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What is Bitcoin?

Started by admin, Oct 28, 2019, 03:36 pm

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What is Bitcoin?
Satoshi Nakamoto introduced the bitcoin in the year 2008. Bitcoin is a cryptocurrency(virtual currency), or a digital currency that uses rules of cryptography for regulation and generation of units of currency. A Bitcoin fell under the scope of cryptocurrency and became the first and most valuable among them. It is commonly called decentralized digital currency .
A bitcoin is a type of digital assets which can be bought, sold, and transfer between the two parties securely over the internet. Bitcoin can be used to store values much like fine gold, silver, and some other type of investments. We can also use bitcoin to buy products and services as well as make payments and exchange values electronically.
A bitcoin is different from other traditional currencies such as Dollar , Pound , and Euro , which can also be used to buy things and exchange values electronically. There are no physical coins for bitcoins or paper bills. When you send bitcoin to someone or used bitcoin to buy anything, you don?t need to use a bank, a credit card, or any other third-party. Instead, you can simply send bitcoin directly to another party over the internet with securely and almost instantly.
How Bitcoin Works?
When you send an email to another person, you just type an email address and can communicate directly to that person. It is the same thing when you send an instant message. This type of communication between two parties is commonly known as Peer-to-Peer communication.
Whenever you want to transfer money to someone over the internet, you need to use a service of third-party such as banks, a credit card, a PayPal, or some other type of money transfer services. The reason for using third-party is to ensure that you are transferring that money. In other words, you need to be able to verify that both parties have done what they need to do in real exchange.
For example , Suppose you click on a photo that you want to send it to another person, so you can simply attach that photo to an email, type the receiver email address and send it. The other person will receive the photo, and you think it would end, but it is not. Now, we have two copies of photo, one is a simple email, and another is an original file which is still on my computer. Here, we send the copy of the file of the photo, not the original file. This issue is commonly known as the double-spend problem.
The double-spend problem provides a challenge to determine whether a transaction is real or not. How you can send a bitcoin to someone over the internet without needing a bank or some other institution to certify the transfer took place. The answer arises in a global network of thousands of computers called a Bitcoin Network and a special type of decentralized laser technology called blockchain .
In Bitcoin, all the information related to the transaction is captured securely by using maths, protected cryptographically, and the data is stored and verified across the entire network of computers. In other words, instead of having a centralized database of the third-party such as banks to certify the transaction took place. Bitcoin uses blockchain technology across a decentralized network of computers to securely verify, confirm and record each transaction. Since data is stored in a decentralized manner across a wide network, there is no single point of failure. This makes blockchain more secure and less prone to fraud, tampering or general system failure than keeping them in a single centralized location.
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admin

What is Bitcoin.
Bitcoin.
Bitcoin is a form of digital currency, created and held electronically. No one controls it. Bitcoins aren't printed, like dollars or euros - they're produced by people, and increasingly businesses, running computers all around the world, using software that solves mathematical problems.
It is one of the first and foremost of growing category of money called as cryptocurrency.
Difference between Bitcoin and Normal currencies?
Bitcoin can be used to buy things electronically. In that sense, it's like conventional dollars, euros, or yen, which are also traded digitally.
The most important characteristic, and the thing that makes it different to conventional money, is that it is decentralized . No single institution controls the bitcoin network. A large bank can't control their money so people doesn't need to worry about showing their records.
Creator: Satoshi Nakamoto.
A software developer proposed bitcoin, which was an electronic payment system based on mathematical proof. The idea was to produce a currency independent of any central authority, transferable electronically, more or less instantly, with very low transaction fees.
Does someone prints it?
It is printed by none. This currency isn't physically printed in the shadows by a central bank, unaccountable to the population, and making its own rules. Those banks can simply produce more money to cover the national debt, thus devaluing their currency.
Instead, bitcoin is created digitally, by a community of people that anyone can join. Bitcoins are 'mined', using computing power in a distributed network.
This network also processes transactions made with the virtual currency, effectively making bitcoin its own payment network.
Unlimited bitcoins-Sorry,not possible.
That's right. The bitcoin protocol - the rules that make bitcoin work - say that only 21 million bitcoins can ever be created by miners. However, these coins can be divided into smaller parts (the smallest divisible amount is one hundred millionth of a bitcoin and is called a 'Satoshi', after the founder of bitcoin).
What is bitcoin based on?
Conventional currency has been based on gold or silver. Theoretically, you knew that if you handed over a dollar at the bank, you could get some gold back (although this didn't actually work in practice). But bitcoin isn't based on gold; it's based on mathematics.
Around the world, people are using software programs that follow a mathematical formula to produce bitcoins. The mathematical formula is freely available, so that anyone can check it.
The software is also open source, meaning that anyone can look at it to make sure that it does what it is supposed to.
characteristics:
1. It's decentralized.
2. It's easy to set up.
3. It's anonymous.
4. It's completely transparent.
5. Transaction fees are miniscule.
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admin

I bought $250 in bitcoin. Here's what I learned.
Some people kill time at the airport by browsing duty-free shops. I dec > But first, there are two things you should know about me: I tend to be almost as afraid of losing money investing as I am of flying. On some level, I figured one fear might cancel out the other.
So last Thursday, while waiting for a flight to Nashville, I pulled up a popular application called Coinbase that can be used to buy and sell bitcoin. The virtual currency had hit $10,000 for the first time a couple days earlier, before retreating somewhat. News of bitcoin's rapid rise was everywhere, including on CNN.
For 15 minutes at the airport, I refreshed the price of bitcoin over and over, watching as it gained and lost hundreds of dollars in a matter of minutes. I called out the price fluctuations breathlessly to my wife, who gently encouraged me not to be an idiot, before returning to her magazine.
She was in good company. JPMorgan Chase CEO Jamie Dimon recently called bitcoin a "fraud" and suggested people who buy it are "stupid." Warren Buffett called bitcoin a "mirage" in 2014 and warned investors to "stay away."
Are you trading Bitcoin? We want to hear from you .
And yet bitcoin has climbed more than tenfold since Buffett's warning. Earlier this month, one college friend casually told me over drinks he'd made tens of thousands of dollars investing in another cryptocurrency. He said he hoped it would be worth enough one day to buy a house.
When I saw the price of bitcoin fall to $9,500, I pressed buy, defying the wisdom of two finance titans and my wife. One hundred dollars, or 0.0101 bitcoins. (A few days later, I bought another $150.) By the time we got to our hotel, my stake had already gone up 10%. One week later, it was (briefly) up 100%. My wife's opinion of me has reportedly decreased by the same amount.
What is happening?
It's an investing frenzy, plain and simple.
Bitcoin cracked $1,000 on the first day of 2017 . By this week, it was up to $12,000, and then it really took off: The price topped $17,000 on some exchanges Thursday, and $18,000 on at least one. Other cryptocurrencies have seen similar spikes, though they trade for much less than bitcoin.
There's a long list of factors people may point to in an attempt to explain this. Regulators have taken a hands-off approach to bitcoin in certain markets. Dozens of new hedge funds have launched this year to trade cryptocurrencies like bitcoin. The Nasdaq and Chicago Mercantile Exchange plan to let investors trade bitcoin futures, which may attract more professional investors.
Yet a key reason the price of bitcoin keeps going up is, well, because it keeps going up. Small investors like yours truly have a fear of missing out on a chance to get rich quick. And when the value of your bitcoin doubles in a week, as it did for me, it's easy to think you're a genius. But you can get burned assuming it will keep skyrocketing.
Some investors have likened the bitcoin hype to the dot-com bubble. Others, like Dimon, have said it's even "worse" than the Dutch tulip mania from the 1600s, considered one of the most famous bubbles ever.
As Buffett put it back in 2014, "the idea that [bitcoin] has some huge intrinsic value is just a joke in my view." Bitcoin is not backed by a company's earnings, or the strength of a government and rule of law. There's also no interest or dividends.
Why would anyone want or need to use bitcoin?
Bitcoin serves as a new kind of currency for the digital era. It works across international borders and doesn't need to be backed by banks or governments.
Or at least that was the promise when it was created in 2009. The surge and volatility of bitcoin this year may be great for those who invested early, but it undermines bitcoin's viability as a currency.
Right now, I can use my bitcoin holdings to pay for purchases at Overstock ( OSTBP ) , or book a hotel on Expedia ( EXPE ) . But if I use bitcoin to buy $25 worth of socks on Overstock today, and the price of bitcoin quadruples next week, I'll feel like those socks actually cost me $100. Then again, if bitcoin crashes, at least I'll always have the socks.
Rather than a currency, bitcoin is being treated more like an asset, with the hope of reaping great returns in the future.
So is there anything truly valuable about bitcoin?
Yes, the technology behind it.
Bitcoin is built on the blockchain, a public ledger containing all the transaction data from anyone who uses bitcoin. Transactions are added to "blocks" or the links of code that make up the chain, and each transaction must be recorded on a block.
Even bitcoin critics like Dimon have said they support the use of blockchain technology for tracking payments.
Is there a legal and legitimate way to invest in bitcoin?
Bitcoin exchanges have a checkered history. Mt.Gox, once the largest exchange, shut down in 2014 after losing hundreds of millions of dollars worth of bitcoin after a hack.
Today, the leading exchange is offered by Coinbase, a startup that has raised more than $200 million from a number of top tier venture capital firms. Square ( SQ ) , the payments service, is also rolling out a bitcoin product.
There are also bitcoin ATMs in scattered bodegas and convenience stores around the country, through companies like Coinsource. The ATMs let you exchange bitcoin for cash, or vice versa by scanning a QR code from the digital wallet application on your phone.
With Coinbase, you must first give the app permission to connect to your bank account. As with other stock trading applications, you pay a small fee for each transaction, buying and selling. But the transaction can take significantly longer.
My original $100 bitcoin purchase won't officially be completed on Coinbase until Friday, more than a week after the transaction. The price I bought it at remains the same, but I won't be able to sell at the earliest until Friday.
