If you want to know all about Bitcoin, this article is for you. You can start reading the article in chronological order.
Chapter I: What is Bitcoin?
The first time anyone heard this word, “Bitcoin” was in August 2008 as two software developers using the pseudonyms, Marti Malmi, and Satoshi Nakamoto registered a domain name, “bitcoin.org”. In the same year, in October, Satoshi published a document known as “white paper”. This document was called- Bitcoin: A Peer-to-Peer (P2P) Electronic Cash System.
Satoshi Nakamoto is known as the main developer behind this launch that happened just after the 2008 global economic crisis.
Before this white paper was published in the public domain, Satoshi and a group of other developers had suggested various versions of the idea in public forums and personal email threads. And, after discussing the fine details, it was in 2008 when everything came together.
The White Paper
The document released by Satoshi in October 2008 contained the primary principals and overall structure of Bitcoin. In the white paper, it was stated that Bitcoin, or the progenitor of cryptocurrencies (digital assets), would serve as an electronic system for payments. The cryptocurrency is decentralized, i.e., no central authority will have control over it. All the transactions carried out in the Bitcoin network are in the public domain and the blockchain technology backing it approves every transaction.
The transactions are carried on the web and there’s no contract or trust required to complete them. So, the two parties involved in a crypto transaction allowed them to exchange crypto assets without having to sign a contract. There are assigned wallets that can be used to exchange digital assets like Bitcoin. Technology-enabled users to accept and send assets easily. There’s a private key that’s used for encryption of the user’s account. It helps in securing the account as no third party can enter the transaction. Also, during sending or receiving assets, it wasn’t compulsory for involved parties to disclose their identities.
The first transaction in the Bitcoin network was carried out between pioneer cryptocurrency developers, Satoshi Nakamoto and Hal Finney, in January 2009. The mysterious aspect of Bitcoin is that nobody to this date knows the identity of the person who created it. There’s no record of any Satoshi Nakamoto. But even though we don’t know who developed the technology, its decentralized aspect is what matters.
Close Picture of Bitcoin
Now, as mentioned above, Bitcoin is a digital currency. It isn’t printed, like euros and dollars but is developed by computers using complex algorithms. A digital wallet is used to store these crypto-coins digitally. One-millionth of a Bitcoin (0.00000001) is its smallest unit which is referred to as one Satoshi. So, with Bitcoin, not only big but microtransactions can also be performed.
The acronym, BTC is designated to Bitcoin. It’s obviously the first-ever digital currency to be developed and its ownership, transfer, and creation depend on cryptography.
Bitcoin can be interpreted in two ways- first, Bitcoin the token, which is the digital asset owned by individuals. The token is stored by individuals in a personal Bitcoin wallet. A token is represented by random characters. If you’re receiving a Bitcoin token in your wallet, you’ve to access it via the private key shared by the other party.
The Bitcoin protocol is another way to look at things. As mentioned, it’s a distributed ledger in the public domain. The ledger contains all the Bitcoin transactions taking place around the world. The blockchain technology is responsible for approving these transactions and storing it under a particular block. When the storage capacity of a block gets exhausted, the next lot of transactions are moved to the succeeding block.
Bitcoin has myriad uses. Using it as a payment method is its most important feature. You can transfer and receive Bitcoin digitally if the other party is willing. It’s similar to trading conventional or fiat currencies like USD and Euro. Unlike credit cards and PayPal, you can’t get back your money if you’ve transferred it to another wallet, i.e., it’s irreversible.
As stated earlier, Bitcoin is backed by blockchain technology which makes the entire system decentralized. It means that there’s no fixed authority that supervises and verifies transactions. The validity of transactions is checked by technology. Since there’s no institution that has control over the crypto asset, you don’t have to pay any taxes on your transactions.
Also, as there’s no central authority, users don’t have to reveal their identities while completing a transaction. It’s the responsibility of the protocol to verify and validate each Bitcoin transaction as it takes place. So, a level of semi-anonymity is maintained by the system. The mechanism ensures that malicious hackers stay away and secure every transaction.
As the system is transparent and all transactions are available in the public domain, anyone can access it. But once a transaction is validated, it can’t be reversed. The system is immune to hackers due to the rigorous verification done by the functioning protocols. You must also know that frauds and swindles are common occurrences in the crypto world but most of it happens when the asset is transferred to a wallet.
