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A Comprehensive Guide to Bitcoin

Bitcoin has revolutionized the value transfer space. In the process, it has improved privacy by enabling pseudonymous transactions that can even be anonymous if you use Bitcoin mixers. Read here for more info.

By James Francis

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date_rangeFebruary 19, 2020 remove_red_eye 6910
Bitcoin was launched in October 2008 by a mysterious character(s) called Satoshi Nakamoto via a whitepaper titled “Bitcoin: A Peer-to-Peer Electronic Cash System.” The aim of unveiling the cryptocurrency was to provide an alternative to the conventional banking system where fees are mindboggling, clients are duped, the system is rigged, and borrowers’ money is misused. In a nutshell, the coin was invented to eliminate the intermediary.

What is Bitcoin?

To define Bitcoin aptly, you need to put the two components apart; the protocol and the cryptocurrency. Bitcoin the cryptocurrency is a piece of code that acts as proof of ownership of a digital value; more like an implied IOU. Bitcoin the protocol is the distributed ledger where all transactions of Bitcoin the token are maintained.

Collectively, both aspects of Bitcoin enable platform users to send payments peer to peer without passing through an intermediary such as a payment gateway or bank. The cryptocurrency is created electronically using an open source software by computers throughout the world that are connected to the Bitcoin network. The coins are held in the same way; electronically.

Difference Between Bitcoin and Traditional Currencies

While Bitcoin is a payment method, it differs from the traditional fiat currency payment systems in so many ways. Some of these are:

1. Decentralization

The most important aspect of Bitcoin is that it is decentralized. Decentralization means that not a single entity claims control of the Bitcoin network. The entire network is maintained by a team of coders working as volunteers. They run the network via an open network that comprise of dedicated computers from all corners of the world.

Bitcoin’s decentralized nature and the ingenious combination of economic incentives and cryptography eliminates the possibilities of double spending.

2. Immutability

You cannot reverse a Bitcoin transaction. While this feature is not so endearing on one hand, it helps on the other because it implies that once a transaction is recorded on the Bitcoin network, it cannot be erased.

3. Pseudonymous

Anti-money laundering compliance requirements and the need to verify customers put pressure on money transfer service providers such as banks to identify their users. Bitcoin users, on the other hand, operate in semi-anonymity. Because the network does not have a central validator, users are not required to identify themselves before transferring value to one another. Instead, the network has a mechanism of checking previous transactions to confirm if the sender has adequate Bitcoin and the authority to transfer them. At this point, the question “can Bitcoin be traced?” probably is in your mind now.

4. Limited Supply

Dollars, yen, euros, and basically all other fiat currencies do have an unrestricted supply. Central banks reserve the right to release as much as is reasonable within the fiscal and monetary regulations of a country. In some instances, central banks even manipulate the value of a currency with respect to others.

The supply of Bitcoin, on the other hand, is under the firm grasp of an underlying algorithm. Only a small number of new coins are released into the network every hour, and this process will go on at a diminishing pace until the network exhausts the 21 million possible coins that can be mined. The limited supply makes the coin attractive as an asset because when the demand increases on the backdrop of an unchanging supply, the value automatically increases.

5. Divisibility

The coin can be broken down to the smallest part, a Satoshi, which is 0.00000001 of a Bitcoin. This fact implies that you can manage micro-transactions on a scale that is hardly inconceivable when dealing with fiat currency.

How Does a Bitcoin Transaction Work?

If you want to send Bitcoin to another user, you start by making your intentions overt. By publishing your intentions, you give the nodes the power to scan the entire Bitcoin network to ascertain if a) you have in excess of the amount you want to send, and b) you have not already sent the said coins to a different user.

Immediately the nodes confirm the two facts, the transaction you published becomes part of a block, which is then attached to the previous block. This process of chaining blocks gives the technology its name. A transaction once published in the block cannot be reversed not tampered with. This is because of the simple fact that attempting a reversal means re-doing every block that preceded the one you are trying to alter.

How Does a Bitcoin Transaction Work?

Now that you have the basics covered, you probably are excited by the coin’s potential and would want to own some, right?

How to Buy Bitcoin

Well, just know you can buy Bitcoin from the exchanges using fiat. Alternatively, you can buy the coins from individuals in the marketplaces. Aside from hard cash, you can use a wide range of payment methods to get your hands on the coins. These include credit and debit cards, wire transfer, other cryptocurrencies or via PayPal (in the few exchanges that accept such transactions).

The process of buying Bitcoin includes:

1. Setting up a wallet – the wallet you choose can be in the exchange where you buy coins or it could be from an independent provider. There are a number of such wallets including cold wallets, offline (paper and hardware wallets), and mobile wallets.
2. Create an account in an exchange that approves of your payment method – This step applies to customers that are buying Bitcoin online. If you are using cash, then after creating an account you can go ahead and choose a payment method. For online buyers, you will realize that in most instances the exchange will purchase the coins on your behalf. There are hundreds of exchanges so when choosing, do ensure you research on the security as well as the liquidity of the exchange of your choice. The preferable platforms now are Bitfinex, Bitstamp, Coinbase, and Poloniex.
3. If you prefer to use cash, LocalBitcoins and other similar platforms such as Paxful, BitQuick, and Wall of Coins may be of help. LocalBitcoins lists individuals near you that are willing to sell you Bitcoin for cash. The other three will give you directions to a bank branch where you can deposit money and receive Bitcoin in lieu.
You can also opt for ATM machines. Bitcoin ATMs operate a lot like bank ATMs; you load the bills, hold the QR code of your wallet up the ATM’s screen, and a Bitcoin equivalent of the cash you have paid is deposited into your wallet.
Selling Bitcoin

With the exception of some ATMs, all other methods that you can use to buy Bitcoin also provide the option of selling. The exchange you choose for your trades will determine your ilk; if you are a small investor, trader, or institutional holder.

