Hello there, I am sharing with you how Bitcoin works, what it is and most importantly how to make money from Bitcoin.
I have surfed the internet looking for a detail explanation of how Bitcoins works, but could not see any, so I decided to put up this tutorial to educate everyone who cares to know about Bitcoin. Before we go into details, let me show you how much a Bitcoin is worth.
As of the time of writing this article 1 Bitcoin equals 574.26 US Dollar, oh yes that is what a Bitcoin is worth.
Bitcoin… Now imagine as a Nigerian you have 1 Bitcoin, the Nigeria equivalent will be
340.25 x 579.78 = N197, 270.145
Isn’t that cool?
Let’s get down to business
Let us start with the basic. Most of us must have heard about bitcoin, but 99 percent of us don’t really understand how it works, it looks magical to us.
Let us start by answering the question.
What is Bitcoin?
Bitcoin is simply a Decentralized Digital Currency, in other words, it’s like a virtual cash or gold and it is transferred from person to person, which means that no bank or government control or prerequisites to be able to own or transfer Bitcoin, the symbol for Bitcoin is B or BTC.
Bitcoin is a Crypto-currency and cryptocurrencies has been around since the 1980’s, but there was a problem called double spend. All of the prior digital currency or cryptocurrencies had this had this problem of where somebody spends a unit of that currency, it’s very difficult to tell if that unit is already be spent, and that is the biggest problem Bitcoins and why it has gained so much popularity and the way that it does this through its distributed peer-to-peer network which works just like Bittorrent.
The first Bitcoin was actually issued in 2009 by someone named Satoshi Nakamoto, this is believed to be a pin name, and nobody actually knows who started Bitcoin.
Bitcoin is divisible to 8 decimal places (.00000001) just like the way Naira is divided into Kobo, you can therefore almost break Bitcoin into a very small amount.
Bitcoin is very difficult and expensive to hack because of the way Bitcoin protocol or network operates since there is no central or specific location that is government by the government of a particular country. There are some numbers that says to hack the Bitcoin network for just ten minutes will cost around half a billion dollars, therefore there is a lot of trusts.
Bitcoin is controlled by the consensus of market participants, so no government or bank can control the Bitcoin network, which is why it is gaining so much popularity.
Why is Bitcoin Important?
There is some aspect of cryptocurrencies I think shows huge prospect for really changing the world, let’s look are some these facts.
Out of the 7 plus billion people that lived on the planet, about 6.5 billion people don’t have access to basic and banking financial services, like saving the account, ATM cards, etc. Bitcoin, therefore, makes it possible for anybody without government permission or bank approval to access to virtual banking. I think that will really change the world.
Fiat currencies are getting inflated by printing money (this is a subject for the economist, you can google it to get more knowledge about.
Now let us look at how Bitcoin actually have value, before we do that, let us look at
What is Money?
Money is simply any means for exchanging goods and services, in recent history, we have used fiat currency like USD, Gold as widely accepted forms of money, and there are primarily four properties that define what money is
Divisible: anything that should be accepted as money, must be able to be broken down into smaller units or amount, just like the way the Nigeria Naira can be broken down to kobo. Gold can also be broken down to Ounce, Bars e.t.c
Durable: anything that should be accepted as money, needs to stand the test of time.
Fungible: anything that should be accepted as money, must be freely interchangeable with another in satisfying an obligation. Basically like commodities, so one naira is equal to another one naira, it is interchangeable.
Verifiable: anything that should be accepted as money must be verifiable, you need a way to verify it, to show that it is real and not fake or counterfeit.
Why does Bitcoin have Value?
Bitcoin does a very good job of answering that four property of money, let look at some other ways Bitcoin has value.
Limited and Scarce (like gold), on planet earth, there is only a set amount of gold, just like there is a limited amount of Bitcoin.
Its Decentralized, it has no government control just like torrents.
It can be anonymous
It is transparent (Open source)
And because it has been vetted by people way smarter than me, it is therefore trusted.
It is easy to buy and sell (we will talk about this in another tutorial.)
Extremely low transaction fees
Irreversible ( no chargebacks)
How does Bitcoin Work?
This is actually very simple, let say for example someone gives you cash or a cheque, you take the cash or cheque to the bank and make a deposit into your bank account. Bitcoin kind of works like that, where someone gives you a Bitcoin, they are stored in a public ledger. Sending and receiving Bitcoin is as easy as sending an email (I will show you how in a bit).
Your coins are stored in what we call a “wallets”, there are different forms of wallets like
Local hard drive
Google for more information.
Bitcoin account number has two parts
Public key – account number/address, it looks like 1y3gB2LKwoeb4iSrb93LhFrMgq3U2T9Eo (that’s my account number, you can donate some satoshi to me if you like this tutorial), it is the account number you can give out to anybody that you want to send your Bitcoin
Private key – this is the password you use to access your Bitcoins account. This should be a secret to you, just like your password for logging in into internet banking account.
How Do You Get Bitcoins?
There are basically three ways you can acquire Bitcoins.
Buy from a person or exchange, there are websites you can go to buy and sell Bitcoins, it is just like a stock market.
You can Barter, that is providing products, goods and services in the exchange with Bitcoin.
You can mine for Bitcoins (run software to find bitcoins), this is where Bitcoins are mined and released every 10 minutes. There are miners out there who actually mine for this Bitcoins, it works like a lottery system, where the more CPU power that you have the more that you mine the better your odds are to get this Bitcoin for free and the way that you do that is by running software on your computer. In another tutorial, I will show you how you can do that.
How Can You Profit With Bitcoin?
One of the ways of making a profit from Bitcoin is when you mine, this is because when you mine, you get this Bitcoin for free, and you now sell them for whatever market value is. Although mining is becoming more increasingly difficult, the more competition there is, the more computing power it takes to actually mine for this Bitcoin and the more cost that is associated the more hardware you have to buy and the more electricity you have to pay for. Therefore before you say you want to start mining for Bitcoin, you have to do a proper cost analysis, if it will be profitable or not.
My favourite way is to invest and trade Bitcoin.
Buy and hold = very risky
Short- term trading = very profitable
Offer discount in products and services for payment in Bitcoin.
In the next tutorial, we are going to look into
How to get a Bitcoin Account and start making some free Satoshi online
How to buy Bitcoins
Software and tools
How to mine Bitcoins
How to Trade Bitcoins online
How to accept Bitcoins for your Business
And much more
See you in the next tutorial….