Last week I watched one of my favorite tv shows, FBI International and the team was chasing a man who had stolen cryptocurrency from a bitcoin wallet. I love that show but I didn’t know what Cryptocurrency or Bitcoins or cold wallets were so I did some research and decided to share what I discovered.
Bitcoin is a form of digital currency, created and held electronically. No one controls it. Bitcoins aren’t printed, like dollars or euros – they’re produced by people, and increasingly businesses, running computers all around the world, using software that solves mathematical problems.
It’s the first example of a growing category of money known as cryptocurrency.
What Is Cryptocurrency?
A cryptocurrency is a digital or virtual currency that uses cryptography for security. A defining feature of a cryptocurrency, and arguably its most endearing allure, is its organic nature; it is not issued by any central authority, rendering it theoretically immune to government interference or manipulation.
Cryptocurrencies are decentralized, meaning they work independently from a central bank or authority. Every transaction is recorded in a public ledger, called a blockchain. Bitcoin was the first and is the most well-known cryptocurrency, but others have since emerged, including Ethereum, Ripple and Litecoin. These are commonly known as altcoins.
What Are Bitcoin Wallets?
A Bitcoin wallet is a digital storage space that allows you to store your bitcoins. It also allows you to view your balance and conduct transactions. You can think of it as a virtual piggy bank where you store your savings.
There are two types of wallets: hot wallets and cold wallets. Hot wallets are connected to the internet while cold wallets are not. Cold wallets are considered more secure because they are not subject to hacker attacks.
What is a Bitcoin Exchange?
A bitcoin exchange is a digital marketplace where traders can buy and sell bitcoins using different fiat currencies or altcoins. A bitcoin currency exchange is an online platform that acts as an intermediary between buyers and sellers of the cryptocurrency.
For example, if you want to buy bitcoins with US dollars, you’ll need to find a platform that allows you to do so. If you want to sell your bitcoins for euros, you’ll need to find a different platform that accommodates such trades.
In New Zealand where I live there is a crypto exchange called Sywftx that you can visit at https://swyftx.com/ for all your crypto currency needs.
What is Bitcoin Mining?
Bitcoin mining is how new bitcoins are brought into circulation. Miners are rewarded with cryptocurrency for verifying and committing transactions to the blockchain public ledger. Ethereum miners, for example, are rewarded with Ether, the native cryptocurrency of the Ethereum platform.
Mining is a computationally-intensive process that requires powerful computers to solve complex mathematical problems to verify transactions and add new blocks to the blockchain.
The more transactions that are verified, the more secure the blockchain becomes. The rewards incentivize miners to keep verifying transactions and committing them to the blockchain.
Why Do People Use Bitcoin?
Bitcoin is used for a variety of reasons. Some people purchase it as an investment, hoping that it will appreciate. Others use it to buy goods and services or to send money to family and friends.
Some people purchase Bitcoin for its investment value but don’t actually use it to buy anything. Instead, they hold onto the currency, waiting for it to appreciate in value.
What Can You Buy with Bitcoin?
Bitcoin can be used to purchase goods and services at a growing number of businesses around the world.
Some people use Bitcoin to buy Amazon gift cards. Others use it to pay for travel or hotel stays. You can also use it to buy digital content on platforms such as Steam or Xbox Live.
What Are the Risks of Using Bitcoin?
Bitcoin is still a new and volatile currency, which means there are risks associated with using it.
The value of a Bitcoin can fluctuate wildly, and this can create problems for businesses that accept Bitcoin as payment. If the value of Bitcoins goes down, you may end up owing more money than you can afford to pay.
Another risk is that the software supporting Bitcoin is still in its early stages of development. This means that there could be problems with the way transactions are processed, which could lead to delays or even failures.
Finally, there’s always the risk that something goes wrong with your wallet or the exchange you’re using. If you lose your private keys, there’s no way to recover them. This means you could lose all of your Bitcoin.
How Can You Use Bitcoin Safely?
If you want to buy Bitcoin safely, there are a few precautions you can take. First, only use reputable exchanges and wallets. Second, don’t store all of your Bitcoin in one place.
Instead, spread your Bitcoin across different wallets and exchanges. This way, if one wallet or exchange is hacked, you won’t lose everything. Finally, keep an eye on the value of Bitcoin and make sure you only invest what you can afford to lose.