Friday, October 18

The A-Z of Bitcoin (by DAVID E. ABAH)

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DEFINITION OF BITCOIN

Bitcoin is a decentralized digital currency (crypto currency) without a single controller or administrator; it is a virtual currency and so can be easily sent via bitcoin network from one user to another without any third-party interference. Its high security and reliance standard are hinged on its ability to carry out seamless verification process by network nodes via a cryptographic and recording public ledger called blockchain.

HISTORY OF BITCOIN

Blockchain has a profound history with inception from 2008 and profound evolution, challenges and progresses, bitcoin was first registered on 18th August 2008, and it was spare headed by “mysterious” Satoshi Nakamoto whom at the inception titled it a peer to peer electronic cash system. In January 2009 the bitcoin network created modalities for public mining processes that ensure the creation of new Bitcoin and prompt recording and verification of transaction on the blockchain network. In 2010 bitcoin was finally assigned a value and traded in exchange for a 10,000 Bitcoin ($100 million current worth) for two pizzas, in 2011 the evolutions in bitcoin experienced a major turnaround due to the increasing popularity and increased awareness on the powers of decentralized services, currency encryption, anonymity etc. In 2013 Bitcoin since inception had its highest price value of $1,000 but this rise was short-lived because the price fell to a low $300, this misfortune created a significant level of losses for erstwhile investors, in 2014 the misfortunes of Bitcoin was further compounded as the world largest exchange Mt.Gox went offline and this lead to 850,000 Bitcoin, the current value worth of significant loss in 2014 is valued at $4.4 billion. In 2016 they came a new enhanced bitcoin open called Ethereum and ICOs it was so inviting that threatened to erstwhile existence of bitcoin because it had a platform (Ether) with smart contracts and applications to go with it. The introduction of Ethereum also had initial coin offering (ICOs). These ICOs served as avenues for fundraising platforms for trade and investment of cryptocurrencies, subsequently they concern were raised on the level of oversight and legitimacy of ICO and countries like china out rightly banned it. The year 2017 was a positive one for bitcoin because it grew to $10,000 and with greater prospects to grow even higher, bitcoin value had a tremendous value boost because they were an increased level of popularity, invest flow from $11 billion to over $300 billion with notable banks like Barclays, Deutsch and city bank showing significant level of partnership interest in Bitcoin, the fintech industry was also not left out as it witnessed major revolutions, the preceding year 2018 have been all about consolidation bitcoin has only continue to grow against all odds, its penetrating systems and creating features that brings out the best system devoid of centralized and third-party interference based processes.

CHARACTERISTICS OF BITCOIN

Bitcoin is exceptional because it offers blends of sophisticated service that eschews high levels of transparency, accountability and value; however, it has characteristics like:

  • Bitcoin anonymity: ensure that user’s details of transactions are encrypted with high-tech security options.
  • Easy set-up at no cost, no credit checks, no dubious enquiries etc.
  • Bitcoin is decentralized to ensure high level autonomy, cost effectiveness, fast and secured transaction processes.
  • Bitcoin is transparent in its wallets systems, with options for under users wishing to operate under the radar.
  • Bitcoin is fast in terms of installments, and transactions can be executed in minutes.
  • Bitcoin is a Non-repudiable currency because transfers cannot be reversed unless by the receiver.

PROS AND CONS OF BITCOIN

  • PROS OF BITCOIN
  1. Bitcoin has a greater liquidity as compared to other cryptocurrencies, this allows users to easily retain value during the process of conversion to traditional/fiat currencies like U.S. dollars, euro. Has really grown in acceptance and is seen in some climes like a fiat currency even though it’s still a virtual currency.
  2. The long years of bitcoin existence have greatly increased it scope of general acceptance as a unique payment method, as at today hundreds of business use prefer to use bitcoin payment.
  3. Can be used to facilitate international transactions with no extra cost implications.
  4. Amidst digital payment options like PayPal, bitcoin and credit cards systems, bitcoin offers the lowest transaction fee of 1% with no variation or deviation.
  5. Unlike fiat currencies and centralized payment platforms bitcoin offers 360 protections during online transaction from the process of purchase, payment and record (information) keeping.
  6. Bitcoin is independent & so is not susceptible to any form of political agents, manipulations, creators and influence that can undermine its system for what it is already.
  7. Bitcoin has an already built-in scarcity feature that ensures the sustenance of value that can be compared to jewelry like gold, silver and diamond.
  • CONS OF BITCOIN
  1. Bitcoin profound popularity exposes it to a lot of scams, fraud, attacks a good example of this is the Mt.Gox breach in 2014.
  2. Because bitcoin is an early first project that preceded the technology of blockchain its massive user base over years, bitcoin as against its high visibility level and acute prosecutions for offenders still seems to attract more criminals, grey market participants and other shady practices.
  3. Even though bitcoin stands out as the most wildly known and accepted cryptocurrency it still suffers susceptibility to price volatility especially after the fall of Mt.Gox in 2013 and the eventual rise of bitcoin value in 2017, this instability discourages long-term investments.
  4. Bitcoin, unlike traditional banks and credit card companies offers no refunds for poor and unsuccessful transaction; it has no avenue for arbitration.
  5. Bitcoin might in a not too distant time suffer huge user migration because it now has crypto base contemporaries that offer better services like chargeback/refund, smart contracts, better security options and value proposition.
  6. The environmental hazards created by bitcoin mining process is so huge that there are already cryptocurrency options with low or zero emission energies with better compatibilities to our fragile planet.