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admin

What is Bitcoin?
Bitcoin is an interesting form of currency that arose to address economic problems related to Centralized Currency. Because Bitcoin is not a physical form of currency, it can be a bit difficult to wrap your brain around how it works. It's really quite simple.
Bitcoin is a form of digital currency that was founded during the financial crisis in 2009. In September of 2008, Lehman Brothers filed for the largest bankruptcy in history. The collapse of this giant kicked off a global financial crisis. A few months later, Bitcoin was born. As a basic explanation, Bitcoin is bank-free internet money.
How does Bitcoin work?
Unlike the Dollar, the Euro, the Yen, and other forms of Centralized Currency, Bitcoin is classified as a Decentralized Currency. The standard currencies that define our modern economy are centralized in banks and controlled by the government (leading to the designation of Centralized Currency). There is no bank or central authority governing Bitcoins. Bitcoins are controlled by a network of users who control and verify the monetary transactions.
Even though Bitcoin seems very unlike the forms of currency you are used to, it still functions just like the money people use every day. You give your Bitcoin to someone and they, in turn, give you goods or services. You can sell your lawnmower to your neighbor for a Bitcoin, just like you would sell it for physical currency.
One huge advantage associated with Bitcoin is the fact that it is not centralized and not based on a native currency. Currently, your money is controlled by the country you live in.
For example, if you live in the United States but you want to sell your lawnmower to someone in Japan, you can't sell it for a Japanese Yen because the United States uses dollars. But Bitcoin is a world-wide currency. If someone in the United States buys something from a Japanese seller and pays with Bitcoin, there is no conversion rate, no bank delay, and no bank fee.
The money is sent instantly and there are no attached fees. Bank closed? Banking hours are irrelevant with Bitcoin because there is no bank controlling your money. When we eliminate banks and are able to send a single form of payment regardless of geographical location, we truly create a global economy.
After you buy your goods or services using Bitcoin, you are done. You've made your purchase and you can go about your day. However, what happens after your transaction is what really sets Bitcoin apart from Centralized Currencies.
Your transaction, and every other Bitcoin transaction, is logged and recorded in what's called a Blockchain. The Blockchain is a publicly recorded ledger of all Bitcoin transactions. At this point, other Bitcoin users who are referred to as miners, verify each and every transaction in the Blockchain.
The anonymity of Bitcoin.
There is some concern over the anonymity of Bitcoins. Many initially believed it to be an way to pay for goods or services that could not be linked to individuals. However, with the trial of Ross Ulbricht, this has proven to be a false assumption. Ulbricht was arrested for selling drugs and using Bitcoin for the transactions.
Every transaction is recorded in the Blockchain. While the main goal of tracking Bitcoin transactions is to prevent counterfeiting, it also makes the details of your deal a matter of public record. If your Bitcoin address can be traced to you, then your transactions are not anonymous.
When the miner verifies a specified number of transactions, they get paid with newly created (or minted) Bitcoin. This process is how Bitcoins stay secure and how Bitcoins get added to circulation. This process works in the same way that the United States Mint uses to print money to add Dollars into circulation. There are currently over 16 million Bitcoins in circulation. As more Bitcoins are added to circulation, the creation rate is decreased. The number of Bitcoins in circulation is expected to never exceed 21 million, due to this decreasing creation model.
Time to go convert your paychecks to Bitcoin? Maybe not yet. There are several retailers and websites that do accept Bitcoin (Overstock.com, Subway, and Whole Foods are a few examples), but most businesses have not signed up yet.
One issue with Bitcoin, versus other currencies, is that Bitcoin is worth only what people are willing to pay for it. Bitcoins are not backed up by other commodities like gold, so the Bitcoin value has been known to fluctuate a great deal. In late 2009, a Bitcoin was worth around five cents. Today, it fluctuates between two and three thousand dollars. The debate continues to rage over whether Bitcoin will catch on as the prominent form of currency.
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What Is Bitcoin? Is It Legal Money? What Could Happen To Bitcoins In 2017?
A layman's guide to bitcoin!
Short Bytes: Bitcoins, a form of digital currency that operates on the principles of cryptography, has lately come under the scanner of the authorities throughout the world. So, it's become necessary to know what are Bitcoins, how it works, the legal status of Bitcoins as well as what holds in the future of Bitcoins.
I n the year 1976, F.A Hayek, in his book "The Denationalisation of Money," propagated the establishment of competitively issued private money. In the mid-70s, what seemed like a farfetched idea was conceived by yet another Economist in the year 1999. Milton Friedman, an American economist who received the 1976 Nobel Memorial Prize in Economic Sciences, predicted of time where internet, (still in a nascent stage then) would help abolish the role of a government and evolve a currency free from the shackles of the government control. Less than ten years later the prophecy came true when Satoshi Nakamoto, a Japanese, invented a form of cryptocurrency called "Bitcoin." The origin of Bitcoins can be traced to the aftermath of the global recession and money crisis of 2008 that shook the whole world economy.
What is bitcoin? How does it work?
In the simplest form, Bitcoins can be described as a "Peer to Peer Electronic cash system." Bitcoins can be used as a method of payment for numerous goods and services and for simple transactions like purchasing vouchers, paying bills, etc. In different jurisdictions, Bitcoins are treated as a property, currency, virtual asset, good, security or commodity for the purpose of trading on a stock exchange or commodity exchange.
Essentially Bitcoin is a cryptocurrency, i.e., it operates on the principles of cryptography to manage the creation of Bitcoins and securing the transactions. Cryptocurrencies are managed by private parties, without the need for a government authority to monitor the currency system. The currency has been designed in a way that the number of total units of Bitcoins in circulation will always be limited. Going by the pace at which Bitcoins are being minted, the last unit will be mined around the year 2140.
Also Read: What Is The Difference Between Deep Web, Darknet, And Dark Web?
The cryptocurrencies essentially work on the Blockchain system. A Blockchain is a public ledger of Bitcoins that is designed to record all the transactions. The chronological order of Blockchain is enforced with cryptography and each new ledger update creates newly minted Bitcoins. This is designed in a way that Bitcoin wallets can calculate their total balance and new transactions can be verified. The integrity and the chronological order of the block chain are enforced with cryptography.
The buyer and seller can enter into transactions by using their Bitcoin wallets that are secured by a secret piece of data called, a "Private key." The key is used to authorise the transactions by the owner of the wallet, and cannot be normally tempered by anyone, once it is issued. The transactions are performed by adding the Bitcoin wallets on an exchange, acting as a facilitator for sale and purchase of Bitcoins. All transactions are displayed between the users and usually begin to be confirmed by the network through a process called "Mining." It is essentially the process of creating new Bitcoins out of the total Bitcoins that are designed to be "Mined" using computers. The transactions transfer the value between the users and get recorded in the Blockchain, ensuring that each transaction is valid.
Is Bitcoin legal money?
The legality of Bitcoins is controversial, while some jurisdictions have express laws and regulations to deal with Bitcoins, others still fall in gray areas. As per a recent bill in Japan, Bitcoins and other virtual currencies have been given legal recognition and are accepted as a mode of payment. While in China, trading in Bitcoins come under the regulatory restrictions imposed by People's Bank of China.
In the U.S.A, different states have adopted varying approaches to Bitcoins. Recently a U.S Magistrate in the state of New York ruled that Bitcoins are not money, while a contradictory stance was taken by a judge in Manhattan, who ruled that bitcoins are acceptable means of payment. The Internal Revenue Service in the United States, defines bitcoin as property rather than currency for tax purposes. The U.S. Treasury, by contrast, classifies bitcoin as a decentralised virtual currency.
In Russia, reportedly, Bitcoins may soon be regulated in a bid to tackle money laundering, though, in the past, Russia has expressed its displeasure with Bitcoins and other cryptocurrencies. In India, as of now, no regulations have been framed by either Reserve Bank of India or Securities and Exchange Board of India, the two contenders, for the purpose of drafting regulations pertaining to Bitcoins and acting as a watchdog.
In India, who ultimately acts as a regulatory authority can only be dec > After the demonetization drive in India, the demand for Bitcoin has more than doubled in less than two months. The Indian government has reportedly set up an inter-disciplinary committee to regulate the Bitcoins amidst the apprehensions that the black money hoarders may have invested into Bitcoins.
Bitcoin trends in 2017.
Bitcoins are extremely volatile in nature. While the future trends for Bitcoins can't be predicted with utmost certainty, as per a report published on Forbes, the market is set to show strong waves in the favor of cryptocurrencies, as predicted by a crypto market intelligence startup. As per the latest position, The 24-hour average rate of exchange across USD Bitcoin markets is US$1184.87, the 7-day average is US$1204.85, and the 30-day average is US$1080.26 confirming only the volatility of Bitcoins.
There are possibilities that some countries may introduce an Exchange Traded Fund (ETF) to make Bitcoin Trading easier and accessible. While a similar application to create an ETF has been rejected by The US Securities and Exchange Commission (SEC), the chances of other countries adopting it are not bleak. Currently, sale and purchase of Bitcoins is a multi-step process. Creating an ETF would make it possible for the investors to buy Bitcoins through the stock market.
Further, In the future Blockchains, the underlying technology to Bitcoins may bring revolution in the music industry. Cryptography could transform the music industry by using Blockchain ledgers. As per reports, an attempt is being made to bring music distribution under the cryptography. This can be done by adding the music to blockchain and letting the users distribute the music by paying a sum. This can also bring down music piracy.
To sum up the discussion, it can be said that while Bitcoins may not replace the "Fiat Currency" anytime soon, but there has been a phenomenal growth in the acceptance of cryptocurrencies around the world. While the investors may still be reluctant to invest in Bitcoins, given the high risks associated with it, the demand for Bitcoins has grown manifold. In the end, it could be argued that a good legal and regulatory framework for Bitcoins would help the investors decide the viability of Bitcoins in the long run.
Did you find this story on Bitcoin and its 2017 trends interesting? Don't forget to share your views.
