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    Default A Comprehensive Guide to Bitcoin

    What Exactly Is Bitcoin?

    Bitcoin is a digital money that was first introduced in January 2009. It is based on the ideas presented in a whitepaper by the enigmatic and untraceable Satoshi Nakamoto. The name of the individual or people who invented the technique is still unknown. Bitcoin promises reduced transaction costs than standard online payment methods and, unlike government-issued currencies, is run by a decentralized authority.

    Bitcoin is a form of cryptocurrency. There are no physical bitcoins; rather balances are recorded on a public ledger that everyone can see. A significant amount of computational power is used to verify every bitcoin transactions. Bitcoins are neither issued or backed by any banks or governments, and they are not valued as commodities. Despite the fact that it is not legal tender, Bitcoin is extremely popular and has sparked the creation of hundreds of rival cryptocurrencies known as altcoins. The term "Bitcoin" is usually shortened as "BTC."

    Important Takeaways:
    • Bitcoin, which was launched in 2009, is the world's largest cryptocurrency by market capitalization.
    • Bitcoin, unlike fiat currency, is produced, circulated, exchanged, and stored via a decentralized ledger system known as a blockchain.
    • Bitcoin's history as a store of value has been volatile; the cryptocurrency peaked at almost $20,000 per coin in 2017, but less than two years later, it was trading for less than half of that amount.
    • Bitcoin, being the first virtual currency to achieve global acceptance and success, has spawned a slew of new cryptocurrencies in its wake.

    Bitcoin Fundamentals

    The bitcoin system is comprised on a network of computers (also known as "nodes" or "miners") that all execute bitcoin's code and store its blockchain. A blockchain may be seen metaphorically as a collection of blocks. Each block contains a set of transactions. No one can trick the system since all computers running the blockchain have the same list of blocks and transactions and can watch these new blocks being filled with new bitcoin transactions in real time.

    Anybody, whether or not they operate a bitcoin "node," may view these transactions in real time. A bad actor would need to possess 51% of the computer power that makes up bitcoin in order to commit a heinous deed. As of January 2021, Bitcoin has over 12,000 nodes, and this number is rising, making such an assault extremely implausible.

    However, if an assault were to occur, bitcoin minerspeople who participate in the bitcoin network using their computerwould most likely fork to a different blockchain, rendering the bad actor's attempts to carry out the assault useless.

    Bitcoin token balances are stored using public and private "keys," which are lengthy strings of numbers and characters connected by the mathematical encryption method that created them. The public key (similar to a bank account number) acts as the address that is made public and to which others may transfer bitcoins.

    The private key (similar to an ATM PIN) is designed to be kept private and is only used to approve bitcoin transactions. Bitcoin keys are not to be confused with a bitcoin wallet, which is a physical or digital device that facilitates bitcoin trade and allows users to track coin ownership. The name "wallet" is rather deceptive, because bitcoin's decentralized structure implies that it is never held "in" a wallet, but rather decentralized on a blockchain.

    Peer-to-Peer Technology

    Bitcoin was one of the first digital currencies to make use of peer-to-peer technology to enable fast payments. Bitcoin "miners" are the independent individuals and businesses who own the governing computing power and participate in the bitcoin network. They are in charge of processing transactions on the blockchain and are motivated by rewards (the release of new bitcoin) and transaction fees paid in bitcoin.

    These miners may be regarded of as the decentralized authority ensuring the bitcoin network's authenticity. New bitcoin is distributed to miners at a fixed, though decreasing, rate. There are roughly 18,614,806 bitcoin in existence as of January 30, 2021, with 2,385,193 bitcoin yet to be mined.

    Under this approach, bitcoin and other cryptocurrencies vary from fiat currency; in centralized banking systems, cash is released at a pace that corresponds to the growth rate of products; this method is designed to ensure price stability. A decentralized system, such as bitcoin, determines the release rate in advance and according to an algorithm.

    Bitcoin Mining

    Bitcoin mining is the process of releasing bitcoins into circulation. Mining, in general, necessitates the solution of computationally challenging riddles in order to discover a new block, which is then added to the blockchain.

    Bitcoin mining is the process of adding and verifying transaction records throughout the network. Miners are compensated with a few bitcoins for adding blocks to the blockchain; the payment is half every 210,000 blocks. In 2009, the block reward was 50 new bitcoins. The third halving happened on May 11th, 2020, reducing the reward for each block discovery to 6.25 bitcoins.

    To mine bitcoin, a variety of hardware may be utilized. Some, though, provide greater benefits than others. Certain computer chips, known as Application-Specific Integrated Circuits (ASIC), as well as more complex processing units, such as Graphic Processing Units (GPUs), can obtain more prizes. One bitcoin may be divided to eight decimal places (100 millionths of a bitcoin), and the lowest unit is known as a Satoshi. If required, and if the participating miners agree, bitcoin might be made divisible to even more decimal places.

    Particular Considerations

    Bitcoin as a Payment Method

    Bitcoins can be accepted as payment for goods sold or services performed. Brick-and-mortar establishments may post a sign that says "Bitcoin Accepted Here," and transactions may be conducted with the necessary hardware terminal or wallet address through QR codes and touch screen apps. An online business may simply take bitcoins by adding this payment option to its existing online payment choices, such as credit cards, PayPal, and so on.