HOW DOES BITCOIN WORK?

Every bitcoin is within a computer file, and they are stored in a digital wallet installed either in a PC or an android device, bitcoin can be sent to ones digital wallet and can also be received by another digital wallet, each of this transaction information are stored in the blockchain public list so as to make tracing of bitcoin history much easier and also limit spending.

WHO CONTROLS THE BITCOIN?

Unlike the internet Bitcoin is an independent project in which no one actually controls or exercises any authority over it. Bitcoin is controlled by all its users across the world, as developers continue may continue to enhance software’s but the bitcoin protocol remains intact and so users are free to choose the software version they want. Users wishing to operate compatibly with each other must first use similar software version with same rules and peculiarities. When we say bitcoin is controlled by bitcoin users around the world, we are actually referring to:

  • Users who buy, store and sell bitcoin
  • Developers who are constantly working on enhancing the peculiarities of the network
  • Miners who carryout processing of transactions, mine new bitcoin and ensure that the network is up and very much active.
  • Companies and shareholders that create access and safety to bitcoin users.

HOW CAN I PURCHASE AND SELL BITCOIN?

To buy and sell bitcoin first of all requires you to get a good cryptocurrency based exchange and wallet application that will securely store it. Bitcoin can be purchased in exchange by.

STEP 1: choose an exchange by inputting your resident country and then selecting from the list of approved exchanges based on your resident country and the kind of currency that you want.

STEP 2: setup account on the exchange based on the demands of exchange in terms of identification procedure, etc.

STEP 3: connect one or more bank account to your exchange account so that all purchase and sale will easily made and also deducted from the bank account.

STEP 4: choose an amount to purchase then navigate to the buy feature (point) select the quantity of BTC, enter your personal bitcoin address, confirm the purchase and then wait for the bitcoin to get to your wallet.

BITCOIN WALLETS FOR BEGINNERS?

 Bitcoin is clearly distinct from other fiat currency because it uses specially designed Bitcoin wallet to keep it coin safe, it gives people the power to operate as their own bank, and they are quite a lot of Bitcoin wallet that vary in terms of security, safety, accessibility, convenience, device type, ease of use, etc. they are classified into:

  1. Hot wallet (online): the private key in the hot wallet is stored on devices connected to the internet and so the wallet cannot operate without internet connectivity on that device. (Pc, Smartphone’s etc.)

Bitcoin wallets for beginners

  1. Hot wallets
Wallet Type of wallet Operating system features
Exodus desktop Windows, Linux, Mac User-friendly
Electrum Desktop

And mobile

Windows, Mac, Linux

OS, android

Popular Bitcoin wallet
Coin base Web and mobile Android , IOS Cryptocurrency exchange
Jaxx wallet Web and mobile IOS, Android, chrome Multicurrency  wallet
Armory desktop Linux, Mac, windows OS, Raspherripi Dynamic signature and cold storage options
Binance Web and mobile IOS and Android Cryptocurrency exchange
Wasabi wallet Desktop Window, Mac, Linux OS Privacy based
Blockchain info Web and mobile IOS and Android Cryptocurrency exchange
Samourai wallet mobile Android Privacy based
Bitcoin wallet mobile Android , IOS Give access to local Bitcoin merchants

  1. Cold wallet (offline): the private keys are stored in offline computer hardware accessories like password protected USB or human memory, or specially designed storage devices like TREZOR or LEDGER.

Cold wallets for beginners

Wallet Price Range features
Paper wallet free Can be easily stored either in offline

And online

Ledger $50-$200 Improved security, screen
keepkey $80 screen
Bit LOX $98-$198 Extreme security,

privacy based

Trezor $60-$500 screen

WHAT IS MINING (PROOF OF WORK)?

The creation and evolutions in bitcoin have many shades of breakthroughs but the creation of the proof of work protocol for attaining consensus between devices and distributed the network is really one of the endearing achievements of Bitcoin because it laid a solid foundation for other blockchain technology, the POW is a consensus protocol that was first introduced by bitcoin and has been over the years used as by other digital currencies. The process within the POW is called mining and the nodes within it are called miners, the POW is basically an answer to the very many mathematical riddles within the network, the answer it provides can be either a lower number than the hash of the block for it to be accepted. To be awarded a miner, a target hash is the number of headers a hashed block must be either less or equal to. The lower the target is the lesser and more difficult it is to generate block and miners will continue testing different unique values until a suitable one produced. The miner then goes ahead to mine the next block, add it to the chain, validate transactions and then receive commensurate reward linked to the block.

IS BITCOIN LEGAL?

For a project as unique and powerful like Bitcoin there is bound to be a plethora question on its legitimacy and legality because bitcoin has a global patronage level that is profound, apolitical and borderless and so it is an invention that offers services/operates above the whims and caprices of country and continental restrictions because of its decentralized nature, provided that there is network, internet accessibility, satellite systems and electricity bitcoin can be used by anyone anywhere in the world; however, some countries like India, Bolivia and Ecuador have over the years termed bitcoin illegal, others have developed their own digital currencies, china for instance banned it and later unbanned it but restricted it to only private use. Bitcoin is not susceptible to ban because it cannot be easily control and so restrictions are only last resort effort of skepticism aimed at dissuading the use of bitcoin, but the truth is Bitcoin has come to stay as a virtual legal tender that leverages on decentralized protocol to send, receive and mine anywhere in the world.

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