Similar to conventional and fiat currencies whose supply (and, therefore value) is managed by a central bank, the technology controls the supply of Bitcoin. There’s a set number of coins that are released by the system every hour. It’ll continue to do so until 21 million coins (maximum available coins) get released.
Chapter II: How can you Purchase Bitcoin?
Now, after looking at the basics of Bitcoin, it’s time to see the ways in which you can purchase Bitcoin.
You can buy Bitcoin through crypto exchanges or directly from people in marketplaces. You can purchase it with debit cards, credit cards, wire transfers, and more.
Registering and setting up a Bitcoin wallet account is the primary step to buy Bitcoins. You’ll need to not only buy these digital assets but also store them. There are many types of wallets- offline, online, and desktop wallets.
The most significant part of managing a wallet is to keep your private key safe. The private key is what gives you access to the Bitcoin wallet. If you lose it, there’s no way of recovering it. And, if somebody else is able to access it, they can access your wallet and the assets in it as well.
There are hundreds of cryptocurrency exchanges operating at this point in time. You can open an account with anyone of them and they’ll buy and sell the asset on your behalf. Each exchange offers different features in terms of security and liquidity, so select the most suitable one for yourself. It’s recommended that you analyze the features offered by a particular exchange and see if it suits your requirements.
Bitfinex is the largest crypto exchange in the world right now. Massive volumes of trades (in $) are carried out on the platform every day. Coinbase, Binance, Poloniex, and Bitstamp are other large Bitcoin exchanges. If you wish to start with small trades, you can choose any reputable software.
For security purposes, most platforms now ask for KYC verification of their customers. Anti-money-laundering (AML) rules also stress on authentication of details. So, you’ve to verify your details, including your address, and photo on your official ID.
Most Bitcoin exchanges charge a small fee on transactions. It includes the charge for using the network.
Your Bitcoin transaction can take a few minutes to a few days to get processed. The time taken for a transaction to get completed depends on the traffic on the system and the amount associated with it.
Once your transaction is processed, the crypto exchange purchases the asset for you. It gets deposited in your wallet automatically. Then, you can move the digital assets to an off-exchange wallet for better security.
You can buy Bitcoin using cash as well. LibertyX is a platform that has retail stores in various regions of the US. You can drop-in anytime to buy Bitcoin with cash. There are platforms like LocalBitcoin wherein you can find individuals ready to exchange Bitcoin for cash. Other platforms like BitQuick and WallofCoins that have designated deposit stations. You can deposit cash in such stations and get Bitcoin after a few hours. These are also called Bitcoin ATMs. You can find the nearest station at Coinatmradar.
Chapter III: Why Should You Use Bitcoin?
Bitcoin offers a low-cost alternative to International bank transfers. It’s also quicker and safer. These are the two main reasons to use Bitcoin over conventional currencies as a payment method.
As Bitcoin transactions are irreversible, it’s an added benefit for merchants who don’t have to deal with expensive refund costs. The advantage for consumers is that they have a wide range of exchanges to choose from. They can select the exchange most suited to them in terms of fees and security.
But due to major exchanges charging high transaction fees and frequent server issues, Bitcoin is becoming unpopular. Advancement in domestic payment systems and non-crypto alternatives too don’t fare well for the progenitor of digital currency. Also, because of the increasing illegal transactions, the supervision on each transaction is enhanced which has restricted the use of the crypto. The unavailability of Bitcoin in some countries is another issue that looms large over Bitcoin.
Even though the Bitcoin world has its own share of problems, it’s still a cheaper and more efficient way to transfer funds from one wallet to another. Many companies, like Bitex and Bantotal, have joined hands to provide inexpensive cross-border transfers to users. Coinbase has added a similar feature to its platform.
Many retailers in developed countries like the US and UK accept Bitcoin as a payment method but the demand for crypto isn’t that high. Experts believe complex technicalities of the asset may be the reason behind it.
After the COVID-19 lockdown started in March, there’s been a massive increase in demand for crypto wallets, indicating that most Bitcoin holders are preferring to store it in a Bitcoin wallet where the asset is secure. Many retailers have been forced to move to digital alternatives as a form of payment during this lockdown.
Bitcoin, after 11 years of its inception, has become an investment asset for investors. They’re profiting from its price appreciation.
As Bitcoin had its security issues during its initial years, most crypto exchanges have now become quite disciplined when it comes to the security aspect. It was being used for money-laundering, terrorism financing, and extortion but now most exchanges have been able to control the transactions.
