Bitcoin Cryptocurrency Made Simple for Beginners
Unless you’ve been shoving your head into the sand, you should have heard about Bitcoin by now. The world’s largest and most popular cryptocurrency network at the time of writing. But did you know that you can make a sustainable income out of this? This post is created as a Bitcoin beginners guide. So, if you feel the passion in yourself to learn more about cryptocurrencies and why all the hype, stick to the end of our guide.
What is Bitcoin?
If you’re imagining a physical coin in your head, discard it at this very moment. There is no physical existence of Bitcoin. It’s a digital currency free from any kind of regulation.
With bitcoin, you cannot identify the owner because Bitcoin is only traded with private wallet addresses. It’s free from all kinds of names, account numbers, social security numbers, phone numbers, email addresses, and so on! It’s a de-regulated currency free of government control.
You can use Bitcoin to buy things from vendors such as a coffee from Starbucks. Or you can send Bitcoin to your friends as payment for food, events, and entertainment you owe them back for. Or you can make money from Bitcoin mining.
One of the main things that distinguishes Bitcoin from any other currency is decentralization. It means no government or central authority has control over the crypto network.
There is a finite amount of bitcoin that will ever be in existence, meaning government’s cannot print more. Bitcoin is viewed as an inflation hedge while governments around the world print money, diminishes the value of those other currencies.
The History of Bitcoin
You might have recently heard about Bitcoin on TV or from friends and social media, but it goes way back to 2008. A pseudonymous entity on the internet who goes by Satoshi Nakamoto introduced the concept of Bitcoin through a white paper.
There were other cryptocurrencies on the web at that time but none of them were developed enough to be adopted by the general public. In 2009, the blockchain came live where people started to trade Bitcoins for fun. If you’re wondering what blockchain is, stay tuned because we’re going to cover it in detail soon.
Bitcoin was created with the goal to replace cash entirely and make the users responsible for their own assets. However, as there is no government regulating the currency, the question of security was always there. And that’s why cryptography was developed to protect the Bitcoin network. Hence, the term cryptocurrency came into circulation.
The initial days of Bitcoin didn’t see any monetary value whatsoever. But 2010 changed the course of history. An individual from Florida decided that he wanted to use his Bitcoins to purchase his pizza. And he managed to convince the Papa John’s in the area to deliver 2 pizzas for 10,000 Bitcoins!
As bitcoin’s price climbed over the years, the cost of the pizza has also risen when we look at today’s price of bitcoin. For example, when bitcoin reached a price of $60,000 for 1 bitcoin, those 10,000 bitcoins spent on the pizza would be worth $600 million!
Since the first monetary transaction, Bitcoin has come a long way. The value has fluctuated quite a lot as well. Sometimes it’s skyrocketing, sometimes it’s dropping below everyone’s predictions. It’s all due to the decentralized and volatile nature of Bitcoin as it still gets adopted by the mass public.
Once Bitcoin got its monetary value, people started to use them for various needs. The association with the Silk Road is probably the darkest chapter in the history of Bitcoin.
As it is very hard and sometimes impossible to identify the owner of Bitcoin, it was heavily used for illegal purchases on the dark web, Silk Road being one of the major marketplaces at that time.
Luckily, the FBI managed to shut it down before Bitcoin became a permanent way to get illegal goods.
How Does Bitcoin Work?
If you’re wondering how a currency can work with no interventions from any governments, let us help you. Keep in mind that Bitcoin is traded through the blockchain and a Bitcoin wallet.
To own and store your Bitcoins, you need a Bitcoin wallet on your device. It might be your computer or your mobile device.
A Bitcoin wallet is usually an offline application that you install with your unique address. All of the information regarding your purchases and transactions are stored in the wallet and protected with top-notch encryption.
The wallet is connected to the blockchain over the internet. The blockchain acts as the central server where all of the nodes are connected although there are no physical servers.
By node, we mean your device. Just like yours, there are millions of nodes around the world. And some of them work as a masternode. More on it later.
Every transaction must go through blockchain verification and validation before its added to the blockchain. It’s where cryptography kicks in to validate your information, your unique key to be precise. It’s one of the strongest encryption algorithms in the world and that’s why Bitcoin is one of the safest methods for transactions as well.
Think of the blockchain as a public record. But unlike other public records where your sensitive information is exposed, the blockchain only shows Bitcoin addresses. Each Bitcoin has its own unique address. It ensures that no suspicious activities or double spending are happening in the network.
Once the transaction is uploaded to the blockchain, it stays there forever. There are no ways to delete or modify it later.
How is Bitcoin Created?
