Bitcoin: What You Need to Know About the Currency of the Future

As the digital economy continues to grow at an exponential pace, so too does the amount of online shopping. In fact, according to e-commerce research firm, Magentrix, online retail sales in the U.S. are expected to reach an astounding $572 billion by the end of 2020. With the continuing rise of online shopping comes the continued need for safe and secure payment options. Thankfully, the same principles that have fueled the growth of online shopping are also fueling the growth of bitcoin, the digital currency of the future. So what is bitcoin, how is it different from regular money, and is it right for you? Let’s take a closer look at these questions and more to help you decide.What is bitcoin?First things first, what is bitcoin? Simply put, it is the unit of currency used with the bitcoin blockchain. The blockchain is an open, distributed ledger that records transactions across many computers. By design, the blockchain is resistant to modification, which makes it a reliable and trustworthy method of recording transactions. Furthermore, the blockchain is decentralized, meaning it doesn’t belong to any individual or central entity. As such, bitcoin is more or less immune to government or corporate manipulation of the currency.How does bitcoin work?Bitcoins are created through a process called mining. In general, there are two types of miners: primary and secondary. Primary miners generate new bitcoins by solving complex mathematical equations known as proof-of-work problems. These equations are what make bitcoin mining challenging to ensure a consistent and efficient supply of new currency. As these equations are very difficult to solve, the primary miners join forces to help verify and validate other transactions across the network. Those transactions that are verified and validated become part of the bitcoin blockchain. As a reward, these miners are granted bitcoins and the transactions are verified and recorded across the entire network.How to buy bitcoinYou can’t directly buy bitcoins with U.S. dollars, but you can exchange standard money (such as cash or credit card) for bitcoins. The most popular way to buy bitcoins is through a cryptocurrency exchange. There are hundreds of these exchanges around the world, allowing people to trade for conventional currencies and vice versa. Although each cryptocurrency exchange is unique, many of them require that you register and verify your identity before you can start trading. Doing so helps to keep bitcoin from being misused by criminals.For example, Bitfinex, one of the largest cryptocurrency exchanges in the world, requires all users to submit a government-issued photo ID and proof of address in order to create a user account and make a deposit. Similarly, to prevent money laundering and terrorism financing, many exchanges require that you submit proof of your identity and address before transacting.How to buy bitcoinBefore you start looking into exchanges, however, it’s important to understand how bitcoin transactions work. This can help to avoid potential problems and delays when buying your first bitcoin. Bitcoin transactions take place between addresses, not between people. For example, if you want to send bitcoins to your friend John, you would need to supply this information:The wallet address, which is the equivalent of a bank account number. This is the unique address that represents your coins.The amount you want to send.The bitcoin network must first confirm the transaction, which can take up to 100 confirmations (or blocks) on the blockchain. Once the transaction is confirmed, it becomes permanent. That means that the funds can’t be reverted, and the transaction cannot be undone.How to sell bitcoinNow that you know how to buy bitcoin, it’s time to sell some of that bitcoin you’ve been hanging on to. Unfortunately, unlike spending bitcoin, selling bitcoin doesn’t happen directly on the bitcoin network. Instead, you’ll need to use a third-party bitcoin exchange. There are many different ways to sell bitcoins and trade them for other currencies. For example, you can sell bitcoins for cash or trade them for goods or services. Some popular exchanges include Coinbase, Kraken, and Bitfinex.Is buying and selling bitcoin a good idea?In general, it’s a good idea to hold some bitcoin as a savings account. If bitcoin does become more widely accepted, you may want to invest some of your savings into the currency. However, buying large amounts of bitcoin and then selling off small amounts when it’s price is high is an unwise investment strategy. Bitcoin’s price is extremely volatile and can change at any time. It’s best to buy a small amount (e.g., $100 worth) and hold on to it for long-term storage.Bitcoin benefitsThe primary benefit of bitcoin is that it offers an alternative payment method that’s both more inclusive and less risky than credit cards. Credit cards require users to have a good credit rating, which may not be a virtue if you don’t already have a good credit rating. On the other hand, bitcoin payments are not linked to a credit score, which means that everyone can use them, even if you have a bad credit history.Bitcoin risksLike any new technology, bitcoin has its share of risks. For example, bitcoin transactions are stored on a decentralized network, meaning that there’s no central authority to oversee or regulate them. As such, there’s no guarantee that bitcoin transactions are legitimate or legal. This lack of oversight has led to an increase in bitcoin-related fraud and cybercrime.Bitcoin alternativesDespite these risks, traditional financial institutions have failed to recognize and adopt the benefits of bitcoin. This has led to the growth of decentralized, less risky payment method alternatives, such as cryptocurrencies.ZcashLike bitcoin, Zcash is also a cryptocurrency that aims to provide users with a decentralized and less risky payment option. However, unlike bitcoin, Zcash uses advanced cryptography to ensure that all transactions on the network are private. That means that unlike bitcoin, Zcash transactions can’t be traced back to the original owner.MoneroLike Zcash, Monero is another privacy-focused cryptocurrency that uses advanced cryptography to ensure that all transactions on the network are private. Unlike Bitcoin and Zcash, however, Monero is not open-source, which means that it operates under strict governance with no possibility of third-party intervention.ConclusionIn general, the benefits of bitcoin outweigh the risks, particularly when it comes to online shopping. That said, it’s important to do your research and proceed with caution. If you’re interested in someday making a major purchase with bitcoin, now would be a good time to get started. As with any type of investment, it’s wise to do plenty of research before putting any money down.

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