Chapter IV: How to Store Your Bitcoin
To start with, you need to have a digital wallet to hold your Bitcoins. The cryptocurrency wallets have their unique address that has 26 to 35 alphanumeric characters and contains one or more than one private key that you need to transact in your cryptos. In a way, these wallets are like your physical wallets where you keep cash, if you lose the private keys to your wallet, you lose all the currency you hold. The wallet creates and stores public and private keys in a master file and that can be stored in a device or on paper as a backup.
The cryptocurrency wallets come in a range of forms, each one is unique in terms of storage, accessibility, and security. You can choose one as per your necessities to store the private keys that are required to access the address of your Bitcoin and spend your funds. If you lose track of this information, you lose all access to your Bitcoins.
Fundamentally, there are five types of digital wallets namely, paper, hardware, online, mobile, and desktop. The most secure option is the hardware wallet that uses special security features for protecting your Bitcoins. The flip side is if you lose the hardware device all your digital currencies are lost unless you have kept an authentic backup of the keys. You get the least security in the most user-friendly online wallets, that store your keys in a third-party interface.
Many experienced Bitcoin holders prefer to reap the advantage of both the above and store a major part of their holdings in a secured offline wallet and the rest in an online wallet.
The types detailed below have their own pros and cons.
These are the simplest wallets in the form of pieces of paper that contain the public and private keys of your Bitcoins. It is perfect for long-term holding or to give the Bitcoins to someone you love. These wallets are very secure also, as they are not connected to the internet and cannot be hacked. On the other side, these are the easiest to lose.
These wallets are compact devices that you have to connect to a stable internet connection and transact in Bitcoins. These are high-security wallets as they remain online all the time other than when you are buying or selling your Bitcoins. So, these are not open to hackers. But these devices can be stolen or lost and with that, you will lose the keys. So, you must keep a backup of your digital keys. Investors with a high balance of Bitcoins store these hardware wallets in lockers to protect from theft. Some examples of hardware wallets are Ledger, Keepkey, and Trezor.
Online or Cloud Wallets
Cloud wallets have a user-friendly interface and the keys are stored in a third-party server.
In these types of cloud wallets, you have to be sure about the security features before entrusting a third party to store your valuable Bitcoins. Lumi Wallet, Blockchain, and Coinbase are some popular cloud wallets. Online wallets like Coinbase and Xapo provide offline storage to secure your Bitcoins.
There are wallets available in the form of apps for your smartphone. These are convenient for payments in a shop or when you are outdoors. All the companies providing online wallets and desktop wallets also have mobile versions. Also, some companies like Bread, Edge, and Abra have only mobile wallets. As the keys are stored on your mobile device, you may lose them in case you lose your mobile or it malfunctions. So, to be on the safe side, store the keys on a different device, or keep a printout.
Desktop or Software Wallets
This wallet is installed on your desktop computer and provides full control over your funds at an affordable cost. The thin desktop wallet does not require to download the blocks on your device and can be accessed from a portable device also. The thick desktop wallet can download and store the blocks and the users can secure and control their funds. There are many free and easy to configure software wallets but the downside is that you have to secure the keys. If your computer is under a hacking attack or is physically stolen, your keys and with that, your Bitcoins are compromised.
The first software wallet called Bitcoin Core protocol that stores ledger information from 2009, is still available for download but most users don’t prefer to use it because of its huge size.
In recent times, lighter wallets or SPV (Simplified Payment Verification) ones are available that do not download the huge ledger onto your computer but only sync to it. Exodus is an SPV wallet that can track multiple cryptocurrencies, Electrum offers a totally offline option of cold storage for added security, Copay offers a shared account, and Jaxx Liberty holds a wide range of assets. Before installing any of these wallets, be sure that you have a legitimate wallet as some cyber fraudsters create clone apps and offer free downloads to acquire your assets.
Chapter V: How You Can Sell Your Bitcoins
Almost all the methods that allow the purchase of Bitcoins also give the sell option except bitcoin ATMs. Some bitcoin ATMs give the facility to exchange Bitcoins for cash and others do not. You can get an idea about the bitcoin ATMs in your locality from the app Coinatmradar.
