Assorted Thoughts
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Assorted Thoughts

Bitcoin explained in 3 minutes

For newbies

Photo by Carl Jorgensen on Unsplash

If you knew that there are other cryptocurrencies besides bitcoin, this is article is not for you, if you didn’t, now you know. Hundreds of them. For readability I am going to call all cryptocurrencies “Bitcoins”

What does it mean to have Bitcoins?

In order to have bitcoins, you have to be the sole owner of a list of secret words that give you control over a Bitcoin Wallet AND you have to buy bitcoins from the previous owner.

Ok, how do I get a Bitcoins Wallet?

There are many free Bitcoin Wallets Software that you can install, and with them you can create your own Bitcoin Wallet. Most of them can hold many types of Bitcoins. Bitcoins wallets have many addresses, as many as you will ever need. Two different installed bitcoins wallets never have any common addresses, they are unique.

Ok, who sells Bitcoins?

There are many ways to buy bitcoins, the simplest is to open an account in a crypto exchange. This can be a long process as they will ask you for personal documents to check who you are, just like a bank does.

Ok, so I bought some Bitcoins, now what?

Bitcoins are not like bank deposits. You can control them the same way you control physical coins and banknotes. That means that they are easier to steal or lose than the money in your bank account. When you buy your bitcoins in a crypto exchange you don’t really have them yet, to do that you would need to transfer them to an address in your Bitcoins Wallet. Before you transfer all your Bitcoins to an address in your wallet, you have to practice with small amounts the following:

  • Uninstall your wallet and re-create it from the list of secret words that only you have.
  • Transfer money from the crypto exchange address to the wallet address and from the wallet address to the exchange address.
  • Uninstall your wallet and re-create in a different device it from the list of secret words that only you have.
  • Transfer money from the crypto exchange address to the wallet address in the new device and from the wallet address to the exchange address.

Only after these tests and making all the mistakes that will come with them, you can have some confidence about transferring bitcoins from your crypto exchange address to your an address of your bitcoins wallet.

Ok, but what IS Bitcoins?

  • Bitcoins are entries in a long list that is replicated across the internet.
  • The list says how many bitcoins are there in each address.
  • The list is maintained by a network of computers that don’t trust each other.
  • New transactions of bitcoins between wallet addresses are added all the time to the list in chunks called blocks.
  • The network of computers that have a copy of the list compete all the time in a mathematical lottery to be chosen to add a new block to the list, and they get new bitcoins rewards if they win (this is called mining). This is the only way new bitcoins are created.

The money in your bank exist in a similar way, as your balance is kept in a list (a database). The difference is that only computers trusted by the bank can access the banks deposits list, whereas with bitcoins, any computer in the world can access the list.

Ok, should I put any money into Bitcoins?

The exchange rates of bitcoins change dramatically from day to day, up and down

  • You shouldn’t invest if they are illegal in your country.
  • You shouldn’t invest any money you can’t afford to lose.
  • You should only invest with an exit strategy, either deciding ahead to time at what exchange rate you will sell or at what date you will sell.
  • The best is to invest with a perspective far in the future and never look at the daily exchange rate.
  • Take into account the taxes that you will have to pay if you make a profit.

If you lose or someone gets the list of secret words that belongs to your bitcoins wallet, that only you should have, you will lose all your bitcoins

Treat your list of secret words like if it was money, because it is

Note

If you prefer to read about cybersecurity ONLY, subscribe to The CISO Den instead of my personal account.

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