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What Is Bitcoin Cash and What Does it Mean in 2019?
All hail Bitcoin, the global peer-to-peer decentralized, digital currency system based on blockchain technology.
Burgeoning in size and scope, Bitcoin now has its own form of currency capital: Bitcoin Cash. The new digital currency, created after an intra-crypto-family squabble, seeks to put Bitcoin on the same economic turf as major traditional global currencies like the dollar, yen and pound.
Does Bitcoin Cash have staying power? That's likely so, even though Bitcoin Cash has had a short and volatile history, but is making up ground fast among digital currency users.
To Know Bitcoin Cash, You First Must Know Bitcoin.
Bitcoin Cash was spawned by Bitcoin, which originates from the cryptocurrency world.
It was originally introduced in 2009 by a blockchain group or individual (10 years later, nobody is entirely sure) named Satoshi Nakamoto. Around that time, the Nakamoto alias published a groundbreaking report on cryptocurrencies called the "Bitcoin Whitepaper."
In laying out the framework for Bitcoin, the report introduced the cryptocurrency as "a purely peer-to-peer version of electronic cash, which would allow online payments to be sent directly from one party to another without going through a financial institution."
By establishing a "virtual" currency that provides a fast, inexpensive form of digital payments in lieu of using a traditional form of currency commerce, like banks or credit unions, Bitcoin was making a big statement. In doing so, Satoshi Nakamoto was taking direct aim at the central governments around the globe that controlled the flow of cash to regular people.
Bitcoin was created to disrupt the financial industry's currency model.
After growing slowly but steadily in its first several years, Bitcoin skyrocketed between August 2016 and August 2017. It soared from $572 per Bitcoin to more than $4,700 in that time frame. By the end of the year, Bitcoin accelerated upward to $13,800 before eventually cresting $19,000 each.
Bitcoin plummeted to around $5,000 in late 2018 and is around $8,000 today.
Even with the decline in value in 2018, Bitcoin has comprised 34% of all the globe's cryptocurrencies since then.
One Bitcoin Cash = $456, as of the end of May 2019.
What Is Bitcoin Cash?
Bitcoin Cash is a variance of Bitcoin. It's date of birth was some time in August 2017, when Bitcoin backers created the cash version to increase the speed of cryptocurrency transactions, but with lower fees than traditional banks.
Aside from fees, Bitcoin backers regularly complained about the cryptocurrency's scalability issues, which they believed constrained the growth of Bitcoin just as the public was warming to the idea of using cryptocurrencies instead of cash as a form of payment.
The problem with Bitcoin's scalability is that it wasn't up to the task, size wise. In cryptocurrency technical terms, Bitcoin was limited in size to just one megabyte (i.e., a million bytes, or 1MB.)
Basically, when more and more individuals are trading in Bitcoins and triggering larger transaction sizes in the process, limiting Bitcoin's size to a single MB held back the cryptocurrency's growth. The transactions weren't being completed fast enough - that was one of the primary goals when Bitcoin was introduced 10-years ago.
The resulting delays in transaction times and the lower number of transactions that actually cleared the Bitcoin network meant Bitcoin developers had to go in another direction - and that's where Bitcoin entered the picture.
Here's what happened and how Bitcoin Cash was set in motion.
The rising number of bitcoin community members (called "miners" by cryptocurrency enthusiasts) called for larger block sizes, but were rebuffed by bitcoin hardliners, who wanted the traditional block transaction sizes left largely in place.
In August 2017, the dissenting Bitcoin miners left to form their own cryptocurrency model, called Bitcoin Cash. The split was controversial among Bitcoin enthusiasts, but the so-called "hard forkers" (named so as the group "split off" from traditional Bitcoin) ultimately prevailed, as Bitcoin Cash began to thrive as a new currency.
Bitcoin Cash, once it was developed and put into commercial use (we'll spare you the onerous technical details), boosted its blockchain size from 1MB to 8MB to now 32MB, making it more streamlined. This led to the creation of its own transactions market. It also has led to the creation of competing higher-block Bitcoin models, including one from the original developers of Bitcoin.
That "per block" upgrade gave Bitcoin Cash users the same transactional power that the leading credit card and online payment systems deliver, thus leveling the payments playing field and giving Bitcoin renewed viability.
Where Can Bitcoin Cash Be Used?
Merchants have been slow to accept Bitcoin Cash but the fledgling currency is now widely available on major cryptocurrency exchanges.
As more exchanges make room for Bitcoin Cash, crypto experts anticipate that the new currency will grow in usage among commercial enterprises. That day has not yet come, for now, as Bitcoin Cash is largely walled off from major consumer and business currency usage.
We say "largely" as industry figures show that as of May 2019, 945 online companies do accept Bitcoin Cash, according to AcceptBitcoin.Cash. Higher profile retailers like Dish Network (DISH - Get Report) , Overstock.com (OSTK - Get Report) and Newegg are accepting Bitcoin Cash to better handle customer cryptocurrency payments.
Given the fact there are hundreds of thousands of online merchants operating in the U.S., 945 isn't a big number, but it is a number that's expected to rise in the coming years, as Bitcoin Cash grows in acceptance.
How Can I Obtain Bitcoin Cash?
There are several effective ways to get your hands on Bitcoin Cash. Here are the "top of the list" ways to do so:
You Already Own Old Bitcoins.
Prior to the Bitcoin miners' hard-fork split from traditional Bitcoin in August 2017, you may have owned Bitcoins. That matters, as any Bitcoins owned prior to Aug. 1, 2017, are deemed as Bitcoin Cash, and can be claimed as such, as long as the Bitcoin wasn't held on an exchange on that date.
Purchase Bitcoin Cash.
There are a growing number of cryptocurrency exchanges where Bitcoin Cash is available, including Coinbase, Bitfinex and Kraken.
From Bitcoin Wallets.
A growing number of Bitcoin wallets have made Bitcoin Cash available, including the traditional Bitcoin Wallet, Ledger and Trezor.
The Takeaway on Bitcoin Cash.
The development of Bitcoin Cash has led to other efforts, including from Bitcoin itself, to increase the size of Bitcoin blocks and generate faster and less expensive transaction fees.
That's a good sign and also a nod to Bitcoin Cash, which has forced the major cryptocurrencies to raise their game and give cryptocurrency users what they want - a Bitcoin currency that makes it easier and faster to move Bitcoin around. It also gives banks a run for their money - literally - at the same time.
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What is Bitcoin?
Might be you are new in this crypto space or maybe you just heard about crypto and btc a few weeks ago and felt like it's too late to get in the game? No worries, I have gathered all the necessary information and represented in the form of detailed guide.
Basically, Btc appears different to different people. For a few, it is a future of freely moving currency linked to any central bank. Whereas for others, it is a purely digital entity of questionable value and uncertain origin.
What Is Bitcoin?
Bitcoin is a cryptocurrency or a digital currency which is used and distributed electronically. It is a decentralized peer-to-peer network. No single institution or person controls it. The coin uses protocols of cryptography for regulation and generation of units of currency. Btc falls under the top cryptocurrency and it was first most valuable coin among them.
Who Created Bitcoin?
The term bitcoin was first introduced in a white paper in 2008 by Satoshi Nakamoto.
The creator of Btc is still unknown. Basically, Satoshi Nakamoto is a pseudonym that may represent a person or a team.
It sounds weird, right? But yes!! It's true, the world knows only one name behind this revolutionary cryptocurrency i.e. btc. There is no exact information about the founder of Btc. It's still a mystery whether Satoshi Nakamoto is the name of individual or group.
The basic idea behind Btc came to light when peer-to-peer networking and cloud computing emerged in data storage and management. Previously, the security and maintenance of such networks were handled by huge corporations which were looking to make a profit. Bitcoin's documentation, on an abstract level, was a proposal to transfer the maintenance work and security to external, anonymous crowd contributors. And thus, bringing about a decentralized and democratic shift in these industries.
How Does Bitcoin Work?
Now, when you know what is bitcoin? You might be eager to know how exactly the coin works. Well, here you go... Let me elaborate in a simple and easy way!!
So, each BTC is basically a computer file which is stored in a digital wallet app on a computer or smartphone. You can send BTC to your digital wallet, and/or you can send BTC to other people. Normally, every single transaction is recorded in a public list called blockchain. Thus, this helps in tracing the history of Btc to stop people from spending coins they do not own, making copies or undoing transactions.
How To Earn Bitcoin?
Here are the top 2 accepted ways to earn bitcoin.
Trading: One of the quick and simplest ways you to earn btc is by trading it on an exchange. Basically, you're trying to purchase Btc when its price is low and sell it when the price increase.
Affiliate programs: One of the most overlooked ways to earn Btc is by promoting various affiliate programs. Basically, affiliates are people who promote certain business for free but receive a commission if they manage to bring in paying customers. Many Bitcoin exchanges, products, and services have an affiliate program in which you can enroll.
Owning a faucet: While participating in a faucet you might not earn, instead of owning your own faucet is profitable. At present, you can build a cryptocurrency faucet quite easily and earn btc from selling ads on your site.
Gambling: An obvious way to increase your crypto wealth is by gambling it using one of the various Btc casinos out there. But before entering make sure the casino you are using is probably fair.
Anyways, there are plenty of ways to earn bitcoins. Now you know how to get Bitcoin. Next, all you need to do next is decide which way is best for you. Choose a service that you feel comfortable using.
Bitcoin Transactions.
Well, when you earn a few bitcoins, it is very much necessary to understand how to transfer it or how exactly the btc transaction works.
Here are a few simple steps which help you understand the entire process.
First and foremost, you need a btc address which is basically a sequence of numbers, letters and a private key. The address is public but the private key is secret. Public Cryptographic Key: It refers to your account number. The way someone would send money to your bank account via your account number. Similarly, your public cryptographic key is the information you give to the sender to receive cryptos to your wallet. Private Cryptographic Key: It is the key which allows you to spend your Bitcoins and other cryptocurrencies. If someone has access to it, they can easily steal your btc. You need to send your bitcoin address to the sender who then signs a transaction using his or her private key. The sender will then send bitcoins to the btc network for verification. Once the transaction is verified, it is recorded in the blockchain or ledger as your balance increases.
