Bitcoin for Beginners : Answering the Why? What ? and How?
Well, you would have heard a lot about this fancy cryptic word “Bitcoin”. Let me begin by telling you a short story about “The Man Traveling The World On $25 Million Of Bitcoin Profits”.
So, there is this guy, named Mr. Smith, who worked at a software firm in Silicon valley. In 2010 he purchased 20,000 units of something called Bitcoin at the rate of $0.15 per Bitcoin. As on the date of writing this article, the price of Bitcoin is $3459.91 per Bitcoin.
Doing the math, the stuff he bought 7 years back at $3000.00 is now worth $691,981,901.91.
Crazy, Isn’t it. ;). I suppose this story is sufficient enough to whet your appetite for BitCoins.
Ok! now What is Bitcoin ?
“Bitcoins are analogous to the currency you use to buy ice creams and other stuffs”.
To understand what makes it different from the paper currency, we have to know a little about how our currency works. “Don’t worry, I guarantee you it will be short and interesting”.
Well, currency works because we trust that this piece of colorful paper can buy your desires and needs. So we all work hard to get this paper.
Now, we have started trusting this piece of paper, now the next question is how is it valued ? Who defines if $900 can buy me an Iphone X or is it just worth buying a burger.
India has RBI, The US has FED and so on. Each country has its own regulatory body.
In simple terms, they devalue the currency by printing more and more money, or increase its value by making it rare, or printing less of it. This controls the Inflation and Deflation in the economy. Also, there are other Intermediaries that support lending and currency transfer.
You can look at this awesome 1 minute video to know more on how currency works.
Note the words I have highlighted above : “Trust”,”rare” & “Intermediaries”. You see , these are the three main recipes of current currency system.
Now why should you chose Bitcoins ?
Well, apart from possibly becoming a millionaire as seen from the story of Mr. Smith above, there are many other benefits.
There is an underlying technology behind bitcoin called “Block Chain” which gives it these super power.
Think of Block Chain as an infrastructure or a room, where once you enter, you become anonymous. Anonymous to government, anonymous to people inside the room. And there are some more anonymous guys in the room who verify and validate that the money transactions are valid. These guys are called miner and even you can become a miner.
Now, the algorithm running behind the block chain makes sure that you are anonymous and can transact. This algorithm also maintains how much bitcoin should be released to the system.
Do you know who created this algorithm ?
Well, no body knows..he/she is also anonymous :D. He/she is known by a pseudonym “Satoshi Nakamoto”. He/she released the paper and code for the working of bitcoin block chain.
Waowwww!!! Isnt it?
What can you do with bitcoins ?
You can purchase games from Microsoft, Green Man Gaming. You can purchase gift card from Amazon. You can buy food from any of the 93 restaurants accepting bitcoins. You can buy products from Overstock.com. You can pay for a hotel with Expedia, book a flight with CheapAir, or take a cruise with Ships & Trips Travel.
Since there is no intermediary, processing fee is very less and its a global system so one does not need to pay any currency exchange fee for intercontinental purchases.
Cool! I also want some bitcoins..Where do I start ?
Its that simple. No more going to bank creating a bank account and doing all those paperworks.
MORE ON STEP 1
Download a bitcoin wallet. Its a software you can use to store/send/receive your bitcoins and connect to the network.
Once installed the wallet will generate an account address for you. You can share this address to send and receive money.
Extremely Highly Super Duper Important Note.
Just like a pocket wallet can be stolen, banks can be robbed, bitcoins also can be stolen if the place where you install your wallet is hacked.
Its highly recommended to read : Securing your wallet.
Also, as you have seen, Bitcoins are very volatile. But its worth a try.