How To Get Started With Bitcoin

Bitcoin Vocabulary You’ll Need to Know

• Address: The Bitcoin address is similar to the usual email address you are probably familiar with. It is generated on registration with a particular wallet you are creating. It combines alphabets with numbers. It is the single information needed to carry out a transaction, and it is peculiar to an individual.

• Bit: This is the common unit used to designate a subunit of a Bitcoin. Estimated 1000000 bit is equal to 1 Bitcoin. This unit is used as a small denomination in the Bitcoin world.

• Bitcoin: Note that this concept has two meanings. When it is capitalized, it is used to describe the concept of Bitcoin digital currency and the entire network of operations. Without capitalization, it is used to describe the unit of an account, e.g., 0.01 btc.

• Block: This is a record in the Blockchain that contains and confirms many waiting transactions. Approximately every 10 minutes, on an average, a new block for a transaction is added to the Blockchain through mining activities.

• Blockchain: Blockchain is a public ledger or record of Bitcoin transactions in sequential order. It is shared between all Bitcoin users. It is used to verify the stability of Bitcoin transactions and to prevent double spending.

• BTC: This is a common unit used to represent one Bitcoin.

• Confirmation: This represents a single transaction that has been processed by the network and is not likely be reversed. Transactions are confirmed when they have been included in a block and subsequent blocks. It is worth noting that a single confirmation is secured for low-value transactions. However, when a larger amount is being conducted, it makes more sense to wait for more than 8 confirmations. This will reduce the possibility of reversal.

• Cryptography: This is the branch of mathematics which aids the creation of mathematical proofs that provide high levels of security. State of the art banking and commerce have begun using cryptography. In the world of digital currency, it helps to make sure that unauthorized users are prevented from spending from another user’s wallet.

• Double Spend: This refers to instances where some dubious users try to spend their Bitcoins on two different recipients simultaneously. Blockchain, which is highly secured with cryptography, will create a consensus on the network regarding which of the two transactions will be confirmed and considered valid while invalidating the other.

• Hash Rate: This is the unit for measuring the processing power of the Bitcoin network. To secure itself, the Bitcoin network creates thorough mathematical operations. So, when the network reaches a hash rate of 10 Th/s, it culminates 10 trillion calculations per second. This means that when the hash rate is high, the network creates a more secure connection. • Mining: This is a process that involves making computer hardware perform mathematical calculations for the Bitcoin network to confirm transactions and secure it. Miners earn their reward from the small transaction fees incurred per transaction confirmed and the new Bitcoins created. Mining is a competitive market and rewards are divided according to how many calculations are correctly completed.

• P2P: The acronym means Peer-to-Peer. It refers to systems that work like an organized collective by allowing individuals to interact directly with others without an intermediary. Here, one user broadcasts the transactions of other users without a third party involved.

• Private Key: This is a secret piece of data that affirms your qualification to spend Bitcoins from a specified wallet through a cryptographic signature. This key is stored on the computer for cold wallet users and on remote servers for online wallets users. This key should be kept safe from unauthorized users.

• Signature: This is a mathematical mechanism that gives someone proof of ownership to a wallet. In Bitcoin, private key and signature are linked together by an extremely complicated mechanism to ensure security.

• Wallet: Bitcoin wallet is loosely equivalent to the physical wallet or bank account on the Bitcoin network. This wallet is secured by private key and signature ensuring ownership to a peculiar user. The private key allows users to spend the Bitcoins allocated to it in the Blockchain. Each Bitcoin wallet can show you the total balance of all your Bitcoins. It controls and lets users pay a specified amount to another user.

Steps to Set up a Bitcoin Account and Get a Wallet
A Bitcoin wallet is basically equivalent to the physical wallet or bank account. There are two main types of wallet: (a) Software wallet is the one you install on your computer or phone of a different operating system. You are in complete control of the safety and maintenance of this wallet. (b) A web wallet or hosted wallet is one that is hosted by a third party. They are often much easier to use, but you have to have trust in the provider for the maintenance and security of your Bitcoins. For beginners, five main wallets are recommended. These are:

1. Blockchain
2. Coinbase
3. Xapo
4. Luno
5. Electrum

The above-listed web wallets have all the full features that make it excellent for beginners. They also have the software you can install on your devices on whatever platform, such as Android, Blackberry, IOS, and even Windows and Linux.

For Example:

1. Log on to www.blockchain.info
2. Hit the sign up button
3. Enter your email, a combination of numbers, alphabets and special characters to make it strong
4. Enter your preferred password
5. Confirm your password
6. Take time to read the terms and conditions of service and ensure you fully understand it
7. Click on the box to confirm you have truly understood the terms of service
8. Click continue
   This will to take you to your dashboard. Explore the contents of your dashboard using the buttons you see there.
9. Click on Get started. This will take you to your wallet information:
   a. Wallet I.D: a combination of numbers, special characters, and alphabets. b. Ensure you save it. On your next long in, use your user I.D with your password to log into your dashboard again. Note: you cannot login with your email.
   10.Log into your email and verify your mail. In case you forget your Wallet I.D, don’t worry because they are backed up in your mail.
   11.Once your verification reads ‘Success,’ you are good to go with the next step of purchasing of your first Bitcoin to fund your wallet.

Best Practices of Bitcoins

The Potential of Bitcoins
In the short time since Bitcoin was introduced, its value has increased greatly, and it may be helpful to compare Bitcoins to other electronic payment methods.

There were increased transactions volumes in the fiscal year ending October 2013. In the U.S. for instance, over 8 billion dollars in transactions were made with Bitcoins. Contrastingly, The Bank of America, Western Union, PayPal, Automated Clearing House (ACH) Network, and Fedwire uniformly processed 132 million transactions for a cumulative sum of 599 trillion dollars in 2012 as reported by the United States Department of Treasury in November 2013.

Bitcoins have a long way to go before being overtaken by alternative digital currencies as a means of transactions. However, below are the major advantages it provides to the users:

1. Protection from Payment Fraud: Bitcoins are a digital currency, and as such, cannot be faked or reversed arbitrarily by the sender, as often seen with a credit card.
2. Reduced Possibility of Identity Theft: When you hand in your credit or debit card to a business, you give him full access to your credit line. The operations of credit cards are ‘pull’ basis, where the store initiates the payment and pulls the designated amount from your account. However, Bitcoin operates on ‘push’ mechanism that allows the Bitcoins holder to send the exact amount to the merchant with no further information made available to them.
3. Lower Transaction Fees: There are usually no transaction fees for Bitcoins exchanges because the miners who provide a network for the smooth running of all transactions are compensated by the network with newly issued Bitcoins. Even though there are no transaction fees, many still notice that most users will engage a third-party service, like the Blockchain and Coinbase which are rewarded minimally for the security and maintenance they provide.
4. Access to Inaccessible Markets: There are great populations of the world who are restricted from some of the services provided by some credit card issuers like PayPal. These individuals mostly hail from Africa and Asian countries, although they have access to the internet either through the mobile phones or computers.
5. With the advent of Bitcoins, access to unexplored markets is beginning to go into full swing. The most recent is Kenya’s M-PESA system, a mobile phone-based money transfer and microfinancing service announcing a Bitcoin device, with one in every three residents of Kenya owning a Bitcoin wallet.