Hey readers, is bitcoin‘s rollercoaster price leaving your head spinning? I totally get it. As a data analyst who studies bitcoin, I want to provide an in-depth beginner’s guide to using bitcoin safely. We’ll explore what makes bitcoin tick, how to acquire it, best practices for managing this digital money, and examine whether bitcoin aligns with your lifestyle.
Sound good? Let’s dive in!
What is Bitcoin and Why Does it Matter?
You’ve likely heard about bitcoin‘s meteoric price highs and crashes. But why does this funky digital currency even hold value?
In a sentence, bitcoin functions as scarce digital money secured by a decentralized network instead of governments. It represents a potential new global currency powered by everyday people due to its peer-to-peer design.
But to fully grasp bitcoin, we need to go deeper…
Bitcoin‘s Rapid Growth Reaches New Heights
Bitcoin started as an obscure hobby for techies when it launched after 2008‘s financial crisis. But it’s really hit the big time as major institutions and even entire countries begin supporting it!
Just look at how much bitcoin has grown recently:
- Bitcoin purchases from institutional investors spiked 7x in 2021 compared to 2020
- El Salvador adopted bitcoin as legal tender in Sept 2021 alongside the US dollar
- Over 46 million people globally now own bitcoin — an all time high
And predictions estimate over a billion people could own bitcoin by 2030. Now that‘s substantial growth!
Companies like Microsoft, AT&T, and Tom Brady‘s NFL team even accept bitcoin payment options. No wonder it feels like bitcoin is everywhere these days!
How Bitcoin‘s Technology Works
We built banking as a centralized system that puts humans in charge. PayPal, Chase or even the Federal Reserve all rely on individuals making decisions.
But bitcoin changes this completely. It works as decentralized software meaning no single entity runs the show!
Instead, bitcoin relies on unchangeable code and math enshrined on its ledger, called the blockchain. This acts as a permanent public record verifying all bitcoin transactions from the start of the network.
So when you send bitcoin, miners (people running computers) verify the transaction gets added to the blockchain using special cryptographic proofs. As long as over 51% of computing power agrees, payments irreversibly finalize in ~10 minutes without anyone reversing them.
In return for operating this network, bitcoin pays miners newly minted coins as rewards. However, only 21 million bitcoin can ever exist. Thiscapped supply helps bitcoin hold scarcity similar to precious metals.
What does this decentralized system enable?
- No borders: Send payments globally without passports or forms
- No banks: Control your money without companies limiting transfers
- No forgeries: Verify authentic payments without forged paper bills
Of course risks exist too around volatility and security mistakes. But bitcoin offers people an alternative financial system without governments or banks in charge!
Now that you know the basics of what bitcoin is and why it matters, let‘s get some for yourself!
Acquiring Your First Bitcoin
Several options exist to get started with bitcoin:
| Exchange | Average Fee | Payment Methods | Verification Required? |
|---|---|---|---|
| Coinbase | 1.5% | Debit card, bank transfer | Yes |
| Kraken | 0.9% | Wire transfer, Etana Custody | Yes |
| Gemini | 1.1% | Bank transfer | Yes |
| LocalBitcoins | 5%+ | Cash, PayPal | No |
As this table shows, exchanges like Coinbase generally offer the easiest way to buy bitcoin, although often charge higher fees.
On the flip side, independent sellers on LocalBitcoins offer more anonymity but carry higher bitcoin fraud risk without formal exchange protections. Know the tradeoffs!
Let‘s walk through buying on Coinbase since it suits first-timers well:
Step 1) Create Your Coinbase Account
Visit coinbase.com and sign up with your email and a strong password.
Coinbase will ask some identity verification questions during registration to comply with financial laws since they operate as a licensed exchange.
Step 2) Deposit Funds
After your account approval, connect your bank account or debit card under settings.
Select your deposited currency then enter the amount you want to trade for bitcoin.
Step 3) Buy Bitcoin!