The process of creating Bitcoin is known as mining. If you’ve been hearing the term ‘Bitcoin mining’ in the 2nd decade of the 21st century a lot, it is referring to the process of creating new Bitcoins.
The mining process involves solving complex mathematical problems using the computer’s processing power. In the initial days, computer processors were primarily used to solve problems. But in recent years, the graphics processing units a.k.a graphics cards have been taking care of it.
There are even dedicated devices to mine Bitcoin known as ASIC (Application Specific Integrated Circuit) miner machines. It took the load off from consumer-grade computers and narrowed down the miners from the majority.
But you cannot just hop onto your computer and start mining Bitcoins. Even when the number of Bitcoins was limited, it took a very powerful and energy-hungry computer to solve those equations.
As the number of Bitcoins is increasing, the problems are getting more complex as well. So, you’d need even more power to generate new Bitcoins.
There are Bitcoin mining companies who have set up mining farms, lined with hundreds and thousands of ASICs to constantly mine Bitcoins. They do it out of their passion for crypto and the immense possibility of profit. Miners get paid a transaction fee from the users of Bitcoin for verifying and adding the transaction to the blockchain.
However, there is a cap on how many Bitcoins can exist. It’s set at 21 million by the creators of the blockchain. At the time of writing, there are about 18 million Bitcoins already in circulation. So, it’s not long before all of the Bitcoin supply will exist in circulation.
It would be accurate to say that you are better off buying and selling Bitcoins to make a profit rather than mining your own. But to buy and sell Bitcoin, you would need a Bitcoin wallet first.
The Concept of Bitcoin Wallet
As we’ve already mentioned, you need to install a specific application on your computer or mobile phone that will work as your wallet. For Bitcoins, there are two basic kinds of wallets you can get your hands on. They are hardware and software wallets.
Software wallets are usually the way to go for most crypto users. You just open an account at your preferred cryptocurrency website and start trading Bitcoin in no time.
These wallets are hassle-free and quite secured with many layers of encryption. You can store all of your private Bitcoin keys in the wallet and use them when necessary.
However, there is a safer alternative and that is the hardware wallet. Software wallets are great, but you can never be 100% satisfied with online security as it’s possible they could be hacked and your Bitcoins stolen.
Hardware wallets (also called Cold Wallets) are specialized devices that come with top-notch encryption. These devices are usually not connected to the internet (hence the term “cold”) so you are inherently safer than software wallets.
There is integrated software into the hardware to protect it from hacking attempts or viruses.
How Do You Make Money from Bitcoin?
We’ve come to the most important section of our post. All of the information provided above is to get you ready for this part. When you plan to make money from something, you should have a well-researched and thorough understanding of the platform, right?
Making money from Bitcoin is as simple as investing in it and selling it for a profit when the price increases. One of the unique characteristics of Bitcoin is volatility and it’s the driving force behind its popularity. It means that the prices can rise or drop unpredictably at any time.
For example, if someone decides to buy a huge chunk of the Bitcoin in circulation at once, the price is likely to go up. It’s the simple law of supply and demand. When demand is greater than supply, the price will rise.
Similarly, if an investor decides to sell all of his Bitcoins that he accumulated over the years, the price is likely to drop if it’s a substantial amount that overpowers the current demand from buyers. And as a Bitcoin user, that’s your opportunity to make money, when prices drop.
For example, in 2017 Bitcoin peaked at $20,000 and proceeded to spend the next few years falling in price down to $3,000. Those who bought at these cheaper prices saw reward when Bitcoin began rising in 2020 and reached $65,000 in 2021, making a 2000% return for those who got in at the bottom price level.
Have Patience With Bitcoin – Time is Your Friend
Another thing to keep in mind when you get into Bitcoin trading is that you can’t expect immediate returns. The prices may not change for years to come at times. This is like any investment. Stocks can take years to go higher, real estate slowly increases as well over time.
And you can clearly understand why when you look at the price fluctuations over the past 10 years. These sudden price changes are known as price bubbles among the users. It will have big up and down movements but the long term trend has been up so far for those who hold onto their bitcoins, like with the Pizza Example which would now be worth $600,000,000.
Bitcoin Short Term Bubbles
In 2011, Bitcoin had a price of a mere $1 per coin. But after three months, it was at $32! People who decided to sell theirs at that time made a 3200% profit! In the same year, it dropped to $2 again!
The next wave of surges came in 2013. Bitcoins were priced at $13.40 at that time. And suddenly it was $220. And it came down to $70 again within the same month!
2017 is the year to mark the first crypto boom. At the beginning of 2017, the price for each Bitcoin was somewhere around $1000. By the end, it was over $20,000!