All the cryptocurrency exchanges allow the investors to buy and also sell. You have to select an exchange depending upon your profile as if you are a retail investor or an institutional one or a trader. Poloniex, Coinbase, Bitstamp, Kraken, etc give the opportunity to retail traders to sell Bitcoins. Exchanges like Gemini and GDAX process the high-value orders of traders and institutional investors. Different exchanges provide some specialized services to users like secure storage. Some of them use verified identification for logging in and executing orders, while some are relaxed if the holdings are less.
There are a few exchanges like ShapeShift that provide the service of exchanging your bitcoins for some other crypto assets instead of cash. You can trade between bitcoin and dash, ether, XRP, and litecoin, etc.
Some other exchanges like BitBargain, LocalBitcoins, Bittylicious, and BitQuick offer direct selling to the users. When you register on these platforms as a seller then interested buyers will get in touch with you if they like your price. The buyer will deposit or wire the settled amount to your bank account and then you have to transfer the bitcoins to the specified wallet.
If you want to avoid exchanging your bitcoins for cash with a complete stranger, you can sell them directly to family members or friends. In that case, they must have a bitcoin wallet and you can send the bitcoins and take payment from them.
If you sell your Bitcoins and book any profits, submit necessary declarations to your tax authority as per the prevailing rules.
Chapter VI: How do Bitcoin Transactions Work?
After you have a wallet you can start transactions on Bitcoins. There are three components of any Bitcoin transaction, an input, an output, and an amount. Input is the address from which the money is sent and output is the amount in which the amount is received. Each transaction has data that is stored in the blockchain permanently. You will need the public and private keys that secure your Bitcoins for transacting.
After receiving the amount in your address, you can issue a transfer of the agreed number of Bitcoins to the output address through your computer or smartphone. The software program will generate a signature by using your private key and then the network verifies the ownership of your Bitcoins by checking the previous transactions on the public ledger. After confirmation from the network, your transaction is recorded in a block that gets attached to the blockchain.
Every transaction in the blockchain has a unique identifier in the form of a 64-character letter and number combination called a hash or txid. This process takes a lot of time as it involves additions to a large ledger. But the interesting thing is the time taken to validate larger transactions with higher fees is much lesser than the smaller ones. But, once the transaction gets validated it can never be tampered with by anyone.
Chapter VII: What is Bitcoin Mining? How Does it Work?
As a learner, you must be thinking if Bitcoin isn’t a physical currency, why do we talk of “mining Bitcoin”? Are we digging Bitcoins from the ground as we do with natural resources?
Now, Bitcoin mining is similar to the extraction of gold mining. This is exactly where it derives the name from. Like gold mining, Bitcoin also exists in the design of the system but it hasn’t been brought to the surface yet.
We know that the total number of Bitcoin available in the protocol is 21 million. Bitcoin miners, who’re adroit at what they do, extract a few Bitcoins at a time. This is because after the stipulated 21 million coins are over, there won’t be any more coins to be mined. After that, the Bitcoin protocol has to change to allow more cryptos to be supplied. Bitcoin miners get heavily paid in transaction charges for developing new blocks and attaching them to the blockchain.
To understand Bitcoin mining, you need to know more of “nodes” and how they work. A node is a powerful algorithm that’s responsible for running the Bitcoin network and validating transactions. In the decentralized Bitcoin system, nodes approve pending transactions and store them in a block.
Anyone can operate a node by downloading free software. The only limitation is it takes up a lot of storage space and energy. You should have available storage up to 1000 GB to download and operate it.
Each node will send transaction information to other nodes. The process will continue until the nodes involved in the network approve it. The nodes associated with mining are called miners. After validating them, it adds transactions to the blockchain by solving a complicated mathematical problem.
The mathematical problem has to be solved to get a solution that generates a result within a particular range when passed through a hash function. This result is called “nonce” or “number used once”.
This number is found by a random hit and trial method. The concerned hash function makes it difficult to predict accurate output. The nodes, therefore, guess the number and put the hash function to the predicted output. The result starts with a few zeroes. It’s nearly impossible to predict as two consecutive numbers can have varying outputs. Each nonce can give a hundred different outputs or produce the desired result. The role of the miners is to keep trying with different combinations.
Even though the time taken to solve a problem depends on its difficulty level, it takes about 10 minutes to obtain a solution. The first node or miner to get the accurate result informs the same to other nodes trying to decode the problem. Then, the miners involved in solving this problem move on to the next block. The miner who guessed the number accurately gets some Bitcoin as a reward.
