for accessing your
bitcoins and allows you to send or receive them. Bitcoin
uses public-key cryptography, in which two cryptographic
keys, one public and one private, are generated.
A wallet is a collection of these keys. A public key is
similar to your email address while the private key can
be understood and should be treated like a password to
that email address. Never share your private key with
anyone.
You can choose from several types of wallets. They all
share basic functionality. You should pick a wallet
depending on how you will use your bitcoins. For
instance, do you prefer to use the wallet on your mobile
device? Perhaps you just want to store bitcoins safely
and hold for many years without spending? Will you use
Bitcoin as a shopping wallet and regularly
spend/transfer them online and offline? Each of these
purposes can be best achieved with a specialized
wallet. Remember, you can have more than one Bitcoin
wallet and choose which one to use based on the given
circumstance.
Let's discuss some of the various types of
wallets.
Software wallets connect to the network
and allow you to spend bitcoins in addition to holding
the credentials (the keys) that prove ownership. They
usually come in the form of mobile applications
downloaded from app stores.
Online wallets offer similar
functionality but may be easier to use. In this case,
credentials are stored with the online wallet provider
rather than on the user's own hardware and can be
accessed across each of your devices.
Physical wallets store the credentials
offline. A simple “paper wallet” could be the keys
printed on a piece of paper that you hold in your pocket
or more securely stored in a safe.
A hardware wallet is a product that
holds your private keys securely on an electronic device
that can be accessed without an internet connection.
There are various hardware wallets to choose from
including Trezor, Keepkey, and Ledger. The device acts
as a secure location for your private keys much like a
paper wallet but is a far easier method than paper for
sending and receiving bitcoins. If the hardware wallet
is lost or stolen it can be restored using a 12-24 word
phrase called a “seed.”
Security & Anonymity
If you choose to use services that store your private keys
for you, such as an online wallet, be aware that you are
completely at their mercy regarding the security of your
keys. Most wallets, however, allow you to be in charge of
your own private keys. This means that no one in the entire
world can access your “account” (i.e. your bitcoin
addresses) without your permission. It also means that no
one can help you if you forget your password or otherwise
lose access to your private keys. If you decide you want to
own a lot of bitcoin it would be a good idea to divide them
among several different wallets. Don’t put all your eggs in
one basket!
Wallets also have a wide variety of anonymity levels, from
software wallets which only store your keys, to more open
wallets which displays sender/receiver name. Keep in mind
that even with software and physical wallets, data will be
sent to nodes maintaining the blockchain and the server may
be able to view your IP address and connect this to the
address data requested. To improve privacy, most bitcoin
wallets will automatically create a new bitcoin address each
time you want to send or receive a transaction, which makes
it more difficult to identify the sender/receiver.
To start using Bitcoin right now, just download the
Bitcoin.com Wallet or
Coinbase.com Wallet.
This ends today’s lesson where you have learned that there’s
a wide range of wallet solutions. You have also learned that
bitcoin wallets do not store bitcoins, but rather secret
keys used to handle the bitcoins, stored in the blockchain
ledger.
In Lesson 4, you learned that there’s a wide range of wallet solutions
available to you as a consumer. You also learned that bitcoin wallets do not
actually store bitcoins, but rather they store the private and public keys
used to handle your bitcoins.
In Lesson 5, you will learn:
A bitcoin transaction is a transfer of
value via the Bitcoin network
Bitcoin transaction records are not
encrypted
Transactions can be viewed by anyone
using a ‘blockchain explorer’
Transactions must be verified by miners
on the blockchain network
Miners are rewarded with bitcoins for
doing verification work
Bitcoin Transactions on the Blockchain
The blockchain is a public ledger where every bitcoin transaction is
recorded. The ledger is maintained by a network of communicating computers
running bitcoin software. It operates without any central authority.
Transactions are sent to this network using wallet applications. Mining
computers and nodes try to validate these transactions. Valid transactions
are added to their individual copy of the ledger. Each computer will then
broadcast their ledger additions to the other nodes in the Bitcoin network.