With funds uploaded to Coinbase, simply click Buy under Bitcoin to exchange your dollars for BTC at the current market conversion rate.
That‘s it! The bitcoin now enters your Coinbase bitcoin wallet address.
Other Ways to Get Bitcoin
If meeting strangers from the internet for bitcoin sounds scary, don‘t fret!
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Bitcoin ATMs: Local machines let you insert cash to instantly buy or sell bitcoin
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Mining: Anyone can earn bitcoin without paying by running specialized mining computers to help validate transactions on bitcoin‘s network.
In 2021, over 30,000 Bitcoin ATMs now exist globally so check online maps to find locations closeby.
And if you already own a suitable high-end gaming PC, mining bitcoin can generate over $50/month in spare change (if you pay low electricity rates). Not a fortune but hey it‘s free bitcoin!
Managing Your New Bitcoin
So you‘ve acquired your very first satoshis (hundred-millionths of a bitcoin — you baller you 😎). Make sure to follow these tips to keep your investment safe.
Choose Your Bitcoin Wallet
Online exchanges like Coinbase conveniently custody your bitcoin. But storing all your coins with a single company, like keeping cash in only one bank, poses risks.
Instead, use bitcoin wallets to take direct custody:
| Wallet | Who‘s in Control? | Backup Required? | Safer for Large Sums? |
|---|---|---|---|
| Coinbase | Coinbase | No | No |
| Blockchain Wallet | You | Yes | Okay for low sums |
| Hardware wallet | You | Yes | Yes |
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With a company like Coinbase, you must trust them to not lose or block access to your account.
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Solutions like Blockchain Wallet give you independence but storing over $1000 can be dicey long-term.
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For substantial sums, I recommend hardware wallets like the Ledger Nano X costing ~$150. This handy device acts like a USB drive allowing you to securely control bitcoin via encrypted backups.
So evaluate your needs and choose wisely!
Stay Vigilant Against Bitcoin Threats
Bitcoin empowers people to control money without institutions holding our hard-earned cash hostage. But with great financial power comes great security responsibility.
Common bitcoin threats include:
- Hacks: Criminals or spyware can remotely compromise accounts lacking backups or two-factor authentication. Over 4 million bitcoin have been lost to hacks thus far.
- Scams: Fraudsters execute over $7 billion in cryptocurrency scams per year! Cross check companies, addresses, and offers before sending bitcoin to avoid tricks.
- Forgetting passwords: People have misplaced keys locking themselves out from millions in bitcoin. Always securely backup wallet recovery phrases.
By following best practices around strong unique passwords, enabling two-factor authentication, allowing transaction notifications, and backups, you can mitigate risks substantially.
And for significant long term bitcoin investments, transfer funds into cold storage hardware wallets disconnected from the internet for optimum safety.
Spend Bitcoin in Daily Life
Bitcoin enables fast global transfers. But what about paying bills or buying coffee locally?
Growing options now exist to live off bitcoin without converting back into regular cash including:
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Crypto debit cards like Coinbase Card or Crypto.com Visa pay merchants using bitcoin previously loaded into accounts
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Major chains like Starbucks accepting bitcoin payments through intermediaries like Bakkt
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Zap‘s Olympus app connecting lighting wallets to point-of-sale systems in stores
So from online shopping to real world spending, bitcoin keeps becoming more usable as adoption spreads!
Conclusion
I hope you now feel empowered to safely add bitcoin to your personal finance portfolio!
It undoubtedly remains a volatile asset. And bitcoin still needs to resolve energy concerns, onboard new demographics beyond millennials, and gain greater merchant traction before definitively transforming global payments.
Yet bitcoin also provides legitimate attributes around auditable scarcity, censorship resistance, and transcending financial borders that appeal to many.
By carefully assessing your risk tolerance and responsibly securing holdings, bitcoin can offer viable portfolio diversification and alternative hedge against fiat currency inflation.
Interested to join 200 million other users embracing this digital money revolution? The choice is yours!
Let me know if you have any other bitcoin questions!