The reward stands at 6.25 Bitcoins per block, i.e., $86,000 in monetary terms.
As captivating as it may seem, it isn’t easy to solve a problem and get the reward. There are hundreds of miners fighting for the same block and you must have a powerful computer to give yourself a better chance at guessing the number correctly.
Also, there’s capital that has to be invested to start calculating results for a block. The software used takes up a lot of electricity.
The prize for solving a mathematical problem will, however, decrease every four years. It’s expected to get halved by 2024. Inflation is the reason behind it as each BTC will have a higher value than the present.
Now, after getting an in-depth analysis of the working of the Bitcoin network and how mining works, we’ll see how you can set up your Bitcoin miner.
Chapter VIII: How to Set Up a Bitcoin Miner?
Prior to setting up a Bitcoin mining hardware, you have to choose one on the basis of two important components. One is the hash rate and the other is the energy consumption of the hardware. Hash rate is the number of calculations the hardware can perform every second while trying to solve the mathematical problem as discussed earlier in the mining part. As you can understand, the higher the hash rate, the more is the probability to solve a block of transaction. The units to measure hash rates are megahashes, gigahashes, and terahashes per second (MH/s, GH/s, and TH/s). A comparison of the hash rates of all these hardware are available on the bitcoin wiki’s mining hardware page. Now, coming to energy consumption, this is also an important factor as all this computation needs energy and that costs money. So, first, find out how many hashes you get from each watt consumed and then calculate the money you have to spend.
Three main categories of Bitcoin mining hardware are presently available for use namely, ASICs, FPGAs, and GPUs that are detailed below.
Application Specific Integrated Circuits (ASICs)
These are the most modern mining hardware that can mine bitcoins at lightning fast speed and also by consuming low electricity. The chips used are specialized to do this work, the speed is exceedingly high at the range of 5 to 500 GH/sec, and so are expensive. Before buying one, calculate the cost you pay and the return you get by using certain parameters like the price of the equipment, power consumption, hash rate, and current bitcoin price. Now, hardware companies are even promising a speed of 2TH/sec that can be highly profitable.
One other factor is network availability and speed. Also, some of the ASICs need mining software and you have to take into account that price also when you calculate the profitability. Recent technology has developed ASICs with in-built software and also a Bitcoin address so that you can just plug it in a wall socket and start using.
Field Programmable Gate Array (FPGA)
FPGAs run an integrated circuit that is configured after it is built. The manufacturer buys the chips in a mass and then customizes them for mining bitcoins. As these are tailor made, they are also great performers and much better than the CPUs and GPUs. Now, coming to the speed, single-chip FPGAs have a speed of 750 MH/sec, and you can get multiple chips in one box.
CPU and GPU bitcoin mining
The CPU mining hardware is your computer itself. It is the least powerful one and is very slow. If you add a graphic card to your computer, you get a Graphics Processing Unit (GPU). you must be aware of the fact that graphic cards are designed to run high-end video games. This ability to handle heavy mathematical lifting makes them good in solving the mathematical transaction blocks needed at the SHA or Secure Hash Algorithm. The best thing about GPUs is that they can be used with other cryptocurrencies other than bitcoins which makes it popular with miners who want to switch currencies.
These options are becoming redundant with the advancement of technology and the introduction of ASICs.
Chapter IX: Is it Possible for Bitcoin to Scale?
Have you ever imagined that in a world where MasterCard, Visa and other forms of payment methods dominate, how do payments with Bitcoin fare? Can Bitcoin scale in a few years?
Whether Bitcoin as a payment method can compete with other forms of payment dominating the market is a hot topic of discussion for those associated with the crypto sector. To avoid network spam, Satoshi Nakamoto designed each block to have a storage space of 1MB. But it created the problem of Bitcoin illiquidity.
Every block takes about 10 minutes to process. So, a small number of transactions can go through at a time. This proved to be a problem for the digital asset that was once hailed as a faster and better alternative to fiat currencies. While credit card companies like Visa can manage up to 1,700 transactions in one second, the blockchain network could handle only 7. An increase in demand for Bitcoin transactions will lead to a rise in fees and Bitcoin’s usability will be reduced.
The discussion on Bitcoin’s scalability has resulted in several innovations but no solution has proved to be sustainable.
Many developers believe that increasing the size of a block would be a simple solution. Some suggested increasing the size of the block up to 32MB so that each block is able to process more transactions.