The blockchain is a distributed database. This means that to achieve
independent verification of the chain, (the correct ownership of each and
every bitcoin amount), each participating computer stores its own copy of
the blockchain and all of its transactions. A transaction typically
references previous transaction outputs as new transaction inputs and
dedicates all input bitcoin values to new outputs. As such they constitute a
chain of transactions. Therefore, it is also possible to “trace” a
particular bitcoin back in time (to check which addresses the bitcoin has
“visited”).
To clarify: bitcoins don’t really ‘exist’ anywhere. There is no file with
bitcoins in it. Instead, there are records of transactions between different
bitcoin addresses with balances that can increase and decrease. And while
each bitcoin transaction is secured via encryption, the record of that
transaction is not. This enables the ability to browse and view every
transaction ever collected in the blockchain using a hex editor. There are
also blockchain explorers online where every transaction included within the
blockchain can be viewed in human readable language.
A Practical Example of a Bitcoin transaction
Step 1: Submission of Transaction to the Bitcoin Network via Wallet
Alice wants to transfer bitcoin to Bob and they both have bitcoin wallet apps on
their smartphones. Bob opens his wallet, creates a new bitcoin address, and
shares this address with Alice. She pastes Bob's address into her wallet’s “Send
to” field, she also inputs the amount of BTC she wants to transfer. Alice’s
wallet (also called a client) signs her request with her private key
corresponding to the address she’s transferring from.
Step 2: Verification
Now the bitcoin mining network goes to work. Connected computers all over the
world simultaneously verify all transactions, and compete with each other to
earn newly minted bitcoins as a reward. Bob and Alice’s transaction, once
verified, will be added to the next transaction block. Once the block has been
found by a miner, their transaction is confirmed, and can no longer be reversed.
When this process is done, Alice and Bob’s wallets will display that the
transaction is complete. This verification process ensures that the same
bitcoins cannot be used for more than one transaction at a time.
This ends today’s lesson. You now know that transaction records stored in the
blockchain are not encrypted and can be viewed by anyone using a blockchain
explorer available online. You have also learned that transactions need to be
verified by miners on the blockchain network, who are then rewarded with
bitcoins for doing the work.
Lesson 6 will cover how you can earn some bitcoins of your own.
In Lesson 5, you learned that bitcoin transactions are not
encrypted and can be viewed by anyone using a blockchain
browser. You also learned transactions need to be verified
by miners on the blockchain network, who are then rewarded
with bitcoins for verifying and timestamping the
transactions.
In Lesson 6 you will learn:
Bitcoin is sold and
purchased much like other currencies through exchanges
using a credit card, bank wire, Paypal, etc.
You can also exchange
bitcoins for goods and services with people directly,
just like you would with cash.
Buying Bitcoin and How Exchanges Work
Bitcoin can be bought and sold from various sources, online
and offline, like any other currency. You can purchase BTC
online directly with a credit card, or use an exchange or
brokerage service that will enable you to buy bitcoin via a
bank transfer. Some applications also offer buying and
selling bitcoin with PayPal and other online payment
processors. Some of these sites are full-service exchanges
intended for institutional traders, while others are simpler
wallet services with limited buying and selling
capabilities.
Most exchanges and wallets can store digital and fiat
currency for you, functioning like a regular bank account.
Exchanges and wallets are the go-to option if you want to do
regular trading and speculating. Beware of the fact that
total anonymity is difficult to achieve at these sites.
Also, there are setup procedures which usually involve
supplying proof of identity and detailed personal
information. Bitcoin can also be purchased locally from
other people via marketplaces e.g. LocalBitcoins, and from
Bitcoin ATMs that operate just like the cash ATMs you see
worldwide. These servicess offer higher anonimity, but tend
to charge higher fees.
This ends today’s lesson. You have learned bitcoin can be
purchased and sold much like other currencies through
exchanges. You know you can exchange bitcoins with other
people directly, just like with cash.
Tomorrow you will learn more about where you can
spend bitcoin and how you can shop online.
If you have selected a wallet already, you could go and get
yourself some bitcoin today over at Bitcoin.com.
