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8 Keys to Understand Everything About Bitcoin

Bitcoin is a decentralized payment system (node ​​to node) that works without the need of a central authority or third parties that control the double spending of currencies.

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It is worth trying to understand what these so-called bitcoins are about.

1. What is a bitcoin and what is it for?

Bitcoin is a decentralized payment system (node ​​to node) that works without the need of a central authority or third parties that control the double spending of currencies. In particular, Bitcoin are three things at once:

–   Is an accounting unit of a payment system (ie: a currency) that allows online payments to be made instantly and irreversibly.

– Bitcoin is a protocol that serves as a standard framework for conducting electronic transactions from person to person in a peer and equal network, without servers and without the need for third-party intervention.

– Bitcoin is a network that serves to create a decentralized database, based on consensus, where anyone can carry out commercial operations.

The Bitcoin protocol and network can be used in different ways and there are already many ideas on how to incorporate this technology (blockchain) to other uses. For example: IBM has a proposal to use blockchain technology to keep track of owners and permissions on “the internet of things” or everyday objects such as refrigerators, light bulbs, etc. That is, if I have a refrigerator, I do not want another person to be able to communicate with it or see what I have inside. A system of permits guarantees this hierarchy without the need for a super system, since it would be done with a distributed and decentralized database.

Any need that can be met with a decentralized database and by consensus, that does not die and is always accessible, can be adapted to this technology. And that is what is truly revolutionary. For example, an identification system could have its database always on-line with an almost absolute attack resilience and generate unforgeable documents.

Another example is Litecoin (a cryptocurrency similar to bitcoin), which uses the bitcoin protocol, but over a different network.

Bitcoin is clonable in all its aspects because it is free software.  But before seeing how far you can go, let's see where it comes from.

2. What is the story behind the bitcoins?

On October 31, 2008 at 18:10:00 GMT, Satoshi Nakamoto published an article on the cryptographic mailing list that raised the conceptual idea of ​​Bitcoin. In that note, Nakamoto explains that he had been working on a new electronic cash system that is totally peer-to-peer, with no need for intermediaries. In addition, it says that transactions can be carried out safely and without the possibility of fraud in the system and that the total circulation of currencies would eventually reach 21 million.

On January 12, 2009, the first transaction with bitcoins was made. On October 5, 2009, New Liberty Standard published the first exchange rates of Bitcoin against the dollar, which for that day was 1,309 bitcoins / US $. And on May 22, 2010, the first pizza purchase was made using bitcoins.

Already by February 9, 2011, each bitcoin was quoted at US $ 1. And in April 2013 the bitcoin broke the barrier of US $ 100 per unit.

3. How much is a bitcoin worth?

The value of the bitcoin currency is defined by market forces. That is to say: the value of a bitcoin depends on its supply and demand.

You can find the value of a Bitcoin here.

4. Where can I use a bitcoin?

Nowadays you can buy almost everything you want using bitcoin. You can pay for tickets on Expedia, buy computers on Dell.com or newegg.com, furniture and household items on Overstock.com and even buy directly on amazon.com with a discount of up to 20% using services such as brawker.com or purse.io. Every day there are more ways to use bitcoin to buy goods and services.

5. What should I do to obtain bitcoins?

There are several ways to get a bitcoin. One is to buy it in a market such as bitstamp.net, okcoin.com, bitfinex, huobi, btc-e, coinbase and bter. and other is “mining” it. And here it is important to explain this process because mining is a verb that can be confusing: mining is the process by which the system overcomes the problem of double spending or fraud to the system.

Bitcoin saves the information of the transactions and the issuance in a set of sheets called “blocks” and there where all the transactions of the moment are written and the past ones are confirmed. A block is the accounting book of electronic transactions made with bitcoins.

But it is clear that initially there were no Bitcoins, so the first 25 bitcoins were created in the first block or sheet 1 of the Bitcoin book. Every time a sheet or block is added to the book, currency issuance is made. Therefore, the monetary mass and inflation of bitcoin is tied to the number of the block in which we are.

The mining nodes of the Bitcoin network look for a solution to a mathematical challenge to earn the right to write the block and get the reward. The work of the miners is, in reality, to build the chain of blocks and secure the network.

In other words, the job of the miners is to keep the network active.

Imagine a sudoku that can grow in difficulty as much as we want.

Finding the block is equivalent to solving the sudoku. The network adjusts the difficulty of the sudoku so that only 1 sudoku can be solved every 10 minutes, thus controlling the emission of bitcoins. It is easy to know that a sudoku is well done, but it is difficult to compute its solution. In this way it is easy to know that one block is valid, but difficult to calculate the next.

When solving the block, the right to write it is won and another sudoku is automatically generated according to the previously calculated block. And to calculate the next block you must know the current one. So the miners are the scribes of the consensus book: they are the ones who guarantee both the emission and the security of the network.

Currently the mining is done with computers specially designed for Bitcoin mining (ASIC). And the best and safest hardware provider for mining is currently bitmaintech.com and its antminer.

6. What should I do to sell bitcoins?

To sell Bitcoins you just have to be registered in an exchange like okcoin.com, coinbase.com, or bitstamp.net, The way to validate yourself is by sending your passport information and that’s it. Then it is possible to sell them with a single click.

7. Can you save on bitcoins?

Bitcoin is not a savings system, it is a payment system. It is only advisable to save on bitcoins if it is a long term savings strategy.

8. What are the basic steps to start “mining” bitcoins and how much should be invested?

They could be summarized in three steps:

  • Study the history of bitcoin mining and the evolution of the method, since only in the last 4 years has it gone from using normal computers and arranging with video cards up to a stage where it is done with specific Application Chips or ASIC, knowingly that the bibliographic sources are limited to the forums of bitcointalk.com.
  • Understand that bitcoin is a market, so you should never invest more than you are willing to lose.
  • Learn how to use a mining investment return calculator. Bitcoinwisdom has a very good one, but to handle it, it is key to understand the variables of the mining business:
    • 3.a. Is not easy. The network adjusts the difficulty of the “sudoku” so that only one block can be found every ten minutes, so that the more miners enter the network, the more the difficulty rises.
    • 3.b. Electricity costs (US $ / kWh).
    • 3.c. GHS performance of the mining machine.
    • 3.d. Cost of the machine
    • 3.e. Maintenance costs.
    • 3.f. Bitcoin price.

 

8 Keys to Understand Everything About Bitcoin
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