But there was an argument from the development team that increasing the size of the block can weaken the software’s decentralization by providing more authority to miners with larger blocks. Also, Bitcoin mining can become less profitable as more developers keep chasing faster systems. Basically, the network can become more centralized than the present.
Another concern is the upgrade of the system. Developers are concerned about the discrepancies that come along with the change in the fundamentals of the software. Does everyone need to update the software when the capacity of the blocks is changed?
So, most people associated with the network believe that the fundamentals of Bitcoin should remain as it is. If any developer has a problem with it, they’re free to launch a new coin.
SegWit or Segregated Witness was a solution suggested by Pieter Wiulle in 2015. This system would increase the storage capacity of the blocks without altering their size limit. This would be done by changing the way in which the transaction data is stored.
SegWit was introduced in the Bitcoin network in 2017 to make it compliant with nodes that didn’t upgrade. Many Bitcoin software and wallets are modifying their systems but most are afraid of the associated high costs and risk.
Most crypto developers feel SegWit is a short-term solution. In the long-run, Bitcoin will be restricted to grow by some or the other of its own factors.
Another approach was resorted to in 2017 in the form of SegWit2X. Several industry giants supported this idea of increasing the block size to 2MB and multiplying the capacity of the transaction by a number divisible by 8.
However, this was far from a sustainable solution to Bitcoin’s scalability. The implementation of the idea wasn’t appropriate. The upgrade was launched through an announcement. Many also believed that this will divert power from developers who’re the backbone of the network to miners and businessmen.
Other technologies have also been considered to scale Bitcoin. Schnorr signatures is a technology that can reduce the space taken up by each transaction in a block. So, if this is blended with Segwit, the number of transactions that can be stored in a block will certainly increase.
Most developers and miners are getting accustomed to the Segwit upgrade as they believe it has the potential to lower transaction costs and increase the storage capacity of blocks.
Bitcoin’s “lightning network” is another advanced technology that can contribute towards Bitcoin’s scalability as a payment form. Developers also see potential in Schnorr signatures and efforts are being made to cover the possible loopholes and make it the software that the crypto world desperately needs.
Bitcoin still has a lot of untapped potentials. It would be an understatement to say that Bitcoin’s currently being underutilized. New features have to be developed that can reduce the cost of transactions and facilitate faster transactions.
Chapter X: What is Bitcoin’s Lightning Network?
To make bitcoin scalability easier, Joseph Poon and Thaddeus Dryja put forward a protocol called the lightning network that will facilitate cheaper and faster transactions by keeping the block size unchanged. What is actually done is a second layer is generated on top of the bitcoin blockchain and you can send or receive payments securely as there is no need to know the other user.
Say, you want to watch a paid video uploaded by me and pay in bitcoins. Then we will make a lightning channel and you will pay in my wallet for the number of minutes you watch. When you finish watching, the channel will close after the settlement of the net amount. These transactions are completed in seconds and the transaction fees are small or even absent as there is no need of miners.
Working of the Lightning Network
To start with, two parties interested in transacting must set up a multi-signature wallet that needs more than one signature to execute. The wallet holds some bitcoins and the address is stored on the bitcoin blockchain. The two parties can transact as many times as they wish to without disturbing the information stored on the blockchain. The wallet contains bitcoins owned by both the users and they sign an updated balance sheet after each transaction. After the transactions are closed by both the parties, then the bitcoin balance of each of the users is registered on the blockchain. There can be no dispute as the latest balance sheet will provide all the ownership information.
SegWit developed a lightning network for bitcoin and litecoins. On the flipside, this network is not as secure as the original blockchain and is used for low value transactions. Larger transactions are still done on the actual blockchain layer.
How’s it progressing?
Lightning Labs, a Californian startup company, after thoroughly testing the technology brought a beta version of its software in March 2018. The transaction value is limited and the software targets advanced users and developers. Studies show that this lightning network is very vulnerable due to centralization of the nodes in the network. So, developers are continuously trying to increase efficiency as well as privacy of the lightning and bring in advanced technologies in the network.
Chapter XI: What are Bitcoin Mining Pools?
A Bitcoin miner can start solo or join a bitcoin mining pool. A pool is like a cartel in which a number of miners come together. You get to keep the whole profit when you go solo, but in the case of a pool, your odds of getting rewarded is more. If you join a pool, the chance of solving a block and getting rewarded is more, but the reward will be divided between all the members. Though you will get a source of steady income from the pool.
