What are bitcoins and how to store them

2024 Author: Malcolm Clapton | [email protected]. Last modified: 2023-12-17 03:44

In simple words, about whether it is possible for an ordinary user to make money on bitcoin and how to securely store the received cryptocurrency.

What is Bitcoin

It all started in October 2008, when a document appeared on the bitcoin.org website describing the mechanism of operation of an open source distributed cryptocurrency called bitcoin.

The basis for transactions was the blockchain technology, which is a database that stores all ever committed transactions in the form of publicly available blocks. A special mathematical algorithm connects the blocks to each other and saves them on the devices of the system participants, preventing them from making changes from the outside, which provides protection against hacker attacks and increases the security of the system.

Cryptocurrencies are just the first successful application of blockchain technology, the possibilities of which are much wider than creating secure means for exchange between users.

Transactions do not have to be related to finance. For example, all interactions of people with each other can be exposed as a legal transaction. Such a system will not require employees, it will not cause controversy, will not create opportunities for fraud, and will be able to happen almost instantly.

The first working version of bitcoin became available in 2009 and was used by a relatively narrow circle of geeks and programmers. The price of one bitcoin at that time was about $ 0.001. By 2011, the price equaled the dollar. Over time, the rate continued to rise. The technology attracted more and more new users, and many economists appreciated its prospects. A year ago, one bitcoin was worth about $ 600, now its price is about $ 2,500.

How to mine bitcoins

Miners play an important role in the functioning of the system. They are the ones who create and confirm new blocks of transaction records. The mining process is named by analogy with mining and requires solving complex mathematical problems, so miners use powerful computing resources on specially equipped computers called farms.

For each block created, they receive a share of the commission from each transaction and the system reward. The difficulty of mining is automatically adjusted every two weeks, depending on the total number of blocks that have appeared during this time. For mining to be profitable, you need powerful hardware. Usually, the computing power of video cards is used for this, but now, due to increased demand, prices for them have increased greatly, which reduces the payback time and increases the complexity of mining.

Therefore, do not rush to buy video cards. Sharp leaps in this area are common. If today, in the wake of the hype, someone buys a video card for 50 thousand rubles, it is possible that tomorrow he will hastily sell it on Avito for 20 thousand.

What are the alternatives to bitcoin

Bitcoin mining is relevant only on an industrial scale using special equipment. Amateur miners have long switched to simpler and younger cryptocurrencies, which began to appear en masse with the growing popularity of bitcoin.

All alternative cryptocurrencies based on existing algorithms are called altcoins. Each of them has its own unique characteristics and solves certain problems.

Litecoin

Litecoin became the next digital currency after bitcoin. It was conceived to create an analogue of silver in the cryptocurrency market, in addition to bitcoin, which is associated with gold.

Litecoin is an improved copy of the first cryptocurrency with minimal cosmetic changes. Key features: improved calculation algorithm, which does not provide clear advantages to the owners of high-performance equipment, putting them on a par with ordinary users, as well as high transaction speed. Litecoin price is currently around $ 40.

Ethereum

Ethereum is a platform for creating decentralized online services based on the blockchain. Unlike other cryptocurrencies, the authors do not limit its role to payments, but offer it as a means for exchanging resources or registering transactions with assets using smart contracts.

A smart contract is an electronic algorithm that describes a set of conditions, the fulfillment of which entails some events in the real world or digital systems.

The implementation of smart contracts requires a decentralized environment that completely excludes the human factor, and cryptocurrency is needed to transfer value.

Zcash

A relatively young cryptocurrency. Its characteristic feature is the guarantee of absolute anonymity. Due to the peculiarities of bitcoin, all information about the movement of funds between wallets is recorded and available to everyone, which creates a problem with anonymity.

Thanks to Zcash algorithms, transactions carried out using this cryptocurrency do not leave data on which wallet was debited from, the size of the transfer and the recipient's wallet address. The information is completely hidden and can be made public only at the request of the parties.

How to create and replenish a bitcoin wallet

This can be done on the blockchain.info website.

When registering, it is better to indicate real data so that you always have the opportunity to restore your account and the funds stored on it.

Don't forget to take care of security, link your mail, enable two-factor authentication, and write down your recovery passphrase.

There are several ways to fund your wallet. The most obvious one is to buy cryptocurrency from your friends or acquaintances by paying directly in any convenient way.

Be careful when selling or buying bitcoins from strangers. You cannot cancel the payment, and there is no legislative regulation in this area.

If you send money to a scammer or make a typo in the address, there will be no refund.

If you are a pioneer of the bitcoin movement in your environment, you can buy currency on the exchange. One of the most convenient to buy in Russia is btc-e.nz. It does not require identification and allows you to top up your balance using your usual electronic wallets.

You can also use trusted exchangers that work with cryptocurrency:

• xchange.is;
• exmo.me;
• ALFAcashier.com.

You can buy or exchange altcoins on cryptocurrency exchanges. The most famous of them is Poloniex. The easiest way to exchange one currency for another is through the shapeshift.io service.

There are also alternative wallets for storage, such as BitPay, although this is not the safest way to store large amounts of cryptocurrency.

How to store cryptocurrency securely

The most reliable method is cold storage. Here are some of its varieties:

Paper wallets

The paper wallet is one of the simplest and most popular cold storage methods. The creation of such a wallet involves the generation of a bitcoin address and a secret phrase offline and their recording on any medium that is not connected with the Network.

You can write down a pair of keys on a piece of paper, which you can then put in a safe or safe deposit box. When you decide to spend bitcoins from the aforementioned address, you will need to enter the passphrase into the wallet program you are using.

Multisignature method

This method consists of creating a wallet that requires more than one key to complete a transaction. Companies can assign an existing number of keys, as well as the amount required to complete a transaction.

For example, a company creates five keys and distributes them to different people, distributing powers, and then assigns the number of keys required to complete the transaction - three. As a result, none of the participants will be able to dispose of the funds alone, and the keys of at least three people will be required to confirm the transaction.

Hardware wallets

Now this method is the most popular among users. The information is placed on small devices that are resistant to moisture and viruses, which can support a multisignature storage method. They are convenient for digital currency transactions, have a backup function and a QR camera. An example of such a device is the Ledger Nano S.

Bitcoin exchange rate is subject to fluctuations. It is formed from the existing supply and demand, and players with large assets can temporarily influence it. The rate jumps happen quite often and will occur in the future, but in the end there is always a price correction.

You can follow the current cryptocurrency rate on the coincap.io website, and on our website, in addition to the main and current rates of the main coins, you can also track their price predictions for the next two weeks.