Bitcoin FAQ / Starter Guide

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What Is Bitcoin?

Bitcoin is two things. It is a currency and a secure payment system. Read on.

Why Use Bitcoin?

Bitcoin is decentralized and peer-to-peer, which makes it beyond the control of any government, central authority, or middle man. It has great implications for financial liberty. The security benefits are also significant. Bitcoin uses public key encryption which means that a Bitcoin wallet address (the public key) is useless to a bad actor without the corresponding secret key. As a result, your payment information can’t be stolen from merchants because they are never in possession of the secret key. In addition, Bitcoin transaction fees (when charged at all) are significantly smaller than typical credit card transaction fees. This means smaller costs that the merchant must pass on to the consumer. These are just a few of the reasons why Bitcoin offers great advantages over any traditional fiat currency.

Where Can I Get a Bitcoin Wallet?

Among other benefits, Coinbase offers free Bitcoin wallets, two-factor authentication for greater account security, smartphone apps, and you can link a bank account in order to buy and sell Bitcoin via ACH transactions.  Quick aside: Coinbase filed for nine patents relating to Bitcoin, which sparked some concern in the Bitcoin community.  I’m somewhat reassured that they will do the right thing based on this response from co-founder and CEO, Brian Armstrong.  Now back to the point.  If you don’t trust a third party to handle your wallet, there are other options to choose from. As with any financial decision, it pays to do your homework.

What’s Next?

You can easily earn small amounts of free Bitcoin in various ways. There are web sites supported by advertising called faucets that give it away. Simply prove that you’re human by solving a Captcha and they’ll deposit some Satoshi (a very small fraction of a Bitcoin) into the wallet of your choice. You can also earn Bitcoin by watching videos, playing web based games, Android games, iOS games, or get a job that pays in Bitcoin.

A Few Words On Mining Bitcoin

Once upon a time, bitcoin mining could yield a decent return. Unfortunately, this is no longer the case. There is a finite supply of Bitcoin by design. New coins are mined by the performance of cryptographic calculations. As more coins are mined, they become harder to find. The rise of Bitcoin’s price and popularity have brought a massive surge in the number of Bitcoin miners and advances in mining hardware. As a result, the level difficulty associated with Bitcoin mining has increased to the point that the required quantities of time, computing power, and electricity to be successful are so great as to render Bitcoin mining a losing proposition for all but the most efficient miners. In short, it is not recommended to attempt Bitcoin mining at the time of this writing. This could change, however. It is supposed that eventually transaction fees paid to miners could cumulatively be valued higher than the value of the new coins discovered my mining as the number of undiscovered coins continues to approach zero. This is because Bitcoin miners are not just looking for undiscovered Bitcoin. They’re also validating the transactions taking place on the Bitcoin peer-to-peer network. Senders of transactions can optionally set a transaction fee for their transactions (typically 0.0001 or 0.0002 BTC). This creates an incentive for transactions with higher fees to be validated faster than transactions with smaller or zero fees.

This post originally appeared as a page on Liberty Compass News before the addition of the Liberty Compass Blog.

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