How To Create Bitcoin?
New bitcoins are created through a decentralized process called " Bitcoin mining". Bitcoin miners are securing the network using specialized hardware and are collecting new bitcoins in exchange by processing transactions. The Btc protocol assures new btc are created at a fixed rate, making the process of bitcoin mining a competitive business.
How To Invest In Bitcoin?
If you are ready and excited to purchase Btc, Here are the necessary components to start investing in Bitcoins:
An exchange or website to buy Btc A wallet where you can store Btc.
These two are the main entities to get started with. You need to understand and research about the wallet or exchange before you invest, or you might fall prey to some scam, resulting in a loss.
Well, the process to invest in btc is quite simple. Here you go...
Initially, you need to quickly sign up for with appropriate exchanges and transfer money from your bank account to purchase Bitcoins. However, few exchanges offer an app that acts as an exchange and a wallet. Through the app, you can both buy and trade Bitcoins as well as store them. If you use the Coinbase exchange, it doesn't mean you have to use the Coinbase digital wallet. You can opt for any wallet of your choice. Once you sign up in an exchange, you can notice a buy section. Select the amount of btc you want to buy. However, you can buy less than one Bitcoin on these exchanges. Bitcoin can be div >Btc with a credit card, bank transfer, or even cash. Later, to store Btc, you need a wallet. If you search online for Btc wallets, you come across plenty of options. Make sure you choose a best and trustworthy wallet by checking the reviews and comparing different Wallets.
How To Store Your Bitcoins?
With the emergence of BTC and other cryptocurrencies, hackers see new potential for thefts. So if you're just getting into bitcoin, you're probably worried about storing your btc in a safe and secure way. So, How do you keep your digital investments safe?
Here are the best ways to store your bitcoins.
Exchange platform: Here, you trade money for cryptocurrencies such as Bitcoin, Ethereum, or Litecoin. You can also trade one cryptocurrency for another. Wallet platform: Basically, it's a bank account where you can store your cryptocurrencies. Hard wallet: It's an offline wallet that is not linked to a network.
Advantages of Bitcoin.
Private and Anonymous: Bitcoin purchases are anonymous. Unless a user voluntarily discloses his Btc transactions, his purchases are not linked to his personal identity. However, the anonymous Btc address generated for user purchases changes with every transaction.
Very Low Transaction Fees: Compared to another digital payment mode, like PayPal and credit cards, Bitcoin comes with lower transaction fees. Though the fees are variable, it's rare for a Btc transaction to cost more than 1% of its value.
Control and Security: As personal information is kept hidden from hackers, Btc protects against identity theft. It can be encrypted and backed up to ensure the safety of your money.
Quick payments: Transfering bitcoins across the globe is as easy. Unlike traditional banking, there is no need to wait 2-3 business days, no extra fees for making an international transfer, and no special limitations on the minimum or maximum amount you can send.
No Third-party Interruptions: Banks, Governments, and many other financial intermediaries have no rights to interrupt user transactions or freeze Bitcoin accounts. However, The system is peer-to-peer, users can experience a great degree of freedom than national currencies.
The Future Of Bitcoin.
So what's next for Bitcoin? As outlined before, it has huge benefits and for this reason, it will remain relevant as a currency. However, it is evident that Bitcoin is gaining lots of hype around the globe. Btc is under frequent development and implementation. The future roadmap has some interesting concepts that shall prove vital to the sustainability of the network and its narrative direction.
One of the major trends to watch closely over the coming years is the development of Bitcoin's Lightning Network. This development could allow Bitcoin to operate as a P2P payment system and high-value settlement layer concurrently.
Bitcoin, and its operational technology, the blockchain, have a future in the world markets. Moreover, Btc experts claim that this is never going to be an issue since Bitcoin was the pioneer and as such enjoys first-mover privilege.
Conclusion.
By now, Bitcoin has emerged as one of the most innovative technologies in modern space. Bringing with it an entire industry, Btc has released a movement towards sound money, enhanced privacy, and censorship-resistance from coercive authorities.
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Bitcoin Mining Guide - Getting started with Bitcoin mining.
Bitcoin mining is difficult to do profitably but if you try then this Bitcoin miner is probably a good shot.
How Bitcoin Mining Works.
Before you start mining Bitcoin, it's useful to understand what Bitcoin mining really means. Bitcoin mining is legal and is accomplished by running SHA256 double round hash verification processes in order to validate Bitcoin transactions and provide the requisite security for the public ledger of the Bitcoin network. The speed at which you mine Bitcoins is measured in hashes per second.
The Bitcoin network compensates Bitcoin miners for their effort by releasing bitcoin to those who contribute the needed computational power. This comes in the form of both newly issued bitcoins and from the transaction fees included in the transactions val />
Step 1 - Get The Best Bitcoin Mining Hardware.
Purchasing Bitcoins - In some cases, you may need to purchase mining hardware with bitcoins. Today, you can purchase most hardware on Amazon. You also may want to check the bitcoin charts.
How To Start Bitcoin Mining.
To begin mining bitcoins, you'll need to acquire bitcoin mining hardware. In the early days of bitcoin, it was possible to mine with your computer CPU or high speed video processor card. Today that's no longer possible. Custom Bitcoin ASIC chips offer performance up to 100x the capability of older systems have come to dominate the Bitcoin mining industry.
Bitcoin mining with anything less will consume more in electricity than you are likely to earn. It's essential to mine bitcoins with the best bitcoin mining hardware built specifically for that purpose. Several companies such as Avalon offer excellent systems built specifically for bitcoin mining.
Best Bitcoin Cloud Mining Services.
Another option is to purchase in Bitcoin cloud mining contracts. This greatly simplifies the process but increases risk because you do not control the actual physical hardware.
Being listed in this section is NOT an endorsement of these services. There have been a tremendous amount of Bitcoin cloud mining scams.
Hashflare Review: Hashflare offers SHA-256 mining contracts and more profitable SHA-256 coins can be mined while automatic payouts are still in BTC. Customers must purchase at least 10 GH/s.
Genesis Mining Review: Genesis Mining is the largest Bitcoin and scrypt cloud mining provider. Genesis Mining offers three Bitcoin cloud mining plans that are reasonably priced. Zcash mining contracts are also available.
Hashing 24 Review: Hashing24 has been involved with Bitcoin mining since 2012. They have facilities in Iceland and Georgia. They use modern ASIC chips from BitFury deliver the maximum performance and efficiency possible.
Minex Review: Minex is an innovative aggregator of blockchain projects presented in an economic simulation game format. Users purchase Cloudpacks which can then be used to build an index from pre-picked sets of cloud mining farms, lotteries, casinos, real-world markets and much more.
Minergate Review: Offers both pool and merged mining and cloud mining services for Bitcoin.
Hashnest Review: Hashnest is operated by Bitmain, the producer of the Antminer line of Bitcoin miners. HashNest currently has over 600 Antminer S7s for rent. You can view the most up-to-date pricing and availability on Hashnest's website. At the time of writing one Antminer S7's hash rate can be rented for $1,200.
Bitcoin Cloud Mining Review: Currently all Bitcoin Cloud Mining contracts are sold out.
NiceHash Review: NiceHash is unique in that it uses an orderbook to match mining contract buyers and sellers. Check its website for up-to-date prices.
Eobot Review: Start cloud mining Bitcoin with as little as $10. Eobot claims customers can break even in 14 months.
MineOnCloud Review: MineOnCloud currently has about 35 TH/s of mining equipment for rent in the cloud. Some miners available for rent include AntMiner S4s and S5s.
Bitcoin Mining Hardware Comparison.
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What is Bitcoin?
Bitcoin is both a digital currency as well as a decentralized payment network that enables anyone in the world to send and receive money instantly with practically no transaction fees.
Why would I need Bitcoin?
Everyone requires some method of storing value. Most people opt for a savings account or simply storing money in the bank for a rainy day. The issue here is with inflation; your money is constantly being devalued at an unprecedented rate! With Bitcoin, the USD equivalent can change - but you will always know that only 21 Million Bitcoin will ever be in existence. Compare this to USD which prints off more and more money every year.
Where is Bitcoin accepted?
Thousands of merchants are using Bitcoin right this very moment. Merchants love Bitcoin because they are guaranteed to receive the funds when they accept a payment - unlike with Credit and Debit Cards which can have chargebacks tied to the payments. What this means for you is that merchant adoption is on the rise. Soon almost every company you can imagine will be using Bitcoin - and a lot of them already are.
Where do the Bitcoins come from?
Bitcoins are generated via "bitcoin miners". A miner is someone who is using computer power to try and solve increasingly difficult math problems. Every 10 minutes 25 Bitcoins are given as a reward to whichever "bitcoin miner" solves the math problem. Most of the time this reward goes to a pool of hundreds if not thousands of miners which is split up equally among the group based on the computer power they bring to the group.
How can I mine Bitcoins?
You can join one of the many bitcoin mining pools. If you want to do it seriously you will want to buy a bitcoin miner. For as little as $25 you can buy a small USB stick miner to plug into your computer to start mining. Or you can research the much larger options which get up into the thousands of dollars. Make sure you do your research, bitcoin mining requires a lot of electricity and plenty of technical know-how.
Where do I buy Bitcoin?
If you are living in the United States you can check out Coinbase, but there are literally dozens of other options out there. You can even find people locally to buy bitcoins from at LocalBitcoins. Doing a quick google search will net you loads of results, just make sure to do your research on reviews and such.
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What is Bitcoin Mining?
Bitcoin Mining Hardware Comparison.
Currently, based on (1) price per hash and (2) electrical efficiency the best Bitcoin miner options are:
AntRouter R1.
5.5 Gh/s 50W 1.0 pounds Yes 0.00001058.
Antminer S9.