In Lesson 6, you learned that bitcoin can be sold and
purchased just like other currencies through exchanges. You
also learned that you can exchange bitcoin with people
directly, just like with cash.
In Lesson 7 you will learn:
Many merchants accept
bitcoin as payment
How to find places
that accept bitcoin payments
How to use bitcoin
debit cards as payment in any store that accepts credit
or debit
Where to Spend Bitcoin
Spending bitcoin is very similar to spending traditional
money. However, since bitcoin is not yet universally
accepted, you just need to select stores that accept it.
Luckily, there are a bunch of them! Recent figures show that
the number of retailers accepting bitcoin has now surpassed
the 100,000 mark. As more countries continue to recognize
bitcoin as a legitimate form of payment, these figures will
continue to rise. The best way to find bitcoin-friendly
merchants is by browsing online marketplaces and using
specialized search engines that populate with large numbers
of supporting establishments. For example, the site Coinmap
offers a visual way to locate bitcoin-friendly stores,
restaurants, and services around the world. The site also
adds new locations regularly.
Bitcoin payments are easy to make online and offline. You
just need to download a wallet application for your desktop,
tablet or smartphone. Then, during checkout at a store, you
will be presented with a code in text format or as a QR-code.
This is a visual barcode representing the store’s public
key. You scan their code with the scanner on your wallet
application and confirm the total amount to be paid and then
the transaction is complete. In the case of purchasing
online where no scan option is available, you can simply
copy and paste the public key address of the store into your
wallet’s “Send to” field.
What Can You Buy with Bitcoin?
You can purchase just about anything with bitcoin ranging
from goods to services. Bitcoin can also be used to purchase
larger items including cars, real-estate, and even precious
metals. Additionally, many merchants who accept bitcoin also
give discounts for people who pay with the digital currency.
One example is Purse.io who offers 15% off on Amazon
purchases made using BTC. The most rewarding way to spend
your bitcoin is by paying it forward. Use bitcoin to tip the
author of an article or blog post with the click of a
button, or donate to worthy causes including Wikileaks and
the Foundation for Economic Education (fee.org).
Spending with credit card
If there is a merchant that does not accept bitcoin, there
are still ways to use your digital cash to purchase the
items you are interested in. Just use a bitcoin debit card.
These cards help bridge the Bitcoin world with the world of
legacy finance. Using them is simple, you can either buy
bitcoin with your debit card or load a debit card with
bitcoin to spend anywhere that accepts credit cards. With
this bitcoin debit card, you can now essentially buy
anything with bitcoin as any establishment that accepts
credit or debit cards would accept your bitcoin debit card
as well. The merchant gets paid in their own currency by the
debit company and the charge will be deducted from your
bitcoin balance.
There are several debit cards to choose from. Some cards
can only be issued to certain countries, and all have
varying fees, so be sure to read up on all the options to
choose the best card for you. Two well-known choices in the
U.S. are BitPay and Shift cards.
Best Practices for Using Bitcoin
To use bitcoin safely without worrying about being defrauded
or losing your coins you simply need to heed some practical
advice. Follow these basic guidelines and you can go bitcoin
shopping online with confidence.
When seeking to use a shopping website for the first time,
do a quick online search of the store’s name. There are
several clear warning signs that you can look for in the
search results to tell if a site is to be trusted or not.
Never buy anything
from a site that doesn't have SSL (secure sockets layer)
encryption installed. You'll know if the site has SSL
because the URL for the site will start with HTTPS://
(instead of just HTTP://). There will also be an icon of
a locked padlock visible, typically in the status bar at
the bottom of your web browser, or next to the URL in
the address bar—it depends on your browser.
No online shopping
store needs your social security number or your birthday
information.
Never give out your
bitcoin wallet login credentials or passphrase or
private key(s).
Always give out as
little information as possible.
Also, try to avoid
using the same bitcoin addresses more than once.
Generate a new address for each transaction you receive.
Luckily, many wallets do this automatically.
This conclude today’s lesson. Hopefully you now feel
confident enough to start spending your bitcoin! A good
place to start is the shopping search engine on Bitcoin.com.
