Bitcoin for dummies (Like me)!
Bitcoin (BTC) is here already and soon it will be everywhere. If you get a blank look when people start talking about Bitcoin, BTC, Blockchains, Miners, Staking, Altcoins, Cryptocurrency, Scrypt and Sha-256 – then, this article is for you.
What you need to know:
Bitcoin (BTC) – The concept of digital currency and the actual coins (Bitcoins or BTC) used to send money from your phone, computer or tablet. About $3.4 Billion is traded daily.
Who accepts Bitcoin? – The list will suprise you – to name a few: Amazon, Target, Sears, EBay, CVS Pharmacy, Whole Foods, Subway, Tesla, Victoria’s Secret and a list that grows daily. Check the internet for on-line and local stores that currently accept Bitcoin.
Cryptocurrency – It is digital currency using encryption (like spys and codes) to securely verify and transfer funds. It operates independently of the central banking system. Banks are now exploring how they can use these encryption techniquesof cryptocurrencies to increase their security systems.
Altcoins – This is a shortened form of alternative or digital & currencies or coins. Bitcoin is the most well-known altcoin. However, over a 1,000 other coins have been created. Some coins have a specific purpose i.e. Gold Pieces and Hyper are used in many on-line games (think Mario); other coins are only a way to transfer funds. Altcoins are traded on exchanges just like stocks only, for the smaller coins, think penny stocks – fast ups and downs.
Wallets – Just like the wallet in your pocket or purse, the computerized wallet holds your funds. It can be on your computer, tablet, phone or in the cloud at a website. Each wallet is identified by a long, unique sting of letters and numbers which is the address. This address allows you to send or receive payments. It’s like using a credit cards except the store does’tt get charged 3% or more. The typical cost is about 2 cents. There is no annual fees to use a wallet.
Miners – A computing machine that processes math problems (algorithms) at an extremely fast speed. Also, a person who uses a mining machine to solve these problems or blocks (see below) and who gets paid for the work.
Mining or Proof of Work (POW) – It is the process of using specialized computing machines to solve problems or blocks.
Proof of Stake (POS) – Think interest. Altcoins are divided into POW coins (paid for mining work) and POS coins (paid for holding coins in a wallet for a set period of time). Interest can be 1% per year to 500% per year or more (excluding compounding) depending upon the coin. There are several coins paying 50% to 200% with stable prices. The process of getting paid POS is called Staking.
Blocks – A block is a series of transactions that are encrypted (think code breaking and spys). The transactions (coin transfers) are encrypted, sometimes many transactions per block, and sent to be verified by miners (math machines). They are verified many times befor being accepted as confirmed.
Blockchain – As each block is confirmed it is added to the end of the chain or series of blocks. When blocks are added, it locks the preceeding blocks. This process makes the transfer of funds more secure.
Algoithm – As stated previously, it is a math problem. Sha-256 is the decryption algorithm used by bitcoin. Scrypt is another type of algorithm used by a coin known as LiteCoin. There are a growning number of algorithms but most coins have been created using variation of Sha-256 and Scrypt.
Hash – No, not drugs. Hash (hash rate) is the measuring unit of processing power of a computing machine. A typical mining machine might have a speed of 2 Terrahash (2THs). This means it processes 2 Trillion calculations per second.
Come back next week: How to set up a wallet and get your 1st Bitcoin.