If you try to predict how the Bitcoin trend will change, you will fail every time. Because there is no way to regulate the market whatsoever. But one thing is common across all of the instances. And that’s the crash. If the price changes dramatically in a year, it is very much likely to come down as well.
Keeping all of these in mind, let us look at a few ways you can make a profit from Bitcoins.
#1: Bitcoin Trading
If you’re okay with small profits and minor losses, this is the way to go. It’s also the fastest way to make money through Bitcoin. There are plenty of trading platforms on the internet where you can buy and sell fractions of Bitcoin.
The principle is simple. You invest some money. You wait for the price to increase, and you sell them. That’s it. It’s very similar to how stock exchanges work around the world. The platform will also allow integrated exchange policies so you may never need a Bitcoin wallet at all.
#2: Mining Bitcoin
If you want to take the safest route for your crypto adventures, it’s best to stick to mining. It will take some initial investment for the rigs, but it will be worth it when the next price bubble happens.
You need to be prepared with a lot of patience because it might be years before you mine your first Bitcoin. You already know the reason. The increasing complexity of the problems. You may also look into ASICs if you want to take Bitcoin mining seriously.
Another way would be to go with Bitcoin cloud mining. It’s essentially a lot of nodes acting as one through the cloud to increase the processing power. It helps to solve the problem faster. And the profit is split among all the participants.
#3: Buy and Hold Bitcoin
The next most effective way to profit from Bitcoin is to buy and hold them. You need to look out for the lowest price. And for that, you need to constantly monitor the price charts. Every dollar drop is you getting closer to your purchase.
And when you see the prices going up again, it’s time to buy. Buy as many as you can. But don’t worry if you don’t have $20,000 lying around. You can invest a few thousand or even a few hundred dollars at a time if you want. The smallest unit for Bitcoin is not 1 BTC. It’s 0.00000001 BTC, known as 1 Satoshis.
The process of buying and holding is known as HODLing. No, it’s not hoarding. It’s not holding. It’s HODLing. It was a typo at first on a popular crypto forum but made its way as the name for the strategy. It also stands for Hold On to Dear Life. You can only imagine how hyped Bitcoin is among the enthusiasts.
#4: Affiliate Marketing
As weird as it may sound, affiliate marketing is a very viable way of making money through Bitcoin. You will find plenty of affiliate programs on the internet that pays in Bitcoin. All you have to do is integrate your current business or website with those and select BTC as a payment option.
You can also sign up as an affiliate for Bitcoin related products, wallets, software program, and earn money as an affiliate marketer for referring people. For example, getting people to sign up with Coinbase, a cryptocurrency exchange, could earn you referral bonus commissions and free bitcoin.
#5: Accepting Payments
It’s very similar to our previous point. But instead of working for someone else, you work for yourself. If you have a running business and you take payments online, why not include Bitcoin as well?
Opening a Bitcoin wallet account is very easy and straightforward. Stick to the end of our post to know about it in detail.
When you decide to accept Bitcoin as a payment method, you may notice an improvement in your business as well. Many payment processors take 3-5 days to make a payment to your account. But with Bitcoin, you can receive your payment within minutes!
#6: Writing About Crypto
Although Bitcoin has been around for over 12 years now, very few people actually have a good understanding of the currency. And if you can increase your knowledge on the niche and have good writing skills, why not give that a shot?
There are many crypto-oriented blog sites on the internet that pays good money for the articles. Just do your research well and start earning by educating interested people.
#7: Provide Lending Service
Yes, you can lend your Bitcoins to people who need them! And you can earn interest as well. There are platforms like Unchained Capital, BTCpop, and Bitbond that will let you lend Bitcoins to the loanees! It’s a great way for a passive income when your HODLing.
#8: Bitcoin Faucet
If you’re not sure what it is, Bitcoin Faucet is a survey system that rewards Bitcoin. All you have to do is watch some ads, answer a few questions here and there, or complete a survey. You may even come across microgames that pay in Bitcoin.
#9: Invest in a Masternode
You do remember the nodes, right? The devices connected to the Blockchain. Well, there are masternodes. They work as a part of the server where blockchain transactions are processed. One drawback would be that your computer must run at all times with zero tolerance for downtime.
A masternode usually validates and announces transaction details. If you do it correctly, there is a huge potential for earning.
How Do You Get Started With Bitcoin?
To start making money with Bitcoin, you need a wallet before anything else. Let us look at some of the most popular current wallets.
In recent years, the Samurai Wallet has created quite the buzz for its exceptional security and user interface. It has support for both TOR and VPN if you want to add another layer to your security onion. The SegWit integration is an ultimate winner on this platform that lowers the fees for all users and speeds up the transaction even more.