In Lesson 7, you learned that there are over 100,000 merchants out there who
accept bitcoin as payment and how to find them. You learned how to sign up for a
bitcoin debit card to use bitcoin as payment in just about any store that
accepts regular credit cards. You also learned about best practices and how to
avoid fraud when spending your bitcoin.
Today, you will learn that mining is the process of adding and confirming
transaction records to the blockchain. This process is also how new bitcoins are
created. You will learn that mining is a resource-intensive process. Aditionally,
nowadays mostly done by specialized mining computers in large data centers.
Transactions on the Blockchain
Today’s lesson is all about the blockchain, mining, and how new Bitcoins are
generated. Remember the previous lesson where you learned how the blockchain is
the public ledger that records bitcoin transactions? Here’s a quick recap:
The blockchain operates without a central authority but instead by a network of
communicating computers running bitcoin software. Bitcoin transactions are sent
to this network using readily available software applications. Network computers
or nodes validate the transactions, add them to their copy of the ledger, and
broadcast these ledger additions to other computers.
The blockchain is a distributed and decentralized database. To achieve
independent verification of the chain of ownership of any and every bitcoin
amount, each network computer stores its own copy of the blockchain. A
transaction typically references previous transaction outputs as new transaction
inputs and dedicates all input bitcoin values to new outputs.
There is no file with bitcoins in it. Instead, there are records of transactions
between different bitcoin addresses, with balances that increase and decrease.
Transactions are not encrypted, so it is possible to browse and view every
transaction ever added onto the blockchain.
Mining is the process of adding transaction records to the blockchain. Bitcoin
computers or nodes use the blockchain to distinguish legitimate bitcoin
transactions from attempts to re-spend coins that have already been spent
elsewhere.
Bitcoin Mining
Mining is intentionally designed to be resource-intensive and difficult so that
the number of blocks found each day by miners remains steady. Individual blocks
must contain a proof of work to be considered valid. This proof of work is
verified by other Bitcoin nodes each time they receive a block. The primary
purpose of mining is to allow Bitcoin computers or nodes to reach a secure,
tamper-resistant consensus.
Mining is also the mechanism used to introduce new bitcoins into the system: a
successful miner finding a new block is rewarded with newly created bitcoins and
transaction fees. Currently, the reward amounts to 12.5 newly created bitcoins
per block added to the blockchain. To claim the reward, a special transaction
called a coinbase is included in the block with the processed payments. All
bitcoins in existence have been created via coinbase transactions. The reason
for this setup is to motivate people to provide security for the system. Miners
need to spend energy to find those cryptographic solutions to new blocks of
transactions.
Can I Make Money Mining Bitcoin?
In the beginning, anyone could make money mining bitcoins using a common desktop
computer or laptop, but those days are long gone. The total computing power of
the network has risen exponentially since the introduction of machines designed
specifically to solve Bitcoin’s mining proof-of-work algorithm and nothing else.
Individual miners can still make some money by producing or purchasing their own
designated equipment – however, most mining takes place in large factory-like
environments with hundreds or thousands of machines, in places where energy and
cooling is cheap (such as in China and above the Arctic Circle).
Once your machine is superseded by a newer model, usually a few months after
purchase, its ability to compete on the network (and thus its earning potential)
is greatly diminished, along with its resale value. Though the average user has
little incentive to mine these days, mining allows you to learn a lot about how
the Bitcoin network works, and the network needs individual miners to keep it
secure and decentralized. In fact, many individuals mine bitcoin solely for the
sake of contributing back to the network or just for the fun of it.
Another way to mine bitcoin is to rent out other miners hashing power. This is
called cloud mining. This means any individual can mine anywhere without needing
the same hardware or resources of the miner, although it does come at a cost.
Furthermore, any mining pools or miners that decide to do cloud mining may not
receive as many returns from the mining process. Also, beware, because there are
a lot of cloud mining scams.
If you want to start cloud mining right now, you could try the Bitcoin.com
cloud mining service. Here
you can sign up and start your mining business through us. It is an amazing way
to get a feel for competing for cryptographically secured rewards. Give
it a shot.