13.5 Th/s 0.1 J/GH 16 pounds Yes 0.3603.
BPMC Red Fury USB.
2.5 GH/s 1.00 W/GH 1.6 ounces Yes 0.00006672.
Overview - Table of Contents What is Bitcoin Mining? Technical Background Bitcoin Mining Hardware Bitcoin Mining Software Bitcoin Cloud Mining Mining Infographic What is Proof of Work? What is Bitcoin Mining Difficulty? Other Languages.
Before we begin.
Before you read further, please understand that most bitcoin users don't mine! But if you do then this Bitcoin miner is probably the best deal. Bitcoin mining for profit is very competitive and volatility in the Bitcoin price makes it difficult to realize monetary gains without also speculating on the price. Mining makes sense if you plan to do it for fun, to learn or to support the security of Bitcoin and do not care if you make a profit. If you have access to large amounts of cheap electricity and the ability to manage a large installation and business, you can mine for a profit.
If you want to get bitcoins based on a fixed amount of mining power, but you don't want to run the actual hardware yourself, you can purchase a mining contract.
Another tool many people like to buy is a Bitcoin debit card which enables people to load a debit card with funds via bitcoins.
What is Bitcoin mining?
Bitcoin mining is a lot like a giant lottery where you compete with your mining hardware with everyone on the network to earn bitcoins. Faster Bitcoin mining hardware is able to attempt more tries per second to win this lottery while the Bitcoin network itself adjusts roughly every two weeks to keep the rate of finding a winning block hash to every ten minutes. In the big picture, Bitcoin mining secures transactions that are recorded in Bitcon's public ledger, the block chain. By conducting a random lottery where electricity and specialized equipment are the price of admission, the cost to disrupt the Bitcoin network scales with the amount of hashing power that is being spent by all mining participants.
Technical Background.
During mining, your Bitcoin mining hardware runs a cryptographic hashing function (two rounds of SHA256) on what is called a block header . For each new hash that is tried, the mining software will use a different number as the random element of the block header, this number is called the nonce . Depending on the nonce and what else is in the block the hashing function will yield a hash which looks something like this:
You can look at this hash as a really long number. (It's a hexadecimal number, meaning the letters A-F are the digits 10-15.) To ensure that blocks are found roughly every ten minutes, there is what's called a difficulty target . To create a valid block your miner has to find a hash that is below the difficulty target. So if for example the difficulty target is.
any number that starts with a zero would be below the target, e.g.:
If we lower the target to.
we now need two zeros in the beginning to be under it:
Because the target is such an unwieldy number with tons of digits, people generally use a simpler number to express the current target. This number is called the mining difficulty . The mining difficulty expresses how much harder the current block is to generate compared to the first block. So a difficulty of 70000 means to generate the current block you have to do 70000 times more work than Satoshi Nakamoto had to do generating the first block. To be fair, back then mining hardware and algorithms were a lot slower and less optimized.
To keep blocks coming roughly every 10 minutes, the difficulty is adjusted using a shared formula every 2016 blocks. The network tries to change it such that 2016 blocks at the current global network processing power take about 14 days. That's why, when the network power rises, the difficulty rises as well.
Bitcoin Mining Hardware.
In the beginning, mining with a CPU was the only way to mine bitcoins and was done using the original Satoshi client. In the quest to further secure the network and earn more bitcoins, miners innovated on many fronts and for years now, CPU mining has been relatively futile. You might mine for decades using your laptop without earning a single coin.
About a year and a half after the network started, it was discovered that high end graphics cards were much more efficient at bitcoin mining and the landscape changed. CPU bitcoin mining gave way to the GPU (Graphical Processing Unit). The massively parallel nature of some GPUs allowed for a 50x to 100x increase in bitcoin mining power while using far less power per unit of work.
While any modern GPU can be used to mine, the AMD line of GPU architecture turned out to be far superior to the nVidia architecture for mining bitcoins and the ATI Radeon HD 5870 turned out to be the most cost effective choice at the time.
As with the CPU to GPU transition, the bitcoin mining world progressed up the technology food chain to the Field Programmable Gate Array. With the successful launch of the Butterfly Labs FPGA 'Single', the bitcoin mining hardware landscape gave way to specially manufactured hardware dedicated to mining bitcoins.
While the FPGAs didn't enjoy a 50x - 100x increase in mining speed as was seen with the transition from CPUs to GPUs, they provided a benefit through power efficiency and ease of use. A typical 600 MH/s graphics card consumed upwards of 400w of power, whereas a typical FPGA mining device would provide a hashrate of 826 MH/s at 80w of power.
That 5x improvement allowed the first large bitcoin mining farms to be constructed at an operational profit. The bitcoin mining industry was born.
The bitcoin mining world is now solidly in the Application Specific Integrated Circuit (ASIC) era. An ASIC is a chip designed specifically to do one thing and one thing only. Unlike FPGAs, an ASIC cannot be repurposed to perform other tasks.
An ASIC designed to mine bitcoins can only mine bitcoins and will only ever mine bitcoins. The inflexibility of an ASIC is offset by the fact that it offers a 100x increase in hashing power while reducing power consumption compared to all the previous technologies.
Unlike all the previous generations of hardware preceding ASIC, ASIC may be the "end of the line" when it comes to disruptive mining technology. CPUs were replaced by GPUs which were in turn replaced by FPGAs which were replaced by ASICs. There is nothing to replace ASICs now or even in the immediate future.
There will be stepwise refinement of the ASIC products and increases in efficiency, but nothing will offer the 50x to 100x increase in hashing power or 7x reduction in power usage that moves from previous technologies offered. This makes power consumption on an ASIC device the single most important factor of any ASIC product, as the expected useful lifetime of an ASIC mining device is longer than the entire history of bitcoin mining.
It is conceivable that an ASIC device purchased today would still be mining in two years if the device is power efficient enough and the cost of electricity does not exceed it's output. Mining profitability is also dictated by the exchange rate, but under all circumstances the more power efficient the mining device, the more profitable it is. If you want to try your luck at bitcoin mining then this Bitcoin miner is probably the best deal.
Bitcoin Mining Software.
There are two basic ways to mine: On your own or as part of a Bitcoin mining pool or with Bitcoin cloud mining contracts and be sure to avoid Bitcoin cloud mining scams. Almost all miners choose to mine in a pool because it smooths out the luck inherent in the Bitcoin mining process. Before you join a pool, make sure you have a bitcoin wallet so you have a place to store your bitcoins. Next you will need to join a mining pool and set your miner(s) to connect to that pool. With pool mining, the profit from each block any pool member generates is divided up among the members of the pool according to the amount of hashes they contributed.
How much bandwidth does Bitcoin mining take? If you are using a bitcoin miner for mining with a pool then the amount should be negligible with about 10MB/day. However, what you do need is exceptional connectivity so that you get any updates on the work as fast as possible.
This gives the pool members a more frequent, steady payout (this is called reducing your variance), but your payout(s) can be decreased by whatever fee the pool might charge. Solo mining will give you large, infrequent payouts and pooled mining will give you small, frequent payouts, but both add up to the same amount if you're using a zero fee pool in the long-term.
Bitcoin Cloud Mining.
By purchasing Bitcoin cloud mining contracts, investors can earn Bitcoins without dealing with the hassles of mining hardware, software, electricity, bandwidth or other offline issues.
Being listed in this section is NOT an endorsement of these services and is to serve merely as a Bitcoin cloud mining comparison. There have been a tremendous amount of Bitcoin cloud mining scams.
Hashflare Review: Hashflare offers SHA-256 mining contracts and more profitable SHA-256 coins can be mined while automatic payouts are still in BTC. Customers must purchase at least 10 GH/s.
Genesis Mining Review: Genesis Mining is the largest Bitcoin and scrypt cloud mining provider. Genesis Mining offers three Bitcoin cloud mining plans that are reasonably priced. Zcash mining contracts are also available.
Hashing 24 Review: Hashing24 has been involved with Bitcoin mining since 2012. They have facilities in Iceland and Georgia. They use modern ASIC chips from BitFury deliver the maximum performance and efficiency possible.
What is Bitcoin Mining?
Bitcoin mining is the process of adding transaction records to Bitcoin's public ledger of past transactions. This ledger of past transactions is called the block chain as it is a chain of blocks. The block chain serves to confirm transactions to the rest of the network as having taken place.
Bitcoin nodes use the block chain to distinguish legitimate Bitcoin transactions from attempts to re-spend coins that have already been spent elsewhere.
Bitcoin 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. Bitcoin uses the hashcash proof-of-work function.
The primary purpose of mining is to allow Bitcoin nodes to reach a secure, tamper-resistant consensus. Mining is also the mechanism used to introduce Bitcoins into the system: Miners are paid any transaction fees as well as a "subsidy" of newly created coins.
This both serves the purpose of disseminating new coins in a decentralized manner as well as motivating people to provide security for the system.
Bitcoin mining is so called because it resembles the mining of other commodities: it requires exertion and it slowly makes new currency available at a rate that resembles the rate at which commodities like gold are mined from the ground.
What is Proof of Work?
A proof of work is a piece of data which was difficult (costly, time-consuming) to produce so as to satisfy certain requirements. It must be trivial to check whether data satisfies said requirements.
Producing a proof of work can be a random process with low probability, so that a lot of trial and error is required on average before a valid proof of work is generated. Bitcoin uses the Hashcash proof of work.
What is Bitcoin Mining Difficulty?
The Computationally-Difficult Problem.
Bitcoin mining a block is difficult because the SHA-256 hash of a block's header must be lower than or equal to the target in order for the block to be accepted by the network.
This problem can be simplified for explanation purposes: The hash of a block must start with a certain number of zeros. The probability of calculating a hash that starts with many zeros is very low, therefore many attempts must be made. In order to generate a new hash each round, a nonce is incremented. See Proof of work for more information.
The Bitcoin Network Difficulty Metric.
