Bitcoin has been in all the headlines recently, however, it can be quite confusing for newcomers to wrap their heads around this technology. It’s true, a lot of huge corporations out there are beginning to adapt to the ever-growing Blockchain technology, where on the front lines you’ll end up seeing Bitcoin mentioned everywhere.
So, how do you get into this world, and what is it exactly?
To get a better understanding of what Bitcoin (BTC) is, what its blockchain is, and how it works we will take a deep dive into the world of cryptocurrencies.
History of cryptocurrencies
We’d typically write this off as the history of Bitcoin, as it is by far one of the strongest contenders on the market that truly brought the technology to the spotlight, however, the story begins all the way back in 1992, where Moni Naor and Cynthia Dwok proposed the idea of the solutions to computational puzzles that could bring value through cryptography.
Now, as we move further along the timeline, Adam Back worked on hashcash, which was the first proof-of-work type of mechanism or scheme for spam control in 1997.
In 2008, the domain name blockchain.com was registered, and a year later, we saw the release of Bitcoin.
This was initially done through the release of a paper by Satoshi Nakamoto. This paper has a famous name, and if you haven’t read it, feel free to do so here: “Bitcoin: A Peer-to-Peer Electronic Cash System”.
The importance of this paper cannot be understated, as it paved the way to what we know today as cryptocurrencies
Blockchain: a brief explanation
In order to understand the next part, you’ll need to get a quick brief on Blockchain technology. We know it’s been around since 2009, when Satoshi Nakamoto mined what is known as “the genesis block”.
This is due to the fact that, in order for a blockchain to work, it would need blocks of data, and these would need to be added to one another, where they form a chain, and this is what is known as a blockchain. These nodes or processors of blocks are what we know today as miners. The blockchain, in essence, can be seen as this specific type of database, which differs in the way it stores the data. When a new block of data gets added, it is entered into the blockchain, and this makes it fully immutable.
The cryptocurrency that made all of this possible is Bitcoin or BTC. The fascinating part about all this is the fact that BTC is not an actual currency in the physical world or tied to anything. You don’t really have any physical bitcoins, it’s just a balance sheet on a public ledger that anyone can view. Each transaction that occurs on the blockchain, is recorded onto it, and this is done through a proof-of-work mechanism, where miners solve cryptographic puzzles.
The key to crypto
You may be wondering how all this works. First of all, you have public keys, which you can view as this code that facilitates the transactions between parties. It’s essentially a public key that is used to verify the digital signature that can prove the ownership of the private key.
On the other end of the spectrum, you have the private key, which is a sophisticated form of cryptography that allows any user to access their cryptocurrencies.
To make things easier on you, think of the public key as an email, as people can find it, and send data (cryptocurrency) to it, and think of the private key as your password, as you have to confirm through it if you want to send any data (cryptocurrency) to someone else.
A digital wallet can store the private key, and when a transaction occurs, the wallet software itself creates a digital signature.
Investing in cryptocurrencies
By this point, you are probably well initiated with what Bitcoin and cryptocurrencies are and how they work. The next thing we’ll need to resolve is the investing part.
You’ve probably heard countless stories of people getting into crypto-investing only to make millions in the process. The truth is the cryptocurrency market is one of the most volatile markets out there.
The prices can shift on an hourly basis, and you could wake up tomorrow having made millions or having lost the same amount.
The process of buying, selling or trading cryptocurrencies are conducted through a cryptocurrency exchange. Here, you’ll need to create a cryptocurrency wallet, be it a hot wallet, or a cold wallet, which acts as your storage unit, not for the cryptocurrency itself, but for your keys.
Once you set up an account, you can begin investing.
If you are a company and want to do this, especially in Estonia, there are a few things you need to keep in mind. You see, you’ll need an accountant, and there are taxes that you need to pay when it comes to cryptocurrencies.
In fact, Estonia offers one of the fairest and most transparent systems when it comes to taxes within the cryptocurrency sphere. Estonian companies only have to pay corporate taxes if they distribute dividends.
In a nutshell, this means that the profits which are reinvested by the company to finance its business operations aren’t really taxed.
Cryptocurrencies are the way of the future, and the quicker companies get on board, the more we’ll see them being used in our everyday lives.
While this concept may seem complicated at first, the better you understand it, the easier it becomes to process and start getting into it. Nobody knows what the future holds, but if we’ve seen one thing in recent news is that cryptocurrencies are here to stay, and Bitcoin is on top.