Lesson: The Essentials of Bitcoin

In previous post the basics of cryptocurrencies and bitcoin I explained that Bitcoin invented by Satoshi Nakamoto in 2009 is a decentralized cryptocurrency that is freely transferred between users of the blockchain network anywhere in the world (border-less). Banks or government authorities can not control it or censor it.

In this lesson you will learn:

• Bitcoin is not completely anonymous.
• Bitcoin wallets purpose is to access your money and protect it.
• Bitcoins are stored in what's known is a public ledger called "the blockchain" https://blockchain.info/
• Bitcoin is not minted like regular money, it's "mined", by a network of contributing computers worldwide running bitcoin nodes known as "miners"

Authority and Anonymity

Bitcoin is the first decentralizer peer-to-peer payment network and its not controlled by third party rather powered by its users. It can not be controlled by goverment authority or censoring but it's the users responsibilities to safeguard their money (wallets). If someone misspends Bitcoins (BTC) or sends to wrong person or lose access to wallets password (key), there is no entity to complain to.

Bitcoin values within a wallet is not tied to real-world people or email addresses. It's rather tied to specific bitcoin address(es). So it's pseudonymous. The owners are those of control of bitcoin addresses are not explicitly identified, but all transactions between addresses are recorded on a digital public ledger called the bitcoin blockchain. Anyone with access to internet can view the transactions within the blockchain using tools known as "blockchain explorers". To access BTC explorer go to https://blockchain.info/. Bitcoins are traded for traditional currencies using bitcoin exchanges. Those exchanges are sometimes required by lay to collect the personal information of users.

How to Safely Store Bitcoins ?

to start you must create a bitcoin wallet. The wallet is an address and an encryption password or key required to store the information necessary to handle your bitcoins. They hold or store your bitcoins. The bitcoins are part of the transaction ledger "blockchain". The BTC wallet is best described as "something the stores the digital credentials for your bitcoins and allows you to access them". In Bitcoin two there are two cryptographic keys, one public and another private using public key cryptography generation. The Bitcoin (BTC) wallet is a collection of those cryptographic keys (public,private).
There are several types of Wallets. There are software wallets that are used to connect to the blockchain network and allow users to transact bitcoins in addition to holding the credentials (public,private keys) of ownership. There are online Wallets that offer similar functionality to software wallets. The online wallets, the cryptographic keys used to access the money is stored with the online Wallet provider rather than the user (hardware or software) wallets apps. There are also physican wallets that store the public and private keys offline. For example keys printed on a piece of paper or remembered in your head. As you know online providers can be hacked but offline wallets can not therefore they are considered more secure from copying as long as its kept safe while not lost.

The Blockchain https://blockchain.info/

The Bitcoin Blockchain is a public ledger where all bitcoin transactions are stored. It's not maintained by one central authority but by a network of communicating bitcoin nodes and miners running open-source bitcoin software. Transactions are sent to the blockchain using Wallet apps. The bitcoin nodes validate the transactions according to predetermined criteria and add their copy of the blocks to the publick ledger and forward them to other nodes. Each network node verifies and stores it's own copy of the blockchain, a distributed database. The prices of bitcoins were initially set by enthusiasts on the bitcoin forums and exchanged both online and offline. Everything now has moved to online exchanges where the participants offer bitcoin buy and sell bids just like other commodity exchanges. The prices fluctuates according to the market forces of supply and demand. Now days this goes hand in hand with speculators. The prices often times can go up or down sharply and suddenly in response to news events.

Buying and Spending Bitcoins

You can direcly buy bitcoins online from bitcoins.com using a credit card, or by using an exchange via a bank transfer of fiat currency. Or they can be purchased locally using bitcoin ATM machines from services like Localbitcoins. Where to spend your bitcoins? there are hundreds of thousands of merchants and vendors, both online and offline. Look for places that accept bitcoins.

Bitcoin Mining

Traditional money systems, federal governments simply print additional money when they need it. This process leads to inflation of money which in term reduces the value of money that is being circulated. bitcoin money is not printed but it's discovered with each new block added to the blockchain ledger by bitcoin miners. Computers controlled by bitcoin miners compete with each other. successful miners need specialized mining computer that is much faster than regular laptop of desktop and specialized to complete the bitcoin mining work. Therefore mining is a very competitive business as the difficulty of mining continue to increase with the increase of number of competitive miners. Mining is the act of processing and verifying transactions on the bitcoin network and adding them to the blockchain. Each set of transactions are processed into blocks, verified by miners, and added to the bitcoin blockchain.

To recap

• Bitcoin is not strictly anonymous
• It's your responsibility to use your Bitcoin Wallet to protect and access your money
• Bitcoins transactions are stored in public ledger called the bitcoin blockchain https://blockchain.info/
• Bitcoins can be exchanged for fiat money or traded for goods using credit card, exchanges, ATM's, or online vendors.
• Bitcoin is not like regular money that is being constantly printed but its constantly being discovered by the miners who run bitcoin nodes

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