I’ve been using Bitcoin now since 2014, I’ve made money with bitcoin, I accept bitcoin in my business, and this blog post is to share the basics all about what I’ve learned about Bitcoin.
It’s intended to be an introduction to bitcoin for anyone interested in getting started.
Bitcoin is a decentralised digital currency, similar to pounds or dollars, but its value is decided by its current market value – ie. the amount that people are willing to pay for it on bitcoin exchanges – the foreign currency exchange equivalent in the online world.
Bitcoin is getting a lot of media attention recently as the price keeps on breaking records, it’s been on a steep upward climb in price now since March 2017 when the value was £813 per bitcoin. Today it is at £7,209, and expert Mike Norogratz from Galaxy Investment Partners predicts it could easily reach $40,000 by the end of 2018.
Bitcoin is a so-called “crypto-currency”, meaning that it uses encryption to keep a secure record of every transaction on the bitcoin network. Bitcoin is stored on a network of computers connected by the internet, who each keep a copy of current transactions which is referred to as the “block chain”.
You will find there is a lot of jargon to learn if you want to study bitcoin, how it operates, how to use it, etc. but the mysterious thing about bitcoin is who invented it.
Who invented bitcoin?
Elon Musk made headlines this week denying he is the creator of bitcoin, it’s either him or a very secretive highly intelligent coder coming out of the Far East somewhere. We still don’t know who created bitcoin, but we do know it is very advanced, hard to crack even by governments, it’s highly secure, virtually anonymous, and it’s revolutionising the way that payments are made online.
The author of a document proposing the first peer-to-peer electronic cash system was authored by Satoshi Nakamoto, but that person has never been identified, although many people have claimed they are Nakamoto they have always failed to be able to prove their assertions – including a computer programmed from the United Kingdom. There is even a blog post claiming that the Department of Homeland Security in the US know who the creator is, but there is no evidence to support that.
Bitcoin began on January 3rd, 2009. The mystery of who invented it still remains, but it is now developed by a team of volounteers known as the “Bit Core“. They decide democratically on any upgrades to bitcoin, including a recent upgrade known as Segwit which is aimed at lowering bitcoin transaction fees. They also fixed an early bug that would have allowed for an infinite amount of bitcoins.
Who sets the bitcoin price if it is a decentralised currency?
One bitcoin (1 BTC) reached a record high of $10,000 yesterday. I always wondered where the price came from, who sets it, etc. Was it being set centrally like our traditional currencies, and if so who decides the current value?
It turns out that the value of bitcoin is set by supply and demand in the market. If you own bitcoin and you want to sell them, you will sell them more quickly if your price is lower than everyone else’s, however you also want the highest price you can for them.
As a buyer of bitcoin you want a lower price, but sellers are always wanting to sell as high as possible. The market in the end sets the price where buyers price meets sellers price and a trade occurs. That’s how the bitcoin exchange rate is calculated.
Bitcoins are traded on “bitcoin exchanges” that match sellers up with buyers, so if you want to buy bitcoins for the first time you can transfer funds in from a bank account, or you can use a credit or debit card to initially fund your account. Usually you are charged lower transaction charges if you transfer funds into the exchange using bank transfer (BACS).
Once you’ve loaded your account with funds you can wait for the optimal time to purchase bitcoin because prices do fluctuate. I was lucky when I last purchased the price of a bitcoin was below £4,800, and now it’s above £7,000.
Where to buy bitcoin without getting scammed:
Beware of bitcoin scams – there are many of them that people are falling for. Bitcoin is NOT a multi-level marketing platform. You don’t get paid levels of referrals, or anything like that to promote bitcoin, and you don’t have to pay anyone to learn about bitcoin. If people approach you with those types of schemes just politely say “no” to them. Instead, to buy genuine bitcoin you should use a trusted “bitcoin exchange”.
The best bitcoin exchange in my experience both for receiving bitcoin, buying bitcoin, and selling bitcoin is Coinbase. They make it easy to buy bitcoin online. It is a respected, secure exchange that have several available payment methods including bank funding (BACS), and debit card, as well as two-factor security in the form of a text message with a code that you have to input whenever making a transaction.
You can also buy bitcoin in person, or using PayPal simply by creating a bitcoin wallet, and then paying someone cash to send you bitcoin to your receiving address. You will then have bitcoin (or a fraction of a bitcoin) which you can then use to send bitcoin payments to other addresses. There are websites such as Local Bitcoins that match buyers with sellers locally.
Once you have invested in bitcoin, you can leave it on the exchange until you are ready to sell it, or you can spend it – but if you plan to make a lot of transactions it is better to transfer a lump sum into a wallet such as the Electrum wallet, and then use the funds in that wallet to make transactions. With the Electrum wallet you can pay lower transaction fees than the exchange.
More blog posts about bitcoin soon, so please subscribe for updates – including how to accept bitcoin on your website!
Let me know in the comments your experience with bitcoin so far. Feel free to ask questions.