Gemini mainly serves the interest of large-scale traders and institutional investors. Coinbase, Poloniex, Kraken, Bitstamp and other exchanges of their ilk mainly cater for retail traders.

When trading Bitcoin, do understand that you have the option to exchange them for other cryptocurrencies. Importantly, always ensure you reveal the interest you make from the sale since tax authorities in most administrative jurisdictions now have frameworks for taxing profits derived from dealing in cryptocurrencies.

Other options are direct sales. Platforms such as BitQuick, LocalBitcoins, BitBargain, and Bittylicious enable users to register as sellers, post their bids and wait for interested buyers. In such platforms, trade is done via wire or deposits to the seller’s bank account or mobile money wallet followed by the transfer of the agreed amount of coins sent to the buyers preferred address.

Selling directly to family and friends is also an option. Once kin have a wallet address, agree on the sale price, send over the coins to the kin’s address and pick up your payment in cash. Do note, however, that this approach is not advisable when dealing with strangers. Always exercise caution!

How to Store Bitcoin Securely

Before you think of owning any amount of Bitcoin, you will first need to think about where to store them. This is where the wallet comes in. Sometimes, you may want such wealth to be clandestine, and here, the question “can Bitcoin be traced?” must have passed through your mind again. Well, you will soon find out.

Back to wallets…in cryptocurrency talk, these refer to the place where you keep the private keys that grant you passage to your Bitcoin address (public key).

The blockchain has several kinds of wallets that users can choose depending on their preference and objectives. Such wallets include paper wallets, software wallets, online wallets, mobile wallets, electronic wallets, and hardware wallets.

You probably are wondering about the safety of these wallets. Well, safety of any cryptocurrency wallet is dependent on the format and version of the wallet that you choose. Safety is also dependent to a large extent on how you use your chosen wallet. At this point, you should most definitely be asking yourself: Can Bitcoin be traced?

Conducting Anonymous Transactions Using Bitcoin

You know by now just how important privacy is. You also know just how compromised the online space is. Though Bitcoin is not anonymous, there are innovations that can help you use the coin anonymously.

The obvious suggestion is to create many addresses and subdivide your coins into these addresses. Every time you are transacting, you will need to use a fresh cryptocurrency address. This technique works but it does not guarantee complete anonymity.

The foolproof method is the use of a Bitcoin mixer. A mixer or tumbler is an online facility that obscures your Bitcoin or cryptocurrency transactions, making them indecipherable to anyone digging into your spending. The best Bitcoin mixer should be easy to use, keeps no logs of transactions, and have a smart user interface.

Mixing Bitcoin Using the Best Bitcoin Mixer – The Process

The underlying idea behind the creation of Bitcoin is to eliminate the intermediary in financial transactions and to cut on the cost of this transactions. However, privacy is just as important a motivation as these two.

If you seek anonymity when transacting, then a Bitcoin mixer is your best bet. SmartMixer, one of the best crypto tumblers available obscures coin transactions in three simple steps; you enter your preferred address and send in the coins to the tumbler, the Bitcoin mixer mixes your coins, and you get sanitized untraceable coins in the address you choose.

Characteristics of a Good Bitcoin Mixer

If you want to transact anonymously using Bitcoin, then you have to ensure you do it right. Getting the coins mixed by a credible tumbler is the first step. These characteristics below define a credible Bitcoin mixer.

Anonymity

Complete anonymity is an admirable quality in a Bitcoin mixer. You should have the peace of mind that any transaction you undertake will not be decipherable. Credible tumblers enhance anonymity by deleting details of transactions either immediately or after a prescribed period.

Smart Interface

Keeping personal information to oneself is at the heart of privacy in transactions. Any well-meaning tumbler should not ask you to create a profile or log in whenever you want to mix cryptocurrencies. It should be a simple come in – put crypto – mix – get clean crypto – get out kind of arrangement.

Compatible with Privacy Browsers

Nothing is relieving than knowing that your coin transactions are indecipherable. And, while a Bitcoin mixer will give you anonymity, it does not hurt to go an extra mile by incorporating the Tor browser into the whole process. Any mixer that allows you to use this browser ha an added advantage.

In Summary

Bitcoin is a revolution in the online transaction space. It introduced cryptocurrencies and now the space has attracted a lot of attention. The conveniences that Bitcoin transactions enable and the coin’s pseudo anonymous nature has made it a focal point for many; both good and bad. Still, you can transact securely and anonymously using the coin. Just ensure that a Bitcoin mixer is a component of your transaction process.


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