Bitcoin is a digital asset also referred to as a crypto currency. It was the first such currency to gain popularity, having been introduced to the world in 2009 and now being used by millions of people around the world. Despite its rapid growth, Bitcoin and the blockchain technology on which is it based remains a mystery to many people in mainstream society. The purpose of this article is to remove some of the mystery around Bitcoin so regular people can be empowered and encouraged to embrace it as an investment commodity and as a payment form.
Bitcoin was introduced to the world as an alternative to the established banking and financial system primarily in response to the irresponsible actions of big banks that caused the Global Economic Crisis of 2008.
Developed by a lone programmer or a team of unknown programmers under the pseudonym “Satoshi Nakamoto”, Bitcoin was described as a peer to peer payment system that allows people to send value to each other without the need for an intermediary. In other words, it is a way for people to pay each other without needing to use banks.
Bitcoin transactions are conducted over the internet using data encryption, hence the term ‘crypto currency’, and are recorded on an open ‘shared ledger’ on thousands of computers around the world, making it highly resistant to attack and fraud because there is no central point that can be exploited.
The computers that store the shared ledger are collectively known as the Bitcoin Network, and have the job of validating each new transaction before it gets added to the ledger as part of a ‘block’. A block is formed every ten minutes and can contain details of many transactions. The blocks are encrypted and timestamped, and linked consecutively, forming what is referred to as a blockchain.
No part of the blockchain can be fraudulently altered without first unlocking the surrounding blocks and then trying to convince all the other computers on the network that nothing has been changed, so it is fairly well guarded against hackers and would-be theives.
The open ledger nature of the blockchain also prevents anyone from being able to ‘double spend’ their bitcoins, which has long been a challenge for people dealing with digital assets.
In order to receive bitcoins, a person must generate a pair of digital ‘keys’. These keys are the equivalent of someone’s account number and password from a traditional bank. The first key is called the ‘Public Key’ or ‘Wallet Address’. To receive bitcoins it is required to share the person’s Public Key with the payer, who would simply send bitcoins to that address. The second key is known as the ‘Private Key’, and must be kept secret at all times. The Private Key is used to send bitcoin payments, but the key itself is not shared.
Public and Private keys for someone’s Bitcoin account are stored in a digital ‘wallet’ – a small app that runs on a PC or mobile device. The actual bitcoins themselves only exist as a balance in the open ledger, and the wallet acts as an interface to allow the owner to send and receive bitcoins and view their balance.
So bitcoins can be easily sent from one person to another by using wallets and keys, but they can also be converted into traditional currency via the use of ‘exchanges’. An exchange is an online marketplace that works in a similar fashion to the stock exchange or a forex market. There are many exchanges, and each one will have a ‘buy’ and ‘sell’ price for Bitcoin in relation to US Dollars and perhaps a number of other currencies as well. The price for bitcoin and other crypto currencies can fluctuate greatly, creating an ideal hunting ground for investors and market traders seeking to make a profit from the ever changing rates. This is a high risk method of investment often referred to as ‘crypto trading’, and has been the making of many new millionaires over the last few years.
There are other ways to invest in bitcoin and crypto currencies however. One of the simplest is to merely buy bitcoins at the current price and just hold it for the long term in the expectation that the price will steadily rise over time. With the price of bitcoin rising by around 1000% in the last year alone it is easy to see why many people see this as a good strategy.
Another method of investment in crypto currencies is a bit more complex than simply buying the coins outright, and is called ‘mining’. Mining is a term that actually has nothing to do with shovels and pick axes. It actually refers to the running of computers that are connected to the Bitcoin Network. The ‘mining’ is really just the validating of new bitcoin transactions and adding them to the blocks that the blockchain is made up of. Each time a new block is created, the owner of the computer that created the block gets paid a reward in the form of new bitcoins! It is a way of generating new coins to increase the circulation as well as incentivising people to buy and run the powerful computers that do the work.
The final method of ‘crypto investing’ that will be mentioned in this article is the direct investment into new crypto currencies that are in the throes of being launched upon the market in a process known as ‘ICO’s’ or Initial Coin Offerings. ICO’s are generally highly speculative, as many new crypto currencies are released each week, many of which fail. Failed ICO’s are an extremely effective way for investors to lose money. However, the rewards can also be very exciting if an ICO proves to be successful.
In addition to the investment methods discussed here there are numerous online investment platforms related to Bitcoin and other crypto currencies, some of which are more legitimate than others. Some degree of risk is to be expected with any of them, and people should always proceed with caution and take professional advice before getting involved. Keep in mind that where there is great opportunity, there can also be great risk.
Not all Bitcoin users are interested in the investment side of things, however. As with the traditional banking and financial system, most users just want a convenient way to send and receive payments securely and with the confidence of knowing that their coins are safe at all times.
The benefits of using Bitcoin as a system of payment for these people are many. No intereference by a third party; total control of one’s own finances; lower fees; and the ability to quickly send payments to anyone, anywhere in the world.
