Bitcoin basics for beginners

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Bitcoin and Cryptocurrency, Learn about bitcoin basics for beginners

Bitcoin and Cryptocurrency, Learn about bitcoin basics for beginners

Bitcoin is the most popular cryptocurrency in the world. Yet, most people have no idea how Bitcoin works. This article explains what Bitcoin is, how it works, and learn about the basic security of using this cryptocurrency.

Created as a means to bypass the control of banks and governments, Bitcoin is a revolutionary form of exchange that’s taken the entire world by storm. Adoption of Bitcoin by numerous vendors has increased both the acceptance and the perceived value of this cryptocurrency to levels never initially thought of before. While the technology behind Bitcoin is complex and may take significant amounts of time to understand, the entire concept of how this cryptocurrency works is quite simple.

In a Nutshell

In short, Bitcoin is a type of digital asset created through the use of cryptography, with certain parameters included to determine how the cryptocurrency functions in the foreseeable future. Unlike fiat currencies such as the US dollar, Bitcoin doesn’t use any tangible assets to back its value – rather, it uses rarity. With a maximum limit of 21 million coins and no possible way to increase this cap, the rarity of available coins gives Bitcoin a unique value further bolstered by its ease of use and acceptance by both banks and vendors.

Blockchain Technology

Bitcoin uses technology dubbed “blockchain” to function properly. The blockchain serves as a ledger and features a list of each and every transaction anyone’s ever made, thereby effectively thwarting issues such as double payments. Whenever you make a transaction, Bitcoin doesn’t send it through a bank or other financial institution to have it processed. Rather, your payment is encrypted with a unique signature and sent to a pool of transactions that are then decrypted via the computing power of a massive peer-to-peer network.

Security of Transactions

Once decrypted, transactions are transferred into the blockchain, thereby serving as a record for cross-checking future transactions. Since the entire blockchain is secured with an encryption algorithm, it’s almost impossible to modify any details stored within unless the majority of the Bitcoin network colludes together – an unrealistic scenario under any circumstance. Fraud is non-existent since all account details and balances are verified by prior transactions present within the blockchain.

Using Bitcoin

Due to the adoption of Bitcoin by numerous vendors – and even banks – around the world, making payments using this popular cryptocurrency shouldn’t pose any issues. Getting yourself an online Bitcoin wallet takes next to no time, and funding the wallet can be done via several Bitcoin exchanges. The cryptocurrency’s widespread acceptance also translates into Bitcoin being readily converted into cash as well, so you don’t have to worry about tying up money in an illiquid asset either.

Benefits and Ethics

The decentralized nature of Bitcoin translates into a number of advantages. Since there’s no processing involved via banks and such, you don’t have to wait days for your payments to clear, and you can expect transfers to be completed in just a few minutes. Further, transactions fees are next to none, which is a major benefit when moving large amounts of currency. However, the lack of regulation does make Bitcoin a haven for money laundering, and the anonymous nature of transactions is a significant issue for law enforcement. Singapore doesn’t plan to regulate cryptocurrencies such as bitcoin, but will remain alert to money laundering and other potential risks stemming from their use.

Before going into investment of Bitcoin, please read the article published by Monetary Authority of SingaporeMAS cautions against investments in cryptocurrencies” and IRAS article on “Income Tax Treatment of Virtual Currencies”.