Bitcoin, launched in 2009, was the first of a new kind of asset called cryptocurrency, a decentralized form of digital cash that eliminates the need for traditional intermediaries like banks and governments to make financial transactions.
Instead, Bitcoin is powered through a combination of peer-to-peer technology – a network of individuals, and software-driven cryptography, the science of passing secret information that can only be read by the sender and receiver. This creates a currency backed by code rather than items of physical value, like gold or silver, or by trust in central authorities like the U.S. dollar , Nigeria Naira or Japanese yen.
‘’What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party,” wrote Satoshi Nakamoto — the pseudonym of the mysterious Bitcoin creator, who remains unknown — in a white paper introducing the open-source technology.
How does Bitcoin work?
Each bitcoin (trading symbol “BTC”) is a computer file stored in a digital wallet on a computer or smartphone. To understand how the cryptocurrency works, it helps to understand these terms and a little context:
Blockchain: Bitcoin is powered by open-source code known as blockchain, which creates a shared public ledger. Each transaction is a “block” that is “chained” to the code, creating a permanent record of each transaction. Blockchain technology is at the heart of more than 6,000 cryptocurrencies that have followed in Bitcoin’s wake.
Private and public keys: A bitcoin wallet contains a public key and a private key, which work together to allow the owner to initiate and digitally sign transactions, providing proof of authorization.
Bitcoin miners: Miners or members of the peer-to-peer platform — then independently confirm the transaction using high-speed computers, typically within 10 to 20 minutes. Miners are paid in bitcoin for their efforts.
What you should know as a newbie
As a new user, you can get started with Bitcoin without understanding the technical details. Once you’ve installed a Bitcoin wallet on your computer or mobile phone, it will generate and fund your first Bitcoin address and you can create more whenever you need one. You can disclose your addresses to your friends so that they can pay you or vice versa. In fact, this is pretty similar to how email works, except that Bitcoin addresses should be used only once.
The block chain is a shared public ledger on which the entire Bitcoin network relies. All confirmed transactions are included in the block chain. It allows Bitcoin wallets to calculate their spendable balance so that new transactions can be verified thereby ensuring they’re actually owned by the spender. The integrity and the chronological order of the block chain are enforced with cryptography.
A transaction is a transfer of value between Bitcoin wallets that gets included in the block chain. Bitcoin wallets keep a secret piece of data called a private key or seed, which is used to sign transactions, providing a mathematical proof that they have come from the owner of the wallet. The signature also prevents the transaction from being altered by anybody once it has been issued. All transactions are broadcast to the network and usually begin to be confirmed within 10-20 minutes, through a process called mining.
Mining is a distributed consensus system that is used to confirm pending transactions by including them in the block chain. It enforces a chronological order in the block chain, protects the neutrality of the network, and allows different computers to agree on the state of the system. To be confirmed, transactions must be packed in a block that fits very strict cryptographic rules that will be verified by the network.
These rules prevent previous blocks from being modified because doing so would invalidate all the subsequent blocks. Mining also creates the equivalent of a competitive lottery that prevents any individual from easily adding new blocks consecutively to the block chain. In this way, no group or individuals can control what is included in the block chain or replace parts of the block chain to roll back their own spends.
Storing your bitcoins
Bitcoins can be stored in two kinds of digital wallets:
Hot wallet: Digital currency is stored in the cloud on a trusted exchange or provider, and accessed through a computer browser, desktop or smartphone app.
Cold wallet: An encrypted portable device much like a thumb drive that allows you to download and carry your bitcoins.
Basically, a hot wallet is connected to the internet; a cold wallet is not. But you need a hot wallet to download bitcoins into a portable cold wallet.
Where can You buy Bitcoin
There are many ways to buy bitcoins, the simple way is to use Cryptocurrency exchanges, Peer – to- peer purchases, Bitcoin Atms,Bitcoin mining.
There are a number of P2P crypto exchanges you can use to buy Bitcoin. Bitmama is one of the best Crypto exchanges in the world trading more than 30 crypto currencies you can use to buy bitcoin.