Bitcoin and the blockchain technology, as well as other crypto currencies, are here to stay. They are the future of finances for people not only in the First World, but also in developing countries. This article has introduced the basic concepts that underpin crypto currencies, discussed digital wallets and the Bitcoin Network, and briefy described some of the ways that people can invest in this exciting category of digital assets. The reader is encouraged to learn more about Bitcoin, seek sound financial advice, and consider the possibilities that blockchain and crypto currencies present as we move into the age of a free and open society.
Getting Started with Crypto Currencies
The financial industry is changing as people embrace Bitcoin and crypto currencies, yet many people spend little or no effort in preparing their personal computers prior to embarking on their crypto journey. An unprotected computer can leave someone open to hackers, scammers, or any number of other methods to separate crypto coins from their legitimate owners. The aim of this article is to raise awareness of the risks of purchasing, storing and trading crypto currencies, and to provide information about a number of security measures that you can use to protect your pc or device, your personal information, and your crypto currencies.
The information presented in this article is particularly targeted at users of Windows computers. The methods will vary for mobile devices and computers running alternative operating systems.
The methods described herein are designed as a reference only, and you are encouraged to be vigilant to ensure your security.
One of the first steps recommended to anyone new to crypto currency is to make a backup of your files on an external drive or cloud storage. You never know when some weird event or even just a malfunction could stop your computer from working, so make a backup and be prepared for the unexpected.
One of the big risks associated with the crypto currency industry is that of hackers, who attempt to hack into people’s computers through various means and steal the ‘private keys’ for coin wallets as well as passwords and other information that might enable them to withdraw someones coins. Installing a dependable Firewall program is an important step to mitigating this type of threat. While there is a firewall built into most Windows operating systems, it might not always be enough to keep hackers at bay. Look for a firewall program from a trusted website. Free firewalls are usually adequate as a starting point but the user should consider upgrading to a premium product as their crypto portfolio grows. Privatefirewall is a good free option.
Another serious threat that exists within the Bitcoin and crypto currency industry is that of malware, viruses and trojans. These are nasty pieces of software that may be attached to otherwise legitimate files such as pictures, videos, even music files, and that attempt to send a copy of your important information back over the internet to a hacker or other person who is interested in stealing your coins. It is therefore important to have a strong anti-virus program installed on your PC in order to scan any susceptible files prior to opening them. As with firewall software, free products can be perfectly adequate for protecting computers that hold a modest amount of crypto currency, but again, each person needs to be aware of their own exposure to risk and adjust their protection as their portfolio grows. Avast’s free version is a good place to start.
Another important consideration for PC owners is choosing a secure browsing environment for their internet usage. Extensions and addons exist for most popular web browsers that add additional security to the basic package. Using a ‘high’ security setting for a web browser is obviously more secure than using a lower setting, although there is often a tradeoff in terms of functionality and convenience.
Some browsers offer a ‘privacy mode’, which can help to protect personal information, and others offer a VPN option that hides data about a person’s location. An even higher level of security can be achieved by using purpose built secure browsers such as TOR browser or Avast’s SafeZone Browser. Keep in mind that many crypto faucets and other crypto related sites will not work in a privacy browser due to the demands of the advertising agencies that provide the revenue to pay for your claims.
Security is of the utmost importance when installing and using wallets for crypto coins. It is recommended to always use the official wallet for any coin wherever possible, and make use of the password and encryption systems built into them. Using wallets that are not password protected is never as safe as using wallets that are password protected.
Good wallets allow the user to copy, save and print out the public and private keys as well as the recovery phrase. Burning these to a disk or writing them into a physical book allows the user to recover the coins in the event of a computer malfunction. Stories abound on the internet of people who failed to keep a record of their wallet keys and who later lost coins worth a fortune when their computer died or was destroyed. Wise users take steps to mitigate the risk of losses wherever possible.
Hardware failures are commonplace with home computers, so long term storage of any significant amount of crypto curency on a computer is not advised. A better idea is to set up a ‘paper wallet’ or invest in a good quality hardware wallet, either of which can be further protected by being stored in a fireproof safe.
The use of paper and hardware wallets is generally less convenient but more secure than storing coins in a desktop wallet. Again it often comes down to each user’s preference.
It is important to mention the use of crypto exchanges for the storage of coins. Exchanges are designed to hold coins for the purpose of trading, and are not intended as long term storage. It is not unknown for exchanges to be hacked or even to go out of business, and many crypto investors have lost coins to both of these type of incidents. Of course, it can be very convenient to keep a reasonable amount of coins in an exchange where they can be readily traded at short notice. Each user should be aware of the risks and determine a level of convenience and exposure that they are satisfied with.
Another important security measure that is recommended for crypto users and investors is that of ‘Two Factor Authentication’ or ‘2FA’. Two factor authentication is a securty service offered by Google whereby a user is required to enter a security code from a smartphone app when accessing online accounts at various websites. Alternatively, there is an extension available for the Chrome browser that serves the same purpose. 2FA is compulsory on a growing number of websites including many crypto exchanges.
As with any industry related to currency and money, security is a major consideration in the Bitcoin world. Investors and other crypto users can be the target of any number of malicious threats, scams and online hackers. Protecting your personal computer is therefore of the utmost importance when working in the crypto space. Use the methods described on this page and you will be better placed to keep your device and your crypto coins safe.