The Bitcoin mining network difficulty is the measure of how difficult it is to find a new block compared to the easiest it can ever be. It is recalculated every 2016 blocks to a value such that the previous 2016 blocks would have been generated in exactly two weeks had everyone been mining at this difficulty. This will yield, on average, one block every ten minutes.
As more miners join, the rate of block creation will go up. As the rate of block generation goes up, the difficulty rises to compensate which will push the rate of block creation back down. Any blocks released by malicious miners that do not meet the required difficulty target will simply be rejected by everyone on the network and thus will be worthless.
The Block Reward.
When a block is discovered, the discoverer may award themselves a certain number of bitcoins, which is agreed-upon by everyone in the network. Currently this bounty is 25 bitcoins; this value will halve every 210,000 blocks. See Controlled Currency Supply or use a bitcoin mining calculator.
Additionally, the miner is awarded the fees paid by users sending transactions. The fee is an incentive for the miner to include the transaction in their block. In the future, as the number of new bitcoins miners are allowed to create in each block dwindles, the fees will make up a much more important percentage of mining income.
Thanks.
Blitzboom and the guys from #bitcoin-dev for their help with writing the guide!
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What is Bitcoin?
Bitcoin is an interesting form of currency that arose to address economic problems related to Centralized Currency. Because Bitcoin is not a physical form of currency, it can be a bit difficult to wrap your brain around how it works. It's really quite simple.
Bitcoin is a form of digital currency that was founded during the financial crisis in 2009. In September of 2008, Lehman Brothers filed for the largest bankruptcy in history. The collapse of this giant kicked off a global financial crisis. A few months later, Bitcoin was born. As a basic explanation, Bitcoin is bank-free internet money.
How does Bitcoin work?
Unlike the Dollar, the Euro, the Yen, and other forms of Centralized Currency, Bitcoin is classified as a Decentralized Currency. The standard currencies that define our modern economy are centralized in banks and controlled by the government (leading to the designation of Centralized Currency). There is no bank or central authority governing Bitcoins. Bitcoins are controlled by a network of users who control and verify the monetary transactions.
Even though Bitcoin seems very unlike the forms of currency you are used to, it still functions just like the money people use every day. You give your Bitcoin to someone and they, in turn, give you goods or services. You can sell your lawnmower to your neighbor for a Bitcoin, just like you would sell it for physical currency.
One huge advantage associated with Bitcoin is the fact that it is not centralized and not based on a native currency. Currently, your money is controlled by the country you live in.
For example, if you live in the United States but you want to sell your lawnmower to someone in Japan, you can't sell it for a Japanese Yen because the United States uses dollars. But Bitcoin is a world-wide currency. If someone in the United States buys something from a Japanese seller and pays with Bitcoin, there is no conversion rate, no bank delay, and no bank fee.
The money is sent instantly and there are no attached fees. Bank closed? Banking hours are irrelevant with Bitcoin because there is no bank controlling your money. When we eliminate banks and are able to send a single form of payment regardless of geographical location, we truly create a global economy.
After you buy your goods or services using Bitcoin, you are done. You've made your purchase and you can go about your day. However, what happens after your transaction is what really sets Bitcoin apart from Centralized Currencies.
Your transaction, and every other Bitcoin transaction, is logged and recorded in what's called a Blockchain. The Blockchain is a publicly recorded ledger of all Bitcoin transactions. At this point, other Bitcoin users who are referred to as miners, verify each and every transaction in the Blockchain.
The anonymity of Bitcoin.
There is some concern over the anonymity of Bitcoins. Many initially believed it to be an way to pay for goods or services that could not be linked to individuals. However, with the trial of Ross Ulbricht, this has proven to be a false assumption. Ulbricht was arrested for selling drugs and using Bitcoin for the transactions.
Every transaction is recorded in the Blockchain. While the main goal of tracking Bitcoin transactions is to prevent counterfeiting, it also makes the details of your deal a matter of public record. If your Bitcoin address can be traced to you, then your transactions are not anonymous.
When the miner verifies a specified number of transactions, they get paid with newly created (or minted) Bitcoin. This process is how Bitcoins stay secure and how Bitcoins get added to circulation. This process works in the same way that the United States Mint uses to print money to add Dollars into circulation. There are currently over 16 million Bitcoins in circulation. As more Bitcoins are added to circulation, the creation rate is decreased. The number of Bitcoins in circulation is expected to never exceed 21 million, due to this decreasing creation model.
Time to go convert your paychecks to Bitcoin? Maybe not yet. There are several retailers and websites that do accept Bitcoin (Overstock.com, Subway, and Whole Foods are a few examples), but most businesses have not signed up yet.
One issue with Bitcoin, versus other currencies, is that Bitcoin is worth only what people are willing to pay for it. Bitcoins are not backed up by other commodities like gold, so the Bitcoin value has been known to fluctuate a great deal. In late 2009, a Bitcoin was worth around five cents. Today, it fluctuates between two and three thousand dollars. The debate continues to rage over whether Bitcoin will catch on as the prominent form of currency.
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What is Bitcoin?
Bitcoin is a digital currency; its creation and transfer is based on an open source protocol encryption network that is totally independent from any central authority. A Bitcoin can be transferred by a computer or a smartphone without the use of any intervening third party or intermediate financial institution. The concept was introduced in 2008 on a white paper published by a pseudonymous programmer named Satoshi Nakamoto, in what was defined as a peer-to-peer electronic payment system. The Network was turned on by Satoshi on the 3 rd of January 2009.
Bitcoin can be used for payments similarly to the dollar (or other currency). Due to the mathematical characteristics of Bitcoin, it has an immense potential due to its multi-divisible properties enabling micro values to be sent with virtually no cost. Bitcoin opens the door to many possibilities and services that have not been imagined.
Bitcoin is an efficient solution when it comes to tipping or making donations over the internet. Donations can be visible to the general public enabling a better financial solution and greater transparency for non-profit organizations. Also in Emergency situations such as natural catastrophes, donations in Bitcoin arrive faster to those in need thus reducing the international response time as well as being extremely effective as a frictionless way of value transfer.Though there are still very few initiatives, we can already see the first crowdfunding projects related to Bitcoin pop up more frequently.
Bitcoin allows pseudonymous transactions and transfer of property and other values. Bitcoins can be stored on a computer inside special software that stores the encrypted keys, or on an online wallet provided by third parties; in both cases Bitcoins can be sent over the Internet to anyone who has a Bitcoin address.
The p2p topology of the Bitcoin network and the absence of a central management entity make it impossible for any authority, government or institution, to control the distribution and issuance of Bitcoin.
How are Bitcoins created?
For the creation of this new virtual currency an open source program connects the peers along a network built specifically for this purpose. Unlike most currencies, Bitcoin is not dependent on trust in any centralized issuer; instead it is ruled by an encrypted complex mathematic algorithm which is the main building block of the protocol. Bitcoin uses a distributed database spread across nodes of this peer-to-peer network to record transactions, and uses encryption to provide basic security functions, such as ensuring ownership, and avoiding double spending.
Basically, all bitcoin transactions are recorded on a giant ledger shared by all the network users. When someone uses bitcoin to pay for something or get paid, the executed transaction is recorded on this public ledger. The machines running the bitcoin protocol algorithm then compete to confirm the transaction by solving complex mathematical equations, and once a block is processed the machines running it are rewarded for their effort. This process is widely known as Mining.
Mining Bitcoin.
When the network was launched by Satoshi in 2009, any computer connected to the network could effectively mine bitcoins. This was possible because there were too few people mining it and because the protocol made it to be that way. Bitcoin operates as a peer-to-peer network. This means that everyone connected to the network is helping to produce it. With paper money, governments decide when money is printed and how it will be distributed, but bitcoin is completely decentralized, it doesn't have any central government. Bitcoin is mined using special software to solve math problems. Miners run the software on their machines and are issued a certain amount of bitcoin in return. This provides a smart way to issue the currency and also creates an incentive for more people to participate. As more people participate in mining the more secure the network becomes. The Bitcoin Network automatically adjusts the difficulty of the math problems depending on how fast they are being solved. In the early days, bitcoin miners solved these difficult problems with regular desktops and laptops but soon new hardware for mining was introduced and the difficulty became harder and harder for regular desktops to keep up with mining.
"Bitcoin is completely decentralized it doesn't have any central government."
Bitcoin miners are rewarded by a new batch of Bitcoins about 6 times per hour which are distributed among miners according to their utilized computing power or "hash rate". Everyone has the opportunity to win their share while running the Bitcoin miner software program, or third party programs. The act of creating Bitcoins is usually entitled rmining because it has some similarities with gold mining. The probability of a certain user to gain a lot depends on the processing power that he contributes to the network in relation to the processing power of all the miners combined. The amount of Bitcoins generated by batch never exceeds 50, and this value is programmed to shrink every four years until it gets to 0, so that the total set amount of Bitcoins to ever be produced will never exceed 21 million.
All miners on the network compete for the first to find a solution to a cryptographic problem involving their candidate block, a problem that requires repeated trial and error to solve. When a node finds the solution, he announces to the other nodes in the network and claims a new batch of Bitcoins. Instead of individual mining, miners can also join in groups known as "pools" and collectively mine getting back faster payouts divided by chunks.
Where can I keep my Bitcoins?
Bitcoins can be saved in a Wallet. There is software for your computer, to your smartphone and even online wallets. The wallets will allow users to save their bitcoins and to execute transactions with an operation that is much similar to sending an email.
Users can install and run a wallet on their own machines. This is much safer than a hosted wallet because, but it also carries disadvantages. It depends on how good is your password and also it is entirely dependent of user's machine so if anything happens with the OS, the equipment or any hardware errors can compromise access to the stored Bitcoins. Since malware and viruses are constant threat, users should always have updated backups in offline devices.
Here is a small list of the bitcoin Wallet software we can recommend:
The installation process is quite simple and synchronization with the network takes only a few seconds.
There are also several applications for smartphones, but we can recommend Mycelium Wallet.
