Bitcoin Definition – What Is It And How Do I Sign Up? While Bitcoin is becoming a hot topic in news and finance, relatively few people know what a Bitcoin (or “BTC”) actually is, let alone how to acquire Bitcoin. Below, we’ll give a brief rundown on the tech behind bitcoin, how to transact with it, and a few aspects to consider before jumping on the BTC bandwagon. Let’s go!
Like the Dollar, Euro, or Pound, bitcoin is a currency traded, invested, and transacted all over the world. However, unlike traditional Fiat currencies, bitcoin is unique in that it cannot be minted; the total amount of bitcoin in supply is static. All bitcoin transactions are stored in what’s called the “blockchain,” an enormous ledger of sorts that is constantly updated as bitcoin is transacted. Rather than trading currency through checks, wires, or similar forms of transfer, bitcoin is sent and received through unique addresses corresponding to the user’s account. A user can send or receive bitcoin through their own private “wallet,” typically a computer program or electronic account, or by using one of many exchanges online, where bitcoin and a variety of other currency are traded daily.
There are a variety of ways to acquire bitcoin. Mentioned previously, online exchanges such as Coinbase or Kraken allow a user to set up an account similar to an online brokerage or bank account. Funds in ordinary currency like USD can be deposited to the exchange, and traded for BTC or a variety of currencies. A variety of offline exchanges (think Craigslist, but for BTC) are also available, as well as ATMs, smartphone apps, and an increasing array of options for purchasing BTC through credit, debit, or bank transfer. Note that most exchanges will levy a fee for use of the service.
NOTE: While storing your BTC in an online exchange wallet is convenient, there have also been numerous security breaches concerning bitcoin exchanges. It may be wise to consider setting up your own offline wallet to transfer your bitcoin to for storage.
Bitcoin and cryptocurrencies explained for beginners
Ever wonder how Bitcoin (and other cryptocurrencies) actually work?
Bitcoin: How Cryptocurrencies Work
Far more secure than leaving your BTC in an online account, offline wallets allow you to set up any number of wallets for storage on your PC, external drive, or even dedicated physical wallets. One of the simplest ways to create a secure wallet is through one of the many wallet applications available online, such as Electrum. Download the software to your PC, a flash drive, or whatever form of storage you can keep secure. User-friendly applications like Electrum will walk you through the process at startup, which typically requires only a name and password for your wallet. Your wallet will feature its own address for receiving bitcoin, which can be used on exchanges for transferring BTC to your personal wallet. You can also send BTC from your personal wallet to an exchange account, business, or another person by using their wallet addresses.
Seeds & Security
Like any financial account, be sure to use a strong password to secure your wallet. If you plan on holding a large amount of bitcoin, it may also be wise to consider storing your wallet(s) on an external drive kept in a secure place. For extra security, consider encrypting your storage device, and/or split your bitcoins among several wallets rather than stored in one place. Remember, anyone who can access your wallet can access your bitcoins, making diligent security practices important.
Many wallet applications will also provide you with a “seed” with each wallet, a unique string of phrases that can be used to restore your wallet in the event of a device failure. However, this seed must never be shared or stored in an insecure place– by learning your seed, a prying user can access your wallet. Keeping your seeds in an encrypted external drive with redundancy protection, or even writing it down and keeping it in a safe or deposit box, is a very good idea.
With that in mind, you should be ready to buy your first bitcoin! Whether for investment, merchant transactions, or just as a hobby, bitcoin is a fascinating technology rapidly bringing alternative currency into the spotlight. If you’d like to learn more about bitcoin, leave a comment or question below.