The bitcoin protocol and the reference software client works on any computer or smartphone. It’s been extremely scalable so far, and has managed to support billions of devices using its blockchain simultaneously. Oh and while it is at it, it also functions as an extremely valuable currency, helping people make payments anonymously, and even solves the double spending problem.
Bitcoin as we know it today was introduced in 2008 by a pseudonymous inventor known as Satoshi Nakamoto. He was the one who mined the first block of bitcoin — called the ‘genesis block’ — the beginning of the blockchain as we know it today. His real identity is never disclosed and still remains unidentified despite numerous attempts by hundreds of people to locate him. Today, Bitcoin protocol development is being controlled by numerous developers all over the world and no-one really shares pure ownership.
In a previous post, we explained the very basics of bitcoin — how bitcoin works, the underlying blockchain technology and its promise. Let us now move onto understanding the essential part for a currency — how to transact in bitcoin.
Bitcoin is a currency. So it needs to change hands. So what are the available options for exchanging bitcoin today?
Person To Person Exchange
This option is basically similar to money/gold/commodity exchange. Two people decide on a price for one bitcoin token and trade (you can always go to bitcoinaverage.com to find out current average market price). The buyer sends their wallet address or their public key. The seller sends the bitcoin, collects cash from the buyer and both are good to go. In essence, it’s a one buyer-one seller trade. However, you’re likely to use this method when you’re less educated about the subject at hand, and chances are you’ll end up overpaying.
Just like a stock exchange, virtual marketplaces for bitcoins exist too, with people looking to buy and sell bitcoins at an agreed market price. Current market value per bitcoin is discovered based on supply and demand of bitcoin.
A public bitcoin exchange provides a much efficient environment for people to buy and sell cryptocurrency securely. You are advised to sign up only on exchanges which follow strong verification & security measures, especially when you are linking a bank account and moving fiat currency.
We’ve thus far established the multiple ways of exchanging bitcoins. Now of course, exchanging bitcoins involve sellers who have acquired some in first place. Let’s begin with acquisition and figure out how you can get your hands on some of this digital gold.
As we noted earlier, mining is a process of record-keeping or validating the transactions over the network. There is a cap of 21 million bitcoins that could ever be created through a rewarding process called mining. The rate of creation halves (reduced by an order of two) every four years until the cap is reached. Due to a very limited supply with a growing demand has pushed up the competition amongst miners. Mining has already become pretty tough and infeasible for a regular user, and is no longer an efficient way to acquire bitcoin for an individual.
Why? Because you’re likely to spend more on electricity costs by running your machine to mine than the value you may earn by mining coins. It’s very inefficient (ofcourse this equation varies according to region)!
Selling goods and services for bitcoin
A pretty obvious way to acquire bitcoin (for the fact, anything else!) and rather easy way to acquire to sell goods & services by accepting bitcoin for payments. This is easy and more suitable for the already running businesses or self employed individuals.
Trusted Exchange Services
Simply head onto one of the most trusted bitcoin exchange (like Unocoin), signup yourself, and you’ll be provided with a ready made bitcoin wallet without having to set an offline one up and dealing with its hassles. You can then proceed to buy bitcoin from the exchanger using your bank account, credit/debit cards or one of the many other means.
You could even buy bitcoin directly from other real-world people without the need to trust by joining a peer-to-peer bitcoin exchange.
Once you’ve acquired bitcoins, you can either spend them or even sell them for a profit (with the price appreciation). With a consistent meteoric rise, it is hard to imagine why you shouldn’t be interested in acquiring bitcoin for yourself.
Third party exchanges act as intermediaries who can facilitate trade between multiple users without a need for trust. You place a ‘sell order’ (just as you would place a buy order) stating the volume (amount), type of currency you wish to sell (bitcoin in this case) and the price per unit you wish to sell for. Liquidity problems or issues with banks may exist with exchanges often. Therefore, careful research of exchanges is the key. Mind checking out Unocoin?
Certain platforms help to bring together two groups of people together with complementary and specific needs. The first group of individuals are who want to use bitcoin for buying goods from websites which do not accept digital currencies yet. The second set of users are those looking to buy bitcoin with either a credit/debit card. The marketplace brings together these individuals with matching requirements to effectively enable bitcoin spending for one and provide an easy method to buy bitcoin for another.
Purse is one such platform to engage in peer-to-peer trades.
Selling in person
You can always resort a last priority to trade your bitcoin with an unknown user in person without the requirement of any third party or platforms using mobile devices and accepting cash or any mode of payment suitable. There is a high risk associated with this method in term of privacy loss and criminal activity association.
Storing and keeping your bitcoins safe
To transact in bitcoin, you are required to store them somewhere safe. And like any other currency, giving anyone the access to your bitcoin wallet would expose you to theft and fraud. How should you then go about securing your digital gold?
Offline wallets (for large volumes of bitcoins)
Using online wallets such as those on Unocoin are very convenient and secure. However, it is a better idea to move them to an offline wallet that you hold yourself if you’re storing large amounts of bitcoin. You can always liquidate/sell them back on platforms like Unocoin whenever you need to. They’re only one transaction away!
Use 2-factor authentication
Enable 2 factor authentication on your online wallets to reduce the chances of a hack or any other malicious attempt to access your bitcoins. Enabling 2FA should keep you protected for the most part.
The Future of Bitcoins
If you’d purchased Rs 1,000 worth of bitcoins in 2011, your bitcoin stash would be worth Rs 44 lakhs right now. Let that sink in for a moment.
When you’re done regretting — consider if it makes sense for you to invest in bitcoins now. Does it?
Of course. The supply of bitcoins is limited — fixed at 21 million over the next 100 years. But the demand shall continue to rise as more and more people join the currency. Result? Prices will head-in only one direction — UP!
Any time is a good time to join the bitcoin bandwagon. In fact, you could get started right now on Unocoin!