Users can also create an online wallet. There are several suppliers for this service, Blockchain, Coinbase, Coinkite, etc. It should be borne in mind regarding the credibility of the service as always we want a service that transmits security.
How to earn Bitcoin?
Bitcoins can be earned in many ways. They can be mined, bought, given, won, or earned as an exchange for services. The easiest way to get some bitcoins, although not the most effective, is through Giveaways or through the commonly known Faucets which offer small amounts of bitcoin from time to time.
Today, to mine Bitcoin with some profitability you would need to invest a good chunk to get things going, and in order to keep the growth you would have to keep the re-investment running throughout time. So if you're thinking in starting to mine we strongly advise you to do your own math. You can use Coinwarz to help you with that.
Bitcoin Faucets are sites that offer small amounts of bitcoin from time to time. Currently to get something significant through Faucets is nearly impossible because these faucets limit the amount given per bitcoin address.
Lastly, you can try and be on lookout for giveaways, not just Bitcoin giveaways but also other crypto currencies, since you can always turn them into bitcoin simply by using exchanges.
How/Where to buy Bitcoins?
You can buy Bitcoins in many ways. You can buy personally to someone a friend,or with the help of localBitcoins, or you can buy them through a Bitcin Exchange.
Localbitcoins - is a bitcoin shopping service that lets the user try to find people on his vicinities someone that wants to sell buy bitcoins and then both can agree to meet personally to do the business, or they can either use the escrow service provided by the Localbitcoins platform.
Bitcoins can also be bought at several Bitcoin exchanges: Kraken,BTC-e, Bitstamp, Bitfinex - There are several other operators but these are the most reliable and rated by the community. Once you manage to fund your account,it will be very simple to buy bitcoin through exchanges. Bitcoin Charts and the bitcoin price are managed by exchanges through the demand and supply bids made by their users.
There are also some companies that are specialized in selling bitcoin by accepting credit card payments and money transfers; however, we do not advise anyone to use this type of services because of the uncertainty of their correct behavior. Furthermore, we strongly advise anyone who is interested in dealing with bitcoins to have extra caution with security issues and before making any decision be certain that you have studied very closely this decision.
Bitcoin may be one of the most secure currencies ever invented but it also can be equally insecure. So, be sure to protect your Bitcoin assets the best way you can.
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What is Bitcoin and can you still get rich with Bitcoin?
The popularity of cryptocurrencies are certainly on the rise, and Bitcoin is still king of the kill. We explain what it is, and how to mine it.
We explain how to mine Bitcoin on your PC, or up in the Cloud.
By Jim Martin | 02 Feb 2018.
Bitcoin is wildly confusing. And here's the bad news: the fact you're reading this now means you're late to the game, and it's going to be tough to turn a profit in Bitcoin mining. Nevertheless, if you want to try your hand at mining bitcoins, here we present the beginner's guide to generating bitcoins.
Following a dodgy patch in 2016, Bitcoin's value has recovered and actually surpassed the value of gold. Right now it's at £8,392.04, but yesterday hit an all time high of £8806.08(according to Coinbase).
But despite this Bitcoin is said to be under threat from several newer crypto-currencies, including Ethereum.
If you're finding yourself baffled as to what we're talking about, please let us explain.
Want to know how Bitcoin is taxed? Check out our article here.
What is Bitcoin?
Bitcoin is a digital currency that operates independently of a central bank. Encryption is used to regulate both the generation of Bitcoin units and the transfer of the currency.
If you're excited, check out our guide to buying Bitcoins as well as the best Bitcoin exchanges where you can invest them.
What is Bitcoin worth?
Without getting bogged down with the technicalities, the groups of computers in a Bitcoin pool are crunching numbers to mine a block. For every block mined, you get 25 coins.
On 4 December 2017 one Bitcoin is worth £8,392.04 .
It's crazy to think some analysts thought in 2015 that Bitcoin was doomed. Here's what prices looked like around two years ago:
Google's currency converter lets you check very quickly how much a Bitcoin is worth.
What are Bitcoin Futures?
As Bitcoin Futures get the go-ahead, Bitcoin's value is scoring sky-high and the UK government is calling for increased regulation of cryptocurrencies by expanding the reach of European Union anti-money-laundering rules. But what does all that mean?
Bitcoin Futures are contracts that balance the risk associated with volatile pricing by requiring users to agree to buy or sell a specific amount of Bitcoin once it reaches a predetermined price on a future date . In the US they will go live on Sunday evening (10 December), with the first full day of trading 11 December 2017.
If you buy a Bitcoin Futures contract, you buy the right to sell Bitcoin at a specific price. Meanwhile the seller agrees to accept the Bitcoin at that specific price on a future date. The buyer hopes to buy Bitcoin at a more favourable price; the seller hopes to fetch a higher price per Bitcoin on the settlement date.
Cboe President Chris Concannon told Bloomberg: "The launch of the futures will actually make the market healthier. It will create pricing equilibrium in the market. Clients who are holding Bitcoin now have no way to hedge their risk. These products allow them to hedge, and to take opposing views. More importantly, it brings a wave of regulatory oversight."
Can you get rich with Bitcoin?
As we mentioned in the introduction, these days it's difficult to turn a profit mining Bitcoin. But it has been known, especially for early adopters of the virtual currency.
For example, the Guardian reports on how a Norwegian man's $27 investment in Bitcoin turned into a $886,000 windfall four years later.
"Kristoffer Koch invested 150 kroner ($26.60) in 5,000 bitcoins in 2009, after discovering them during the course of writing a thesis on encryption. He promptly forgot about them until widespread media coverage of the anonymous, decentralised, peer-to-peer digital currency in April 2013 jogged his memory," reports the Guardian. At which point, they were worth a small fortune at $886,000.
Get started with Bitcoin mining and generate your own bitcoins.
Let's say you try and mine a block of bitcoins with just one home PC. This is a bad idea: the electricity costs will be higher than the money you make from any mined bitcoins and you may have to wait months - or longer - before you get any return. By joining a pool, you should get smaller payments more regularly.
However, you could still end up out of pocket even if you join a pool such as Slush's Bitcoin pool - one of the most popular ones. When a block is completed, you get a share based on the number of other 'workers' who helped mine the block. A fee - around 2 percent - will be deducted from this, and you could well earn only half the amount you've spent in electricity costs.
Of course, if you're able to run the mining software on a computer for which you don't pay the electricity bill, you might be quids in (but we don't recommend running it on your work PC!). If you want to mine Bitcoin on a Mac, on the other hand, bear in mind the advice of our colleagues at Macworld: How to mine Bitcoin on Mac.
Cloud Mining is another option to consider if you're stepping into this realm. Cloud Mining involves renting processing power in the Cloud (aka a data centre somewhere) and using it to mine Bitcoin. The benefits of this means you don't have to worry about running the rig yourself, so you're avoiding the electricity bills, additional heat, noise, hardware failures etc. However, you will be paying for this luxury so your profit margin will be that much more slim.
So, if you're still interested, here's a simple step-by step guide to getting started with Bitcoin mining:
Step 1. You'll need a 'wallet' to start with. This is a bit like a PayPal account where your bitcoins can be stored. You can store this wallet online, or locally on your PC. You'll need to download a large 'blockchain file' to use a wallet. For an online wallet, you might like to try coinbase.com. With a coinbase account, you can buy, use and accept Bitcoin currency.
Step 2. Join a pool, such as Slush's Bitcoin pool. There's always a danger that the pool owner might keep all 25 bitcoins when a block is mined, since the whole 25 coins are paid to one person: the pool owner.
You'll need to choose a trustworthy pool owner. Slush's pool was the first and has been operating since December 2010. By the site's own words, it has a "a long history of stable and accurate payouts".
Step 3. Install a Bitcoin 'miner' on your PC. There are two types: CPU and GPU. For beginners, Kiv's GUI miner is recommended. You can find out more about how to use Kiv's GUI miner here.
Step 4. Log into your Bitcoin pool account, and enter your wallet address. You will be able to get this by checking your wallet account which you created in step 1.
Step 5. Register your workers. Each worker is a sub-account within your Bitcoin pool account. You can have more than one worker running on each computer.
Step 6. Enter your worker credentials into your Bitcoin mining software, and then enter the main pool URL so your workers can start mining.
Note: We may earn a commission when you buy through links on our site, at no extra cost to you. This doesn't affect our editorial independence. Learn more.
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What Is Bitcoin?
Everyone likes to talk about money. It's one of the world's favorite topics. One particularly interesting talking point has been the rise of a new form of electronic currency known as Bitcoin.
In this article, we will look at:
What is Bitcoin? Origins of Bitcoin The dark side of Bitcoin How to get into Bitcoin.
Bitcoin has been around for 10 years, but is just now breaking into mainstream recognition.
To provide some context, a survey by the Global Blockchain Business Council and Survey Monkey early in 2018 found that:
60% of US citizens had heard of Bitcoin - but only 5% owned it.
So what is Bitcoin? Well, it's a form of digital currency - often called cryptocurrency - that is created by solving a series of complex mathematical puzzles (mining), leading to the reward of a "coin" that carries a monetary value outside the traditional financial system.
Once it's created, the resulting Bitcoin can be transferred with or without a central authority, traded either via an exchange or peer-to-peer among individuals.
It can also be used for purchases at a growing number of retailers, airlines, art dealers, jewelers and food outlets.
Any transaction with Bitcoin is traced by the network of users along a blockchain, which consists of a growing list of records called blocks.
These contain information on transactions and are time-stamped. Individuals known as "miners" confirm each transaction. By confirming, they earn Bitcoin. These can then be sold, saved or used in transactions.
The blockchain can't be changed, and when a transaction is confirmed, it's added to the chain, providing a permanent record.
The Bitcoins created so far have ranged in value up to USD20,000 during their relatively short life, an incredible rise that has drawn all sorts of skepticism from the established financial industry.
But Bitcoin actually has its roots in some of the bedrock of our current financial system. The US stock market, now considered one of the most stable markets in the world economy, was somewhat stagnant when it was first created in the 1800s.
