Late 2017. I now find myself inundated with messages from people that want to know about Bitcoin. So instead of repeating myself over and again, I decided to write this blog post.
What is Bitcoin
It’s like emailing money. Transactions are sent from one address to another. The difference being that there is no central authority verifying the transactions. To be able to securely send coins to each other without the need of a trusted third party like the banks (who incidentally, aren’t to be trusted!*) has been a problem that has been solved by the “Blockchain”, the underlying technology behind Bitcoin.
What is the Blockchain?
The Blockchain is nothing more than a trusted ledger of transactions. It’s a public online bank statement, recording money in and money out from all the different bitcoin addresses (bank accounts).
The computers with the Bitcoin server installed that process all the transactions, do insanely difficult mathematics in order to solve a puzzle, and are racing against each other to be the first to find the answer. The computer that finds the answer has ‘struck gold’ and mints 12.5 BTC into the system, and another block of transactions are recorded on the blockchain.
There will only ever be 21 million Bitcoin, and I believe around 15 million have already been ‘mined’. Many miners combine their computing power in a ‘mining pool’, which shares their part of the 12.5BTC mining reward for doing the calculations and verifying the transactions.
Each block in the chain gets mined every ten minutes, on average. If blocks start being mined too quickly (or too slowly), the difficulty of the math problem the computers need to solve is adjusted accordingly. So adding faster hardware is pointless, as the software adjusts to make it a waste of time. This is the reason Bitcoin now uses more electricity than several countries!
Never mind that, I want some, what now?
There are various ways of holding bitcoin. The first thing you need to worry about is downloading a wallet.
Pick whatever suits your computer here: https://bitcoin.org/en/choose-your-wallet
The SAFEST way of keeping your Bitcoin safe is by opening the freshly installed wallet, taking a note of the public address, and the private key. There will be an export private key function. Open the exported text file and write the private key down on paper! Then delete everything from your computer! You can still send money to your wallet by giving people your public address, but you cant spend it again until you re-import the private key back into a wallet! So it’s the best way to keep savings.
If you want to spend and use your bitcoin you should leave it installed obviously. It’s better having a wallet on your computer than it is on your phone, or through a website, for the simple reason that the website is someone else’s computer, and that the phone app gets info from someone else’s website too. You will have accounts on websites however that come with a bitcoin address, but be sure to get the one on your computer set up, being your ‘withdrawal address’, and the one you hold the keys for.
Right I have a wallet, what now?
Other than dealing face to face with someone, you buy your Bitcoin from a trading exchange, like any other stock market. Good exchanges for the UK and Europe include Coinbase and Kraken. There’s a pain in the ass verification process to hook your bank account up, but when you do, you can deposit and then buy!
It’s a trading exchange, so you can also sell! Anyway, the website will show your balance, wether in euros, pounds, dollars, or BTC. But you want to withdraw from the website and send it to the wallet you set up earlier.
The Quick way
You can still get your hands on Bitcoin, and indeed trade with Bitcoin, without the annoying verification process. However, you can’t get it back out in GBP or EUR if you haven’t.
I have used Bittylicious several times to buy Bitcoin. You send a bank transfer yourself via digital banking, and the website sees it and sends your coins immediately.
I also use Wex for trading, they allow you to deposit and trade BTC for USD without verification. So long as you withdraw in BTC they don’t care. Like I said though Coinbase or Kraken is the one to use if you intend to cash in one day!
If you have any questions, fire them across and I’ll update this blog post!
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