This ends today’s lesson. Now you know that mining is the process of adding and
confirming transaction records to the blockchain, and that the chain is a
network of computers around the world competing to find blocks in order to be
rewarded. This process is how new bitcoins are created. You also know that
mining is an increasingly resource-intensive process and is mostly done by
designated mining machines in large data centers. Still, it needs its individual
miners to keep it secure and decentralized.
In Lesson 9, we will talk more about exchanges and exchange rates, best
practices and what to look out for.
In Lesson 8, we explored the world of mining and the process
of adding and confirming transaction records to the
blockchain. This process is also how new bitcoins are
created. You learned that mining is a resource-intensive
process and how nowadays it is mostly done by specialized
mining computers in large data centers.
In Lesson 9 you will learn:
More about bitcoin
exchanges and the importance of finding one that suits
your needs
The initial ID
verification can take a few days, but after that you can
usually buy or sell bitcoin instantly
A few tricks to help
you determine how serious and secure an exchange is by
checking for basic things like SSL encryption,
two-factor authentication
About Exchanges
Most bitcoins are bought and sold through online services
called exchanges. Knowing how to buy bitcoin is an essential
first step in getting started with the digital currency.
However, knowing which bitcoin exchange to choose is one of
the most important initial steps. Since you will be
investing money into bitcoin you need to trust the exchange.
Selecting the right exchange is a critical step on bitcoin
journey.
Lesson 9 will guide you through the most important steps to
take before selecting a bitcoin exchange. Remember, these
are just suggestions to help you make the right decision. In
the end, circumstances can be different based on the
exchange and the market. Do your homework first!
Choosing an Exchange
Knowing where your bitcoin exchange is based is very
important. The laws and regulations of your own country can
vary from those of another, and what is considered legal
practice in a foreign country may not be so in yours. You
may notice that while certain exchanges are based in a
specific country, they may still accept multiple national
currencies. Make sure to check the fine print; exchanges
usually post what currencies they do and do not accept in
their terms of service.
You can usually transfer fiat currencies to an exchange with
a wire transfer, credit card, PayPal, or other payment
method. Use what works best for you at your convenience.
Please make sure to consider your privacy levels. For
example, credit cards may be convenient and secure but are
one of the least private ways to transfer money.
You will also want to make sure that the exchange fees are
within reason and not excessive compared to the rest of the
market. Fees can change over time and can vary from exchange
to exchange. Some exchanges charge additional fees on top of
the bitcoin network transaction fees. Different payment
methods also have varying fees.
Credit card purchases, for example, are often charged a fee
of 3-10%. Services provided by credit card companies may be
convenient but are one of the least private ways to transfer
money. While most deposits with bank transfers are free at
the exchange, banks usually charge hefty fees to transfer
money abroad. More information about fees can be found on
each exchange’s website. By comparing a local bitcoin
exchange’s prices to a bitcoin price index, it’s easier to
get the best bitcoin exchange rate. If an exchange
constantly has substantially different prices than others,
it is a sign of trouble and that exchange should probably be
avoided.
As with everything else, do your research and find an
exchange you can both use and trust. It’s also a good idea
not to use your exchange’s wallet to store your bitcoins
long-term. Move your purchased bitcoin to a personal wallet
when you’re done so that you always have control over your
money.
Security and Anonymity
Initial verification can often take a couple of days, but
all subsequent purchases on the same exchange are usually
instant if you have funds available to buy or sell. Do some
research on each bitcoin exchange to determine verification
levels and delivery speeds. Also, make sure to check if the
exchange offers ‘locked in’ pricing. This means that the
price you buy at is the price you will be charged even if
the bitcoins take a few days to arrive.
A lot of exchanges follow the Know Your Customer (KYC) and
Anti-Money Laundering (AML) laws in their specific country.
If they do, then some identity information will have to be
sent to them before buying. Exchanges that accept credit
cards or bank transfers are also required by law to collect
information about users’ identities.