The SMS Commands is a feature we like very much. It allows you to send commands to your wallet remotely. You can even wipe all data from the wallet in case you lose your phone.
Samurai gives you the option to increase processing fees in case you need the payment faster. Of course, you can always stick to the standard rate. But it’s good to know that you can get instant results if you need them.
One drawback of the wallet would be that it’s only available for Android users. So, if you’re an iOS user, it’s not the app for you. But worry not, we have a great solution for you.
Exodus is a very innovative and user-friendly option for iOS users. Android users can also benefit from this personal wallet. You can either install it on your desktop or your mobile device and use the same account from both.
You can integrate Exodus with Trezor hardware wallets, which we will look into shortly, for maximum protection! You get your own private key with Exodus, so there’s no need for opening an account.
Trezor is a hardware wallet boasting support for more than 1000 digital coins! The price starts at $60. You can customize it according to your needs for a premium. You may integrate other software wallets into Trezor for added security. It allows you to store all of your private keys and Bitcoins addresses offline. When you need them, you just connect Trezor to your mobile or your computer.
Ledger is another hardware wallet that we highly recommend. There are two variations of it, the Nano X and the Nano S. It looks very similar to a USB thumb drive so you won’t face any difficulties to keep it concealed.
The drive comes with Ledge Live software which enables you to check the status of the drive as well as your stored digital assets inside. It supports over 1800 digital coins which is a lot considering today’s crypto market.
The Nano X version costs double compared to the Nano S. The X variant is equipped with Bluetooth technology which means you can access it remotely. It can also hold significantly more applications than the Nano S. Hence, the higher price.
Some Bitcoin Trading Platforms (Exchanges)
Whether you mine your own Bitcoin or buy it from someone else, you must go through trading platforms, also known as cryptocurrency exchanges.
There might be hundreds of platforms swarming around the internet. But not all of them are equally good. Let us look at some of the best platforms that you can use to make money from Bitcoin and exchange your countries currency for bitcoin and other cryptocurrencies.
Coinbase is an amazing platform to deal with Bitcoin in general. It’s a Bitcoin exchange platform where you can buy Bitcoin with money as well you deposit or withdraw your Bitcoins. The difference with a wallet here is that you don’t get access to private keys.
For all your HODLing needs, Coinbase works perfectly. The platform is very safe. So much so that you can connect your US bank account with it. It’s a very seamless way of buying and selling Bitcoins using centralized currency i.e. money.
You can even earn free Bitcoin fractions by simply participating in quizzes, watching video ads, etc. You can take things one step higher by opting for the Coinbase Pro. Your Pro account will have its own API support and a unique interface.
Just like Coinbase, Robinhood is a brokerage platform for your Bitcoin trading. It’s not a wallet in the traditional sense, but you can store your Bitcoins here when you’re HODLing. Or, you can buy and sell crypto using your regular money, a very similar approach to Coinbase.
Robinhood was primarily developed for mobile users but there is a desktop application as well. Or, you can cut the need for downloading anything and go online. Despite all of these features, Robinhood is free of any charges! You don’t even have to pay any commissions when you buy or sell Bitcoins.
However, you may face some downtime and lengthy processing times. The number of currencies is also limited. Other than these factors, it’s a great way to start your journey with Bitcoins.
If you’re looking for a versatile exchange platform for your crypto needs, look no further than Gemini. It offers support for more than 30 cryptocurrencies, including Bitcoin. Gemini is also insured against exchange hacks! So, if one of your transactions goes wrong, you don’t have to worry about losing your Bitcoins.
The fees are a little high on this platform. It can go up to 1.49% for crypto to crypto transactions. And if you decide to buy Bitcoins with your debit card, you have to pay 3.49% of the total amount.
Risks Associated with Bitcoin
No matter how good anything looks, there is always a downside, isn’t there? Bitcoin is not free from this phenomenon as well.
The Blockchain is very safe when the cryptography aspect is considered. Despite the fact, there have been reports of stolen or hacked transactions. And as there is no definitive way to trace the transactions, most stolen Bitcoins can never be recovered.
Also, you may incur major losses if you miscalculate your timing. You must be always on the hunt for the right opportunity to buy and sell Bitcoins. If you miss the window once, you may have to wait years to regain what you lost.
Making money is the ultimate goal no matter what you do. And if you’re opportunistic enough, you can turn every venture into a profit. The same goes for Bitcoins. In our post, we’ve tried to cover as many ways as possible that you can use Bitcoins to make money.
But you must always keep in mind that the industry is evolving. What works today may not work tomorrow. That’s the nature of the crypto industry, volatile.