    Employment Opportunities in Bitcoin

    Self-employed individuals can be compensated for bitcoin-related work. There are several methods to accomplish this, including launching any online service and adding your bitcoin wallet address as a means of payment to the site. There are also a number of websites and employment boards specialized to digital currencies:
    • Through its website, Cryptogrind connects job seekers and potential employers.
    • Coinality offers employment (freelance, part-time, and full-time) that pay in bitcoins as well as other cryptocurrencies such as Dogecoin and Litecoin
    • Bitwage allows you to select a fraction of your salary to be exchanged into bitcoin and transferred to your bitcoin address.

    Investing in Bitcoins

    Many bitcoin advocates feel that digital currency is the way of the future. Many supporters of bitcoin claim that it enables a significantly quicker, low-fee payment mechanism for global transactions. Bitcoin may be traded for traditional currencies, despite the fact that it is not backed by any government or central bank; in fact, its exchange rate versus the dollar draws potential investors and traders interested in currency moves. Indeed, one of the key reasons for the rise of digital currencies such as bitcoin is its ability to serve as a substitute for national fiat money and traditional commodities such as gold.

    The IRS announced in March 2014 that all virtual currencies, including bitcoins, will be taxed as property rather than cash. Gains or losses on bitcoins stored as capital are realized as capital gains or losses, but profits or losses on bitcoins stored as inventory are recognized as ordinary gains or losses. Transactions that can be taxed include the selling of bitcoins that you mined or acquired from another party, as well as the usage of bitcoins to pay for products or services.

    Bitcoins, like any other asset, follow the idea of purchasing cheap and selling high. The most common way to acquire the money is to buy it on a bitcoin exchange, but there are several additional methods to earn and possess bitcoins.

    Types of Risks Involved with Bitcoin Investing

    Although Bitcoin was not intended to be a traditional stock investment (no shares were issued), some speculative investors were enticed to the digital currency after it rose dramatically in May 2011 and again in November 2013. As a result, many people buy bitcoin for its financial potential rather than its use as a means of commerce.

    However, due to the absence of guaranteed value and the digital nature of bitcoins, purchasing and using them poses a number of inherent dangers. The Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), the Consumer Financial Protection Bureau (CFPB), and other authorities have issued several investor advisories.

    The notion of a virtual currency is still unique, and when compared to traditional assets, bitcoin lacks a long track record and a history of confidence. Bitcoins are getting less experimental by the day, but after barely a decade, all digital currencies are still in the early stages of development.

    • Regulatory Risk

      Investing in bitcoin in any of its various guises is not for the faint of heart. Bitcoins compete with official currency and may be used for black market transactions, money laundering, illicit activities, and tax avoidance. As a result, governments may attempt to regulate, limit, or outright prohibit the use and selling of bitcoins (and some already have). Others are making up their own rules.

      For instance, in 2015, the New York State Department of Financial Services established regulations requiring enterprises that buy, sell, transfer, or store bitcoins to record client information, have a compliance officer, and keep capital reserves. Transactions of $10,000 or more must be recorded and reported.

      The lack of clear laws governing bitcoins (and other virtual currencies) raises concerns about their long-term viability, liquidity, and universality.

    • Security Risk

      The majority of people who hold and utilize bitcoin did not obtain their tokens through mining activities. Instead, people purchase and trade bitcoin and other digital currencies on a variety of popular online markets known as bitcoin exchanges.

      Bitcoin exchanges are fully digital and, like any other virtual system, are vulnerable to hackers, viruses, and operational flaws. If a hacker obtains entry to a bitcoin owner's computer hard drive and gets their private encryption key, the stolen bitcoin might be transferred to another account.

      Hackers can also attack bitcoin exchanges, obtaining access to thousands of accounts and digital wallets containing bitcoins. One particularly infamous hacking event occurred in 2014, when Mt. Gox, a Japanese bitcoin exchange, was forced to suspend down after millions of dollars in bitcoins were stolen.

      This is especially troubling given that all Bitcoin transactions are final and irrevocable. It's the same as dealing with cash: any bitcoin transaction can only be reversed if the person who got them returns them. There is no third party or payment processor, as there is with a debit or credit card, and hence no source of protection or appeal if a problem arises.

    • Insurance Risk

      The Securities Investor Protection Corporation insures some investments. Normal bank accounts are protected up to a specified amount by the Federal Deposit Insurance Corporation (FDIC), depending on the jurisdiction.

      In general, bitcoin exchanges and bitcoin accounts are not covered by any federal or national program. SFOX, a primary dealer and trading platform, said in 2019 that it will be able to provide FDIC insurance to bitcoin investors, but only for cash transactions.

    • Fraud Risk

      While bitcoin employs private key cryptography to authenticate owners and register transactions, fraudsters and scammers may try to sell counterfeit bitcoins. For example, in July 2013, the SEC filed a lawsuit against the operator of a bitcoin-related Ponzi scheme. There have also been reported incidents of bitcoin price manipulation, which is another type of fraud.