Staying completely anonymous is difficult. If you seek total
anonymity, you can buy in cash locally from someone else
through a person-to-person marketplace like Localbitcoins.
Making sure the exchange website is secure is extremely
important and should not be overlooked. As you initially
investigate a potential exchange, always ensure that the
website domain has a HTTPS address. This, as you learned in
previous lessons, shows that the site and your connection to
it is secured by an SSL encrypted protocol. Look for the
padlock symbol next to the URL or in the bottom of the
browser window. Another important consideration is
two-factor authentication (2FA) secure login. If you enable
two-factor authentication on an exchange that offers this
type of service, you will be prompted to enter a short code
at login that will be delivered typically to a mobile device
you pair with the service. Enabling two-factor
authentication will provide a second layer of verification
that is required to access your account.
Do not forget to keep your bitcoin off of public
exchanges. Keep your coins stored in your own
personal wallet(s). Whenever your bitcoins are stored with
third parties, it is easier for them to fall prey to hackers
or unexpected exchange shutdowns. Your private key is your
lifeline to your funds. Remember: bitcoin is about
taking the power into your own hands and not relying on
third party intermediaries or middlemen.
And, as always, when deciding whether to put your trust in
any service, do an online search of the company or service
in question and look for customer feedback and experiences
regarding the service.
This concludes today’s lesson. You now know more about
bitcoin exchanges and the importance of finding one that
suits your needs. You also know that the initial ID
verification can take a few days, but after that you can
usually buy or sell instantly. You have also learned a few
tricks on figuring out how secure an exchange is by checking
basic things like SSL encryption, two-factor authentication,
and the customary Google search.
Tomorrow is the last lesson in this daily email
series. It will be a recap of all the things you have
learned during this course, plus some hints for what your
next steps might be.
Also be sure to check out our selection of exchanges over at
Bitcoin.com, if you already have a wallet.
You learned that in centralized monetary systems, such as
the U.S. Federal Reserve System, government controls the
supply of currency by "printing" units of money, called
fiat. Bitcoin on the other hand, is a decentralized
cryptocurrency, invented in 2009 by Satoshi Nakamoto. It can
be freely transferred between people all over the world,
without the control or limitations usually imposed by banks
or government authorities. Bitcoin is by far the most
popular digital currency and it has tens of thousands of
programmers and entrepreneurs around the world developing
new services and apps. It is considered safe compared to
other digital currencies, has no 3rd parties, is
deflationary, and open source.
You learned you can use a wallet to protect and access your
money. Bitcoins are stored in a public ledger called the
blockchain, and you can buy bitcoins at exchanges and ATMs.
Moreover, bitcoin is not printed like regular money. It’s
discovered or ’mined’ by a network of computers worldwide.
Until bitcoin becomes an established currency for payments
globally, it will probably continue to be more popular among
traders and price speculators rather than with the general
population. As a result, the price is subject to the market
forces of supply and demand which, at this point, goes hand
in hand with the trends and whims of speculators. As a
result, the price can move suddenly and sharply up or down
in response to new events.
We explored basic facts of the Bitcoin network: the total
supply of bitcoin is limited to 21 million coins, which also
has an impact on the pricing. For example, in early 2011 one
bitcoin was worth less than one USD, but in 2017 one bitcoin
is worth more than a thousand USD. In the future, if bitcoin
becomes truly popular, each bitcoin will likely be worth
hundreds of thousands of dollars to accommodate additional
demand. All that is required for bitcoin, or any form of
money to stabilize, is trust and adoption. In the case of bitcoin, this can be measured by its growing base of users,
merchants, and start-up companies. As with all currencies,
bitcoin's value stems directly from people willing to accept
them as barter or payment.
We looked at wallets and the wide range of options
available. Bitcoin wallets do not store bitcoins, but rather
hold secret and public keys used to handle bitcoins, which
are stored in the blockchain ledger.
The main types of wallets are:
Software wallets connect to the network and
allow you to spend bitcoins in addition to holding the
credentials (the keys) that prove ownership. They usually
come in the form of desktop or mobile applications
downloaded from app stores.
