Demystifying Bitcoin: A Beginner’s Dive into Cryptocurrency
A Beginner’s Guide : Bitcoin and Cryptocurrency Bitcoin , Cryptocurrency and blockchain are terms you have likely heard , but they might seem like a puzzle. Well , don’t worry , we will break it down for Demystifying Bitcoin.
What is Bitcoin ?
In simple language , Bitcoin (BTC) is a digital currency , combining “bit” (the smallest binary unit and “coin”. There will only ever be 21 million Bitcoins , and most have already been generated. Each Bitcoin can be divided into smaller units , with the smallest being a Satoshi , equal to 0.00000001 BTC.
However , due to various reasons like lost keys or technical issues , about 20% of all Bitcoins may be lost forever. Even the mysterious founder , Satoshi Nakamoto , reportedly owns over a million Bitcoins that are inaccessible.
About Bitcoins , Demystifying Bitcoin
• Blockchain Basics
A blockchain is like a public ledger , recording every transaction made with Bitcoin or other cryptocurrencies. Transactions are grouped into blocks , which are then added to the chain in chronological order , secured by complex math.
The beauty of Bitcoin is its decentralization. Bitcoin is managed by a network of users worldwide , no single entity owns or controls it.
• Node Types
There are different types of nodes. Light nodes are lightweight and mainly used in wallets. On the other hand , Full nodes keep a complete copy of the blockchain , validate it and sometimes mine new blocks.
• Mining
Mining is about verifying transactions. Miners validate Bitcoin transactions and ate rewarded for their work. The process adjusts to ensure a new block is mined approximately every 10 minutes.
• Halving
Bitcoin rewards halve roughly every four years to limit its supply. The next halving is expected in mid April 2024.
• Wallets
A digital purse for Bitcoin. It holds your public key ( like an account number) and private key ( the key to your Bitcoin)
There are two types of wallets -:
1. The Hot wallets-: connect to the internet
2. The Cold wallets-: offline, like a vault for different security needs
• Creating a cold wallet
Hardware wallets are secure but can be complex. Other options include using virtual machines or secure operating systems like Tails on a USB sticks.
• Multisig Wallets
There are multisig wallets that require multiple private keys to perform tasks . They are more complex but offer greater protection.
• Popular Wallets
There are many user friendly wallets like Exodus and Electrum available for desktop and mobile.
• The Lightning Network
The lightning Network enabls direct transactions between parties before settling on the blockchain to improve scalability and reduce fees.
• Coinjoin and Privacy
Transactions which are Coinjoin , mix yours with others , making it harder to trace. However , some recipients may not accept coins that have gone through this process.
• Buying Bitcoin
For most, mining is not practical , so buying is common. Use reputable exchanges and always transfer your Bitcoins to your own wallet for security.