Bitcoin, Blockchain, and Cryptocurrency: What You Need To Know
In all likelihood, you’ve probably heard of Bitcoin and cryptocurrency. In 2017, it went from an underground form of currency and a long-shot investment into a massive global phenomenon. No longer reserved only for geeks and darkweb connoisseurs, “crypto” is now making news in the papers and on television screens – and people, companies, banks, and governments everywhere are taking notice.
You may have read the headlines, or maybe you have a friend or coworker who has invested in Bitcoin, but do you really know what it’s actually about? What really IS Bitcoin, and how does it work?
What Is Bitcoin?
The first breakout cryptocurrency, and inarguably the biggest, is Bitcoin. Bitcoin, or BTC, is a digital currency that is created and stored electronically. Unlike traditional currencies, Bitcoin is not backed or controlled by a government. As a decentralized type of money, it can be transferred anywhere around the world without use of intermediaries such as banks or financial institutions. When it launched in 2009, Bitcoin creator Nakatomi Satoshi said he had developed “a new electronic cash system that uses a peer-to-peer network… It’s completely decentralized with no server or central authority“.
How Can I Get Bitcoin?
Online Exchanges: There are a wide variety of cryptocurrency exchanges that you can use to purchase Bitcoin and/or other crypto. Be careful to check the validity of the site you use, however. Coinbase or QuadrigaCX is a good place to start for Canadians.
Selling/Trading Goods: Bitcoin can be used to purchase goods, just like “regular” money.
Bitcoin ATM: You can withdraw or deposit Bitcoins using a Bitcoin ATM. Check your maps or local area for a Bitcoin bank machine near you.
Mining: Right… we’ll get to that in a second.
What Can I Buy With Bitcoin?
Bitcoin can be used both online and in actual stores. You can use it to book hotels, buy airline flights, movies, music, pizza delivery, and more – provided the merchants are set up to accept it!
How Does Bitcoin Work?
Bitcoin transactions occur between electronic Bitcoin wallets and are digitally verified and signed for security. Every Bitcoin transaction contains three pieces of information: 1) The amount of Bitcoin you wish to send; 2) The recipient’s wallet address, generated randomly and consisting of a sequence of letters and numbers; and 3) A private key, which is also a unique sequence of numbers and letters exclusively available to you. This wallet can only be accessed via this key.
Once a transaction is made, it goes through the Bitcoin network and, following the successful mining/solving of complex mathematical problems for security purposes, the funds move into what is called a blockchain.
Blockchain? Mining? What Are You Talking About?
The technology that powers Bitcoin and other cryptocurrencies is called blockchain. It is this technology that makes it possible to securely buy, sell, and spend cryptocurrencies without the use of intermediaries such as bank or financial institutions.
Blockchain is a shared digital ledger that records and verifies transactions in real time. The transaction information is protected through cryptography and is stored in digital “blocks” across the network. Each block has a timestamp and is linked with other blocks in a chronological chain. The blockchain is secured by a large network of computers, servers, and devices that verify transactions by solving complex mathematical problems.
This network is made up of people, called “miners.” The miner, or pool of miners, that solves the problem first is rewarded with a small amount of cryptocurrency, creating an incentive for them to continue to secure the system.
Is This A Good Thing? Is Bitcoin Secure?
Yes and yes! Everyone can view the transaction information on the blockchain and, while new information can be added, nothing can ever be changed or deleted. And, because the blockchain is on millions of computers and devices all around the world, it is extremely difficult for hackers to manipulate. While instances of financial fraud have occured on exchanges, Bitcoin itself is incredibly secure.
Is Bitcoin Anonymous?
Bitcoin transactions are not linked to any personal information, allowing users to protect their privacy. However, since Bitcoin is permanently linked to the blockchain, all Bitcoin transactions are public. As a result, users can view activity linked to a specific wallet address, so it isn’t 100% anonymous.
I Bought Some Bitcoin. Where Do I Store It?
Much like a bank account, a digital wallet acts as a spot to store your digital currency. Similar to traditional wallets, they are free (once purchased), easy-to-use, and convenient. If you are storing large amounts of Bitcoin or cryptocurrency, however, it is suggested that you use more secure options for storing digital currency, such as Desktop, Hardware, and/or Paper Wallets.
Paper Wallet: A document containing a copy of your private and public Bitcoin keys. However, people often use the term to mean any way of storing Bitcoins offline as a physical document.
Hardware Wallets: They store a user’s private keys on a hardware device, like a USB. Although hardware wallets make transactions online, they are stored offline, which increases security. Making a transaction is easy–simply plug in the device to any internet-enabled computer or device, enter a PIN, and you can send/receive transactions.
Desktop Wallets: These wallets are downloaded and installed on a computer. They are only accessible from the one computer on which they are downloaded. Desktop wallets offer one of the highest levels of security; however, if your computer is hacked or gets a virus, there is the possibility that you may lose your funds.
Why Would I Use Bitcoin? Should I Invest In It?
Good question. Bitcoin and other cryptocurrencies offer a wide variety of advantages over traditional finance methods/currencies, and the potential investment opportunity could be huge. We will be covering the full list of benefits in Part 2 of our Bitcoin/Cryptocurrency series later this week.
What Other Cryptocurrencies Should I Look Into?
Outside of Bitcoin, here are the other four biggest cryptocurrencies (in terms of market cap):
Ethereum: A Turing-complete programmable currency that lets developers build different distributed apps and technologies that wouldn’t work with Bitcoin.
Ripple: Unlike most cryptocurrencies, it doesn’t use a Blockchain in order to reach a network-wide consensus for transactions. Instead, an iterative consensus process is implemented, which makes it faster than Bitcoin but also makes it vulnerable to hacker attacks.
Bitcoin Cash: A fork of Bitcoin that is supported by the biggest Bitcoin mining company and a manufacturer of ASICs Bitcoin mining chips. It has only existed for a couple of months but has already soared to the top five cryptocurrencies in terms of market cap.
Litecoin: A cryptocurrency that was created with an intention to be the ‘digital silver’ compared to Bitcoin’s ‘digital gold.’ It is also a fork of Bitcoin, but unlike its predecessor, it can generate blocks four times faster and have four times the maximum number of coins at 84 mln.