Bitcoin is the only buzzword since 2009 that people are still curious about. Indeed, people have still not accepted it entirely. Perhaps, it could be because of underlying suspicions and unawareness about it.
Bitcoin is a decentralized cryptocurrency that uses blockchain technology for peer-to-peer transactions.
We know it is confusing. Read this – Bitcoin is a digital currency, similar to the cash and coins you use every day. The only difference is there are no banks involved in bitcoin transactions. The debitor and the creditor of bitcoins are the only ones, who can access their Bitcoin currency.
You might have a ballpark idea about this digital currency by now. So, get ready to know more.
How do Bitcoin Transactions work?
Before we go any further, it is necessary to mention that there are no physical coins. Yes, you read that right. Bitcoins do not exist physically; neither on any hard disk nor on any server or spreadsheet. They are simply a set of numbers that senders and receivers can relate to.
When someone sends you a bitcoin, their information is stored on an open-source, public ledger. Indeed, this ledger is essentially the blockchain network.
With every transaction, a new public key and a private key are generated. The public key, also known as the user address, allows anyone to check and send bitcoins in the user’s wallet. Whereas the private key, as the name suggests, is personal. It gives access to Bitcoins in the wallet. For every Bitcoin transaction, both keys are required.
Once you initiate the transaction, the information is then broadcasted to the Bitcoin Network. Then comes the most labor-intensive part of the transaction; a minor would verify the public and private keys. And the process is known as mining.
It is worth mentioning that mining is, indeed, the process by which bitcoins are generated. In other words, to generate Bitcoin wealth, you’d need to make transactions, which would then generate more Bitcoins.
How do I Buy or Sell Bitcoins?
It is noteworthy that Bitcoin transactions can be direct as well as indirect. However, indirect transactions that involve a Bitcoin exchange are usually considered more secure and convenient. We’ll come to this in the next section.
For now, let’s focus on the buying and the selling process. Before you get on to the buying or selling aspect of Bitcoins, you’ll need an e-wallet. You’ll need an electronic wallet that works the same way as your pocket wallet, where you store all your cash.
There are plenty of ways that you can use to buy Bitcoins. Notably, you’ll have to pay in mint currency to buy this electronic currency. You can use any method from hard cash to paying through your credit or debit cards. Buying digital currency through ATMs, however, is believed to be the most convenient method so far. Other methods include e-transfers or email transfers, online banking, and many more.
For buying bitcoins for the first time, it is recommended that you visit an exchange to know about the rates. Like stock markets, the value of Bitcoins also keeps on changing, but unlike stocks and funds, the market is more volatile for Bitcoins. On top of that, mining creates new bitcoins for every transaction, which also affects the volatility.
For selling your Bitcoins also, there are plenty of ways. Just like when buying Bitcoins, you can use any of the channels mentioned above to sell them.
But, unlike buying, you’d need public and private keys to grant access to your Bitcoins wallet. The miners would then match input and output values (user addresses) and complete the transaction. It is also noteworthy that you can sell fractions of your Bitcoin units.
How can a Bitcoin Exchange help me?
Now that you’ve understood the complete process and its intricacies, you might find the confidence to invest in Bitcoins. But, there’s one more thing that you should realize – Bitcoin transactions may seem simple but believe us, they are not.
As already mentioned, a mining process is involved in every transaction, and it is a labor-intensive task. Besides, like your other personal assets, you wouldn’t want to make a wrong investment decision with your Bitcoins.
A Bitcoin exchange can offer plenty of benefits. Read them here.
They Understand the Language
Blockchain technology is the backbone of any cryptocurrency. And since it is essentially a computer language, you might not be competent to understand it. In other words, unless you’re a savvy coder, it might not be possible for you to cipher-decypher, create, or make changes to the language, which is critical for Bitcoin transactions. Involving an exchange can help overcome this hurdle.
You can deal with them in Fiat Currency
Particularly, when you’re buying or selling Bitcoins for the first time, you might not have digital currency with you. In other words, you’d need to make your first transaction in cash. Bitcoin exchanges usually have ATMs where you can quickly sell or buy Bitcoins using your fiat currency.
Deflation Protection is Included
Bitcoins are believed to be more suitable for long-term investments. However, due to high volatility, the Bitcoin market is also vulnerable to deflation. Generally, an exchange would suggest investments according to the market trends, thus protecting your investment from losses.
They can also help with Currency Conversion
Lastly, it is worth mentioning that cryptocurrency is often used as a moderator between different fiat currencies. For example, a buyer may pay in Euros, while the seller may accept the price in USD. In such transactions, conversion rates for both the fiat currencies would be involved. The exchange would once again help with such transactions that involve more than two currencies.
Bitcoin is not the first and the only digital currency in use. However, it is currently the market leader. Whether you’re considering investing in it for personal gains or simply use it for your daily transactions, it is better to be aware of its market. The growing number of stores and businesses accepting cryptocurrency as a mode of payment has undoubtedly improved its value.