There were not a lot of people trading in the first few years, mainly because it seemed so risky. It was viewed as a way to lose your money.
Fast forward to today and stocks and bonds are considered a standard part of any financial portfolio, and the world economy eagerly awaits news of the reactions and prices on various stock exchanges around the world.
That's what Bitcoin is all about - opening up a new world of opportunity.
Where once location and social stratification and the economics of your region determined your financial fate, now globalization has provided, in the form of online engagement, decentralization, and e-commerce - new social elevators for everyone.
Cryptocurrency is a strong component of that vision, as it enables the artificial constraints of borders to melt away.
Some of the largest financial institutions in the world have explored Bitcoin and other altcoins, and many governments are deep in the weeds toward creating their own cryptocurrency. However, to date, Bitcoin remains the standard for cryptocurrency, and is the most valued of all the cryptocurrencies available.
Origins of Bitcoin.
The basis of Bitcoin is a technology known as blockchain. It is relatively new, having been spawned in a 2008 white paper titled Bitcoin:A Peer-To-Peer Electronic Cash System.
The paper's authorship was credited to someone named Satoshi Nakamoto, a person (or persons) who has never been identified, seen or heard from much beyond the white paper and a few interactions in emails and online forums.
This has led to all sorts of authorship claims, and not a little speculation as to whether Satoshi really exists, or is a made-up name by a group of computer scientists.
In the white paper, Satoshi talked about a decentralized system, something that no one controls. This technology records information in a public space and doesn't allow anyone to change it or remove it.
It's transparent, time-stamped and decentralized, making the information immutable. Think of it as a ledger that preserves information without any interference from third parties.
What really excited people about blockchain's advent was the ability to create Bitcoin, a digital coin that could be created by solving complex encrypted mathematical formulas. In essence, computer savvy users were able to "mine" Bitcoin, creating products that had value using sheer computer processing power.
On January 3, 2009, Satoshi mined the first block of Bitcoin (called block number 0, or the "Genesis" block), which produced a reward of 50 Bitcoins for the effort. Six days later, the software was released to the world, allowing anyone to mine Bitcoin.
The first Bitcoin miners were deep into computer science, and most of them used Bitcoin as an intellectual activity and challenge. The value of the Bitcoin was initially established as worth merely a few cents, with trading done between users via an online Bitcoin forum.
Gradually, word of mouth helped grow the audience, and more people began trading this cryptocurrency.
And here we are today.
Bitcoin is now worth quite a bit more than a few cents, rising as high as $20,000 per single coin in December 2017. It has since declined in price from that lofty level, and is extremely volatile in terms of value, jumping hundreds of dollars in a day or declining an equal amount.
Bitcoin is, however, a worldwide system of monetary value that is recognized by many in the general online community and accepted for transactions as varied as real estate, airline tickets and hamburgers.
However, because it is so volatile, many users - particularly those selling real-world items - convert it to fiat currencies upon receipt. Hardcore Bitcoiners annually remember one early adopter who spent 10,000 Bitcoins on two pizzas one May 22.
That day has become known as "Pizza Day" among cryptocurrency fans, mainly because the value of those Bitcoins spent on a few slices is now in the millions of dollars, making the pizzas the most expensive fast food in history.
Bitcoin has since spawned a world of imitators, called altcoins, that mimic and improve on many of its features. But Bitcoin remains the largest by market capitalization, and its price swings generally dictate the way the rest of the coin values swing.
That's the basic primer of this virtual economic ecosystem.
It was something of an underground phenomenon for the first five years, confined to a small circle of computer scientists and technically oriented laymen who were fascinated with that world. It wasn't until 2014 that others began seeing the potential for blockchain to be used in different ways, and that's when this sector truly started to become a real business.
The dark side of Bitcoin.
Because it was anonymous and largely untraceable in its early days - not to mention so technologically advanced that few regulators understood it - Bitcoin was used for some unsavory and criminal activities when it was first created, particularly in drug transactions on the infamous Silk Road dark web.
Naturally, that and a few notorious hacking incidents in the early days led to some public relations problems that Bitcoin is still struggling to overcome in some sectors.
But the gradual mainstreaming of digital currency, the investment by prominent technology people, and the experimentation with blockchain by most of the world's largest financial institutions has mostly lifted that cloud of suspicion, particularly as Bitcoin payments become accepted by more and more mainstream retailers, both online and offline.
Dell and Overstock.com were early adopters, but today such companies as NewEgg, Shopify, Expedia, Dish Networks, Microsoft and CheapAir gladly take Bitcoin payments.
The list is expanding daily, and payment services like Square are also adopting cryptocurrency options for their services.
How to get into Bitcoin.
So how do you get in the Bitcoin game? You can buy Bitcoin from a cryptocurrency exchange like Liquid. Options for purchase include linking a bank account that uses fiat currency or buying with a credit card -- a feature soon to be added to Liquid.
Once you are a Bitcoin owner, you can hold it, trade it for fiat or other cryptocurrencies, or spend it with your smartphone or computer.
Some countries are friendlier towards Bitcoin than others. China banned exchanges earlier this year, while Japan, where Liquid is based, has openly embraced Bitcoin, taking a major role in regulations that allowed exchanges to become licensed.
Once you're in the Bitcoin game, you may find yourself obsessing over the price swings that are a daily occurrence. You may even be tempted to do some day trading to take advantage of the swings.
It's all part of the fun of being a pioneer in a new financial system, and while there are risks, the rewards of becoming a savvy Bitcoin investor can be great.
As with anything, never invest more than you can afford to lose and learn as much as you can.
Good luck, have fun, and welcome to the world of Bitcoin!
This content is not financial advice and should not form the basis of any financial investment decisions nor be seen as a recommendation to buy or sell any good or product. Trading cryptocurrency is complex and comes with a high risk of losing money, particularly if you trade on leverage. You should carefully consider whether trading cryptocurrencies is right for you and take the time to learn how trading works and decide how much money you are prepared to lose.
Providing liquidity for the crypto economy.
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What is Bitcoin Mining? A Step-by-Step Guide.
Bitcoin may be the next big thing in finance, but it can be difficult for most people to understand how it works. There is a whole lot of maths and numbers involved, things which normally make a lot of people run in fear. Well, it's one of the most complex parts of Bitcoin, but it is also the most critical to its success.
As you know, Bitcoin is a digital currency. Currencies need checks and balances, validation and verification. Normally central governments and banks are the ones who perform these tasks, making their currencies difficult to forge while also keeping track of them.
The big difference with Bitcoin is that it is decentralized. If there is no central government regulating it, then how do we know that the transactions are accurate?
How do we know that person A has sent 1 bitcoin to person B?
How do we stop person A from also sending that bitcoin to person C?
The answer is mining.
What is Bitcoin Mining? In Some Ways, Bitcoin Is Like Gold.
One of the most common analogies that people use for Bitcoin is that it's like mining gold. Just like the precious metal, there is only a limited amount (there will only ever be 21 million bitcoin) and the more that you take out, the more difficult and resource intensive it is to find. Apart from that, Bitcoin actually works quite differently and it's actually quite genius once you can get your head around it. One of the major differences is that mining doesn't necessarily create the bitcoin. Bitcoin is given to miners as a reward for validating the previous transactions. So how do they do it?
Bitcoin mining requires a computer and a special program. Miners will use this program and a lot of computer resources to compete with other miners in solving complicated mathematical problems. About every ten minutes, they will try to solve a block that has the latest transaction data in it, using cryptographic hash functions.
What are Hash Functions?
A cryptographic hash function is an essentially one-way encryption without a key. It takes an input and returns a seemingly random, but fixed length hash value.
For example, if you use Movable Type's SHA-256 Cryptographic Hash Algorithm:
Message: How does mining work?
Hash Value: 46550fef 26f87ddd 5e15407f 45a0b8d2 9513291c 4e0f0acc 24a974de 907a1569.
If you change even one letter of the original input, a completely different hash value will be returned. This randomness makes it impossible to predict what the output will be.
How Are Hash Functions Useful For Bitcoin?
Because it is practically impossible to predict the outcome of input, hash functions can be used for proof of work and validation. Bitcoin miners will compete to find an input that gives a specific hash value (a number with multiple zeros at the start). The difficulty of these puzzles is measurable. However, they cannot be cheated on. This is because there is no way to perform better than by guessing blindly.
The aim of mining is to use your computer to guess until it comes up with a hash value that is less than whatever the target may be. If you are the first to do this, then you have mined the block (normally this takes millions and billions of computer generated guesses from around the world). Whoever wins the block will get a reward of 12.5 bitcoins (as long as it becomes part of the longest blockchain). The winner doesn't technically make the bitcoin, but the coding of the blockchain algorithm is set up to reward the person for doing the mining and thus helping to verify the blockchain.
Each block is created in sequence, including the hash of the previous block. Because each block contains the hash of a prior block, it proves that it came afterward. Sometimes, two competing blocks are formed by different miners. They may contain different transactions of bitcoin spent in different places. The block with the largest total proof of work embedded within it is chosen for the blockchain.
This works to validate transactions because it makes it incredibly difficult for someone to create an alternative block or chain of blocks. They would have to convince everyone on the network that theirs is the correct one, the one that contains sufficient proof of work. Because everyone else is also working on the 'true' chain, it would take a tremendous amount of CPU power to beat them. One of the biggest fears of Bitcoin is that one group may gain 51% control of the blockchain and then be able to influence it to their advantage, although thankfully this has been prevented so far.
Who Are Bitcoin Miners?
Initially, bitcoin miners were just cryptography enthusiasts. People who were interested in the project and used their spare computer power to validate the blockchain so that they could be rewarded with bitcoin. As the value of bitcoin has gone up, more people have seen mining as a potential business, investing in warehouses and hardware to mine as many bitcoin as possible.
These warehouses are generally set up in areas with low electricity prices, to further reduce their costs. With these economies of scale, it has made it more difficult for hobbyists to profit from Bitcoin mining, although there are still many who do it for fun.
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