Before venturing into solo mining, you must understand that the difficulty level is extremely high, and it is very challenging for solo miners to make profits.
As a beginner, it is always better to join a mining pool to get rewarded by small amounts but frequently. Also, as a starter with no customized hardware, you should find altcoins easier to mine compared to bitcoins as the difficulty of bitcoin calculation is very high. Such mining cannot be done using the processors of normal computers.
The factors to consider before selecting a mining pool are what are the fees charged and what is the share of profit. Usually, pools deduct 1% to 10% but some pools waive off these charges. And you can get to know about the ways of dividing the payments from the bitcoin wiki. The model followed the PPS or pay per share that may be equalised shared maximum pay per share (ESMPPS), or shared maximum pay per share, or recently shared maximum pay per share (RSMPPS). AntPool, SlushPool, and BTC.com are the most popular mining pools. You can join a pool by simply creating an account on the pool’s website and then create a worker. You can create more than one worker for the same account.
Step XII: What can you Buy Using Bitcoins?
Since Bitcoin became a popular investment asset for merchants and online (and, offline) retailers began accepting it as a method of payment, its value has slowly dipped. The entry of big industry players is the primary reason behind the increasing volatility of the market and higher transaction fees.
But this doesn’t mean that you can’t use your Bitcoin in outlets. A survey conducted by an insurance company HSB reported that around one-third of businesses across the USA accept Bitcoin as a method of payment. Out of them, 59% are Bitcoin investors and utilize them for personal usage.
Anonymity and easy cross-border transactions are just two of the many advantages of using cryptocurrency for business. If you, as a business person accept Bitcoin, you’re expanding your reach. Another benefit for merchants is that unlike regular payments, Bitcoin transactions can’t be reversed, so there are no chargebacks to face.
AT&T became the first telecommunication giant in the US to accept Bitcoin via BitPay in 2019.
You can also use Bitcoin to buy gift cards on eGifter and Gyft. You can use them as birthday presents and gift it to your closed one who can use it on multiple platforms.
Surf Air, Expedia, and CheapAir are some of the online platforms that accept Bitcoin. You can use it to book your flights and hotels.
Another way to use it is on the Microsoft app to download movies and games. Twitch, another popular OTT accepts Bitcoin Cash and Bitcoin as payment methods.
There are various artists who let you download their albums if you pay via Bitcoin. Imogen Heap, G-Easy, Dolly Parton, and Bjork are some of them.
Overstock is another online retailer who’s started to accept Bitcoin. You can buy furniture and other home decor items on the platform.
You can also exchange Bitcoin for other commodities like gold and silver. JM Bullion, APMEX, and Sharps Pixley are some of the platforms that offer such services.
PizzaforCoins is an online pizza delivering network that accepts Bitcoin and delivers pizza at your address. This service is only available for those staying in the US.
There are some private universities, schools, and preschools that accept Bitcoin. So, you can even use it to fund your education or your closed ones’.
You can donate to charities using Bitcoin on crowdfunding websites like BitGive and BitHope.
Last but not the least, you can pay accounting and legal firms with Bitcoin in exchange for their services.
Chapter XIII: Legitimacy of Bitcoin in Countries
With the popularity of Bitcoins as a payment option, there are still some questions over the legalities. Digital assets like Bitcoin have not been declared as illegal by countries other than Japan but if it’s illegal also, there are no bars on using it as a mode of payment. Only the rights of the merchants and consumers are not safeguarded by the governments.
International financial institutions like the European Commission feel that there is a necessity for deliberations and discussions while the European Central Bank (ECB) believes that cryptocurrency is not mature enough to be bound by rules and regulations. Another point is whether the regulations should be national or international? Countries worldwide have made some declarations on cryptocurrencies, some of which are detailed below.
This was amongst the first countries that put forward certain legislations regarding bitcoins. The Canadian Governor General passed Bill C-31 in 2014 named virtual currency businesses as money service businesses. This change in designation meant that digital currencies should comply with the anti-money laundering regulations and have know-your-client provisions. The law regarding a set of subsidiary regulations is still at a drafting stage. Though the government has not yet declared bitcoin as a legal tender, still the tax authority of Canada treats bitcoin transactions as taxable.