Online wallets offer similar functionality
but may be easier to use. In this case, credentials to
access the money are stored with the online wallet provider
rather than on the user's hardware, and it can be accessed
across your devices.
Physical wallets store the credentials
offline; which could just be the keys printed on a piece of
paper in your pocket, or remembered in your head. One type
of physical wallet is the hardware wallet. This is a wallet
that is typically used for long-term storage. It is one of
the safest wallets because they usually come with encryption
keys and may not connect to a computer often, protecting the
keys from nefarious entities and hackers. There are many
retailers who now sell a variety of hardware wallets at
affordable prices.
If you own a lot of bitcoin, it is a good practice to divide
them among several different wallets. Never put all your
eggs in one basket.
You learned that a bitcoin transaction is a transfer of
value over the Bitcoin network, is not encrypted, and can be
viewed by anyone using blockchain browsers online.
Transactions need to be verified by miners on the Bitcoin
network, which are rewarded with bitcoins for doing this
work. This is also where and how the bitcoin system creates
new bitcoins. The blockchain is a distributed and
decentralized database. To achieve independent verification
of the chain of ownership of every bitcoin, each network
computer stores its own copy of the blockchain.
You learned that bitcoin is sold and purchased much like
other currencies through exchanges, using your credit card,
PayPal, or something similar. You also learned that you can
exchange bitcoin to other currencies with other people
directly, just like you would do with cash.
You learned how there’s over 100,000 merchants out there who
accept bitcoin as payment and how to find places where you
can spend bitcoin. These include search engines, maps, and
dedicated marketplaces. You also learned about the option of
signing up for a bitcoin debit card and using bitcoin as
payment in just about any store that accepts regular credit
cards. We also got into best practices and how not to get
ripped-off when spending bitcoin.
You learned mining is the process of adding and confirming
transaction records on the blockchain. This process is also
how new bitcoins are created. Lastly, you learned that
mining is a resource-intensive process that is mostly
completed by specialized mining computers in large data
centers.
You learned about bitcoin exchanges and the importance of
finding one that suits your needs. You also learned that the
ID verification can take a few days, but after completion,
buys and sells are usually instant. You also got a few tips
on figuring out how secure an exchange is by checking basic
things like SSL encryption, two-factor authentication, and
the customary Google search.
What’s Next?
We would suggest you get yourself a wallet and start
experimenting with all the things you can do with it. Also,
you can continue learning about Bitcoin by visiting
Bitcoin.com’s Knowledge Base.
We also recommend trying out Bitcoin.com’s new Bitcoin
wallet.
*All information on this site was made by
Bitcoin.com and was used here for informational purposes for RigoG.com to help
others learn and know about Bitcoin. Thank you Bitcoin.com team for this great
content and all your hard work.
Congratulations on completing
the Bitcoin Basics Course!
You now possess a basic understanding of Bitcoin and
hopefully feel confident enough to start buying and
using this cutting-edge technology.
Now would be a great time to start your Bitcoin journey
by changing some of your money into bitcoin! Visit one
of the exchanges, get verified and make your first buy.
Remember, all Bitcoiners need a wallet to receive and
send BTC.
The Bitcoin.com Wallet is awesome and easy to
use:
Here are some useful tips on how to
acquire and use Bitcoin:
Download the Bitcoin.com
Wallet or
Coinbase.com Wallet to buy some bitcoin. Remember, you do not
have to buy a whole bitcoin. Bitcoin is divisible so you
can buy as little or as much as you like.
Get bitcoin locally
and directly from other Bitcoiners via online
marketplaces such as Localbitcoins.
Bitcoin ATMs exist
worldwide. These function similarly to regular bank
ATMs.
Start accepting
bitcoin payments for your business. Brick-and-mortar
stores and online shops can use a bitcoin payments
processor, such as
Bitpay, to easily integrate
bitcoin into point-of-sale flows.
Check out which
stores are accepting bitcoin in your area by using
services like Coinmap or Bitcoin.com’s Bitcoin
Service Directory.
Lesson 2. Essentials you have to know
about Bitcoin