Satoshi Nakamoto was the software developer who proposed the use of bitcoins as a payment method. This system was generated with the intention of producing an electronic currency that can be transferred almost instantly with minimal fees for every transaction and one that is autonomous from any central supervision.
How does the bitcoin protocol work?
A person cannot mix indefinite bitcoins. The bitcoin protocol states that there will only be twenty-one million bitcoins to be produced by the miners. These bitcoins will then be subdivided into smaller bits. The smallest bit is called ‘satoshi’ named after the bitcoin founder and the divisible amount is one hundred millionth of a bitcoin.
Bitcoin currency is based on mathematical formulas, unlike our conventional currency that is based on gold and silver. Mathematics is used to generate or ‘mine’ bitcoins. The software programs containing these mathematical formulas are made available to everyone. This means that anyone can access these formulas to ensure that it serves its purpose.
Characteristics of Bitcoins:
These are some significant characteristics or features of bitcoins that separate them from conventional currency we have today.
1. Bitcoins are not centralized: No central authority can control the bitcoin network. Even a large bank cannot trifle the fiscal regulations and procedures governing the bitcoin network. All machines used in mining and processing bitcoins and other transactions work together and compose a fraction of the bitcoin network. This means that even if a fraction of the network goes offline, the money will still flow.
2. The set-up is quick and easy: A person who wants to join the bitcoin network can set-up the bitcoin address in seconds. Unlike conventional banks where one has to go through long queues of people just to open an account. There are no restrictions or other unnecessary requirements and documents to be submitted to the bitcoin network and there are no fees to be paid as well.
3. Privacy or anonymity: Bitcoin users enjoy the privilege of holding multiple addresses which are not connected to other personal information such as addresses and names.
4. Transparent: Your identity may be anonymous to the network and the public but the transactions you make and the number of bitcoins stored in your address are definitely recorded. The blockchain records everything. The public will be able to see all the activities in the given bitcoin address but they will not be able to know that the address is yours for example. Some users utilize different bitcoin addresses so they can avoid putting all the bitcoins in just one address. That way they can enjoy the benefits of being anonymous.
5. Minimal transaction fees: Bitcoin does not charge international transfers unlike the banks we have for conventional currencies.
6. Procedures are quick and almost instant: When you have to send money internationally, there are times when you have to wait for a few days before the bank can process the transaction and transfer it to the other account. With bitcoin network, your money is transferred anywhere in just a matter of minutes or almost in an instant depending on the location. Transactions are very quick.
7. Bitcoins cannot be repudiated: One cannot reclaim his bitcoins once they are sent. They can only get it back when the recipient sends it back to the sender, otherwise, it is gone for good.
Storing Bitcoins safely
Bitcoins are stored in bitcoin wallets. This is basic and the primary requirement before one can enter the bitcoin network and start with transactions. Now, just like the conventional currency, Bitcoins need to be stored safely as well. Here are some tips on how to store bitcoins safely.
1. Wallet encryption: Just like any other online accounts, bitcoin wallets need to be secured with an encrypted password. Encryption makes access by the owner possible and easy but very difficult for other people. Malware makes it possible for your computer to be hacked by thieves as they can log keystrokes for finding out your password so it should be encrypted.
2. Wallet needs to be backed up: Wallet owners have their own private keys but sometimes keys could be misplaced or forgotten and so it is important that wallets should be backed up so you can at least have a copy of your private keys when needed. Backing up your wallet and storing it in different places makes it very secured from prying eyes especially when some transactions are accessible to the public.
3. Cold storage wallets may be your best option: If you are very careful and reluctant to store your wallets through digital means, take it offline and use the “cold storage” option. This option makes it impossible for online hackers to steal your bitcoins as your wallet is not accessible online no matter what. Cold storage is ideal for storing bigger bulks of bitcoin fortune. When you need to spend online, all you have to do is to transfer a fair bit of bitcoin to your addresses online and you can do transactions as normal as possible. Cold storage also saves your bitcoin fortune in case of computer problems or when your phone is lost.
4. Paper wallets can also be used if you are not comfortable using digital wallets altogether.