The Australian government has always supported the development of blockchain technology and also cryptocurrencies. The cryptocurrency was declared as legal and brought under the Capital Gains Tax in 2017. After this, in 2018, the AUSTRAC i.e. Australian Transaction Reports and Analysis Centre introduced new regulations that required all crypto exchanges operating in Australia to register with them. All the user verification and records are to be maintained with the AUSTRAC. If an exchange does not comply with these regulations, they will face charges for money laundering and terrorism financing and also monetary penalties.
The Indian government has issued several official warnings on bitcoins through its central bank. In an interview in 2017, the Finance Minister of the country refused to accept bitcoins as a legal tender. There is a ban on Indian financial institutions from working with cryptocurrency exchanges and other forms of crypto services. The government is considering introducing a set of regulations and looking at some recommendations covering cryptocurrencies.
If you’re staying in the continent of Europe, then you might be delighted to know that the European Union has been supportive of Bitcoin with its regulation. The Union is circumspect in its approach towards Bitcoin regulations as there has to be proper study before the implementation of guidelines. They believe Bitcoin has the power to enhance innovation in the region.
However, the European Union, two years ago voted for the implementation of regulations that will prevent the use of Bitcoin for terrorism financing and money-laundering. The EU’s recent directive aims to strengthen the laws surrounding crypto service providers and increases the scrutiny on them.
The financial regulatory body of Britain, FCA perceives Bitcoin as a commodity. And, so, as with the other commodities, it doesn’t monitor Bitcoin and its transactions. But the regulatory body aims to step-in to regulate derivatives related to Bitcoin in the future.
There’s no law in the UK that protects consumer rights in Bitcoin transactions. FCA has only issued warnings on the risks associated.
Singapore has accepted cryptocurrencies and blockchains with open arms under the Monetary Authority of Singapore (MAS). The MAS brought out a new set of regulations under the anti-money laundering rules and counter terrorist financing rules to cover all the cryptocurrency businesses based in Singapore. A six-month grace period for license exemption was granted to well-known crypto companies like Bitstamp, Coinbase, Gemini, and Binance.
United States of America
This is a country with layered jurisdictions with the legislators at the federal and state level both sharing the regulatory powers. The individual states differ in their standings on the cryptocurrencies.
Like in 2015, New York introduced BitLicense that granted bitcoin businesses an official green signal to operate in the state. But the conditions set were expensive to comply and many small crypto companies stopped operating from New York.
In 2017, Washington applied the money transmitter laws to cover the bitcoin exchanged. In Texas, the state authorities like the securities commission are monitoring the activities of crypto companies particularly the bitcoin-related investments and shutting down some of the businesses. New Hampshire issues a money transmitter license to bitcoin seller on submission of $100,000 bond.
The Securities and Exchange Commission monitors the bitcoin businesses at the federal level. It focuses on whether bitcoin investments can be treated as securities and sold to the public. It also examines whether offerings made by companies are fraud or not.
The federal government has engaged the Commodities Futures Trading Commission (CFTC) to oversee the bitcoin regulations thereby designating cryptocurrencies as a commodity. CFTC is now monitoring the futures market and in the process of drafting a set of regulations for cryptocurrencies. In cases where CFTC suspects any fraudulent activities, it files charges against bitcoin related schemes.
A non-profit organization, the Uniform Law Commission is trying hard to bring transparency and unambiguity to the state legislation on cryptocurrencies. It has already drafted a Uniform Regulation of Virtual Currency Business Act that will be introduced simultaneously by many states in the near future.
Chinese President, Xi Jinping has often praised bitcoin’s blockchain as innovative technology. On the other hand, financial regulators of the country are trying to suppress all major bitcoin exchanges operating in the country. In 2017, the trade bookings of cryptocurrencies against yuan were suspended in exchanges like BTC China, Huobi, ViaBTC, and OKCoin. Though the government has not officially banned cryptocurrencies, it is slowly withdrawing the facilities of tax deductions and electricity subsidies from bitcoin miners.
Japan led the world in declaring bitcoin as a form of legal tender and passed a set of laws in 2017 to bring it under its financial regulations. The FSA or Financial Services Agency of Japan cracked down on exchanges under the anti-money laundering rules and issued improvement orders to many others with a mandate to introduce better security measures. FSA has been proactive in examining institutional issues regarding bitcoins and drafting additional guidelines for crypto investments that were introduced in October 2019.