Bitcoin is a new currency that was created in 2009 by an unknown person using the alias Satoshi Nakamoto. Transactions are made with no middle men – meaning, no banks! There are no transaction fees and no need to give your real name. It is a form of Digital Currency, created and held electronically. Supposedly, no one controls it. They are not printed like dollars or euros. They are ran by people and businesses around the world. Bitcoin is decentralized, meaning, no one institution controls the bitcoin network. It is a form of currency used for making electronic purchases.
If there are no banks and it is said to not be regulated by the Government, then why are United States Bitcoin Exchange(s) such as ITBIT Bitcoin Exchange promising FDIC Protection, stating they are regulated, and are reporting taxes on transactions?
Reading Bitcoin Vocabulary helps to understand it a “bit” more.
Bitcoins are mined using computing power. What does that even mean? Bitcoin mining is the process by which transactions are verified and added to the public ledger, known as the block chain, and also the means through which new bitcoin are released. … The mining process involves compiling recent transactions into blocks and trying to solve a computationally difficult puzzle.
I still don’t get it. So, as a human, I can mine for Bitcoins by solving a difficult puzzle? Bitcoin uses the hashcash proof-of-work function. The primary purpose of mining is to allow Bitcoin nodes to reach a secure, tamper-resistant consensus. Mining is also the mechanism used to introduce Bitcoins into the system: Miners are paid any transaction fees as well as a “subsidy” of newly created coins. I don’t even know what a “Hashcash Proof of Work Function” is.
Hashcash is a proof-of-work system used to limit email spam and denial-of-service attacks, and more recently has become known for its use in bitcoin (and other cryptocurrencies) as part of the mining algorithm. ISN’T THAT MY ANTI-SPAM APPLICATIONS JOB? A proof-of-work (POW) system (or protocol, or function) is an economic measure to deter denial of service attacks and other service abuses such as spam on a network by requiring some work from the service requester, usually meaning processing time by a computer. Oh, I get it, the miners use special software to solve math problems. Where do these math problems come from and why is a whole network needed to solve them? A question that I guess will have to wait.
Every time someone successfully creates a hash, they get a reward of 25 bitcoins, the blockchain is updated, and everyone on the network hears about it. That’s the incentive to keep mining, and keep the transactions working. The problem is that it’s very easy to produce a hash from a collection of data. Dec 22, 2014
It doesn’t sound like I’m going to be able to understand the Bitcoin network. I don’t know how to make hashes, I only know they are made by some computer or algorithm, so I really don’t know or understand how this bitcoin network can be used or considered a form of currency without diving in deeper to Cryptology; a very complicated area. For now, I am a Bitcoin Skeptic, but I will try to understand it and give it a try with OpenBazaar, but for now, all I understand is that 1) I need to buy bitcoins; 2) I need a wallet; and 3) I need to browse a marketplace to see what I can spend my bitcoins on. Seems simple enough, but since I’m the type of person that has to understand all of the the benefits and risks associated with this new technology, I’m going to have to read more and then run a test.
How do I get started:
Bitcoin.org says to Inform Myself. Do so in order to stay secure, as my bitcoin wallet may require more attention to keep it safe than a regular wallet. While bitcoin offers very good security; it is still my responsibility to adopt good practices in order to protect my money.
- It warns to be careful with online services, as many exchanges and online wallets have suffered from security breaches. It recommends 2 factor authentication when using bitcoin. Similar to how we first felt with an Online Transaction.
- A bitcoin wallet is just like an everyday wallet with cash and it is recommended to keep only small amounts on your computer, mobile, or server for everyday uses.
- Backup and Encrypt your wallet.
- Keep your Bitcoin software up to date.
- Use a Multi-Signature Feature to protect against theft
- Create a solid backup plan for your peers and your family in case you are gone.
I’m already finding conflicts in what is written about Bitcoin. It says “you don’t even have to provide your name,” yet, it uses your Bank Account, so clearly its traceable back to the original bank. Sounds like a very complicated explanation of an Online Exchange, yet they compare it to the same anonymity as using Cash. Apparently there are some advantages to using Bitcoin, such as payment freedom, choosing your own fees, fewer risks for merchants, and security/control.
So far, there is nothing out there that says prices are cheaper, it’s less of a hassle, it’s more secure, and it’s more fun; making me REALLY want to use the Bitcoin, but for some reason I do. It wasn’t until I reviewed OpenBazaar, a marketplace where sellers receive bitcoin, that I began to understand the Bitcoin in practice and some of its benefits. It is a Peer to Peer Marketplace, meaning there is no middle man such as your Bank to charge a “transaction fee” or taxes; seemingly similar to “Craigslist, Etsy, or Ebay,” yet they say they’re different because there are no fees to list items and it offers Store Exposure. It uses a Bitcoin feature called “Multisignature Escrow” to prevent fraud. Now, I’m even more confused, but I think this is the “consensus” portion and validation process of bitcoin; still quite confusing. I had to download an Application to access OpenBazaar and was alerted by Windows Defender that it was not trusted. I chose to run it anyway and installed it. I created an account and ran a few searches. It just didn’t work out well; I couldn’t even scroll down to see what kinds of products it offered and just was not impressed. I uninstalled it within 5 minutes. 🙁 It welcomes its users with a reminder of using your conscious and reminding them of illegal purchases; meaning its an open marketplace offering God knows what; Murder for Hire, Glamour Drugs, Sick Virtual Reality experiences such as killing your neighbor?
Bitcoin price as a currency is Volatile and can be seen as a High Risk Asset. Bitcoin payments are irreversible and NOT anonymous. It is also still experimental and not an official currency.
Bitcoin.org offers about 9 different wallet clients. Just reading the 9 descriptions makes me weary of the Bitcoin network. I STILL DON’T UNDERSTAND THE BENEFITS OF BITCOIN, OTHER THAN NO GOVERNMENT CONTROL; BUT EVEN THAT IS QUESTIONABLE.
It says “BITCOIN is the SIMPLEST WAY TO EXCHANGE MONEY AT A LOW COST.” I don’t know how that can be, considering I can’t really explain the Encryption/Decryption process to an everyday user, but then again, it wasn’t necessary to explain this process when setting up an E-Commerce Online Credit Card Transaction site either. It says a new user can get started without knowing all of the Technical Details.
Great!! I guess that’s it then, as long as I have a good understanding of the Block Chain (or Ledger Process) and the need to secure my wallet, then I suppose I can just hop right in and earn a bitcoin? I am still not convinced or at least not thrilled with the explanations, as it seems to lack in purpose, process, use, and a future vision.
Whoopdy doo, so you’ve created a new currency and are putting security responsibility onto the end user. I guess it’s a cool way to teach “Cryptology” but I can’t see it being used or understood by my friends.
Maybe this Infographic will explain it; personally and honestly, I still don’t get it.