    • Market Risk

      Bitcoin valuations, like any other investment, can vary. Indeed, the currency's value has experienced huge price changes over its brief life. It is very sensitive to any noteworthy developments since it is subject to high volume buying and selling on exchanges. According to the CFPB, the price of bitcoin plummeted by 61% in a single day in 2013, with the one-day price decline record in 2014 reaching 80%.

      If fewer individuals decide to accept bitcoin as a money, the value of these digital units may fall and they may become worthless. When the price of bitcoin fell from its all-time high during the cryptocurrency rush in late 2017 and early 2018, there was concern that the "bitcoin bubble" had burst.

      There is already a lot of competition, and while bitcoin has a big advantage over the hundreds of other digital currencies that have cropped up as a result of its brand awareness and venture capital funding, a technological breakthrough in the form of a superior virtual coin is always a concern.

    • Disagreements in the Cryptocurrency Community

      There have been multiple occasions where conflicts between groups of miners and developers have resulted in large-scale fractures of the cryptocurrency ecosystem in the years since Bitcoin's birth. In several of these incidents, groups of Bitcoin users and miners modified the Bitcoin network's protocol.

      This is referred to as "forking," and it typically leads in the development of a new type of bitcoin with a new name. This split might be a "hard fork," in which a new currency shares transaction history with bitcoin until a definitive split point, after which a new token is produced. Hard splits have resulted in the creation of cryptocurrencies such as bitcoin cash (formed in August 2017), bitcoin gold (formed in October 2017), and bitcoin SV (created in November 2017).

      A "soft fork" is a protocol modification that remains compatible with the old system regulations. Bitcoin soft forks, for example, have increased the overall size of blocks.

    What Is Blockchain?

    Bitcoin is a network that operates on the blockchain protocol. A document published in 2008 by a person or group calling themselves Satoshi Nakamoto was the first to define both the blockchain and Bitcoin, and for a while the two concepts were almost synonymous.

    Since then, the blockchain has developed into a distinct idea, with many of blockchains established using similar encryption techniques. Because of this history, the terminology might be perplexing. The term blockchain is sometimes used to refer to the original Bitcoin blockchain. At times, it refers to blockchain technology as a whole, or to a single blockchain, such as the one that runs Ethereum.

    The fundamentals of blockchain technology are, thankfully, simple. A blockchain is made up of a single chain of discrete chunks of information that are ordered chronologically. In theory, this information may be any string of 1s and 0s, which means it might be emails, contracts, land titles, marriage certificates, or bond transactions. Any sort of contract between two parties can, in principle, be made on a blockchain as long as both sides agree on the contract. There is no requirement for a third party to be engaged in any deal as a result of this. This opens up an universe of possibilities, such as peer-to-peer financial goods such as loans or decentralized savings and checking accounts, in which banks or any middleman are irrelevant.

    While Bitcoin's present objective is to be both a store of value and a payment system, there is nothing to suggest that it cannot be used in such a fashion in the future; nonetheless, consensus would be required to add these systems to Bitcoin. The Ethereum project's major purpose is to provide a platform where these "smart contracts" may take place, therefore enabling a new universe of decentralized financial goods without any middlemen and the costs and potential data breaches that come with it.

    This adaptability has piqued the interest of governments and private organizations; in fact, some analysts predict that blockchain technology will be the most influential component of the Bitcoin boom.

    However, in the case of Bitcoin, the information on the blockchain is mostly comprised of transactions. Bitcoin is just a list. Person A sent X bitcoin to Person B, who transferred Y bitcoin to Person C, and so on. Everyone knows where individual users stand by adding up these transactions. It is crucial to highlight that these transactions do not have to be done between individuals.

    The Bitcoin network may be accessed and used by everyone, regardless of nationality, gender, religion, species, or political affiliation. This opens up a world of possibilities for the internet of things. We may see systems in the future where self-driving taxis or uber cars have their own blockchain wallets. The passenger would send bitcoin to the car, and it would not move until the money were received. The car would be able to detect when it is running low on gasoline and would utilize its wallet to enable a fill-up.

    A blockchain is sometimes known as a "distributed ledger," which stresses the main distinction between this technology and a well-kept Word document. The blockchain of Bitcoin is distributed, which means it is open to the public. Anyone may download it in its entirety or visit one of the many sites that parse it. This implies that the record is public, but it also implies that intricate procedures for updating the blockchain ledger are in place. Because there is no central authority to keep track of all bitcoin transactions, participants do it for themselves by producing and confirming "blocks" of transaction data.

    On August 14, 2017, between 11:10 and 11:20 a.m., 15N3yGu3UFHeyUNdzQ5sS3aRFRzu5Ae7EZ transferred 0.01718427 bitcoin to 1JHG2qjdk5Khiq7X5xQrr1wfigepJEK3t. The long strings of numbers and letters are addresses, and you could probably find out who controlled them if you were in law enforcement or just really well-informed. It is a common misperception that the Bitcoin network is completely anonymous, however some precautions can make it extremely difficult to trace people to transactions.
    Last edited by Sha05; 30-05-2021 at 06:39 PM.

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