You all have heard about the WannaCry ransomware that infected more than 230’000 computers in around 100+ countries on the 12th of May 2017 and encrypted their data and where the individuals were requested by the hackers to pay them a worth of 300$ in Bitcoin Cryptocurrency for each computer, to release back the data.
So what is Bitcoin? And how does it affect our life?
Bitcoin is a cryptocurrency and digital payment system invented back in 2009 by a group named as SATOSHI NAKAMOTO. It is a peer to peer version of electronic cash or digital cash that would allow online payments to be sent directly from one party to another without going through a financial institution.
Just imagine that you can transfer electronic money to your friend or brother in a different country, simply by doing an internet transaction without passing by a bank or a western union or any other intermediate organization. This money is digital cash that can be used to purchase good or services from thousands of companies online.
The idea is mainly to replace the traditional third party trusted organizations (Bank, Western Union, Visa Card, etc..) by an electronic payment system based on a cryptographic proof making it secure and authentic.
To have these transactions valid and authentic they are verified by a series of computers on the internet and the transactions are recorded in a public distributed and decentralized ledger that is called, the Blockchain.
The Blockchain records all the bitcoin transactions made worldwide. This happens without having a central authority like a central bank or World Bank who manages all this. The transactions information recorded includes the following:
-SENDER X
-RECEIVER Y
-AMOUNT OF Z Bitcoins Transferred
It looks like the below and is publicly available on the internet.
How can this be acceptable as a financial tool when all information is public?
Bitcoin is pseudonymous, meaning that funds are not mapped to specific individuals or companies but rather to Bitcoin addresses. Owners of the bitcoin addresses are not explicitly identified or publically published. Only the transactions on the blockchain are public.
The blockchain database is hosted by millions of computers worldwide making this information available to anyone connected to the internet and at the same time secure because it is not hosted in one single location or one single database that can be attacked.
Blockchain uses encryption methods for security through the use of public and private keys.
Ownership of bitcoins implies that a user can spend bitcoins associated with a specific address. To be able to pay through bitcoins, you need to sign your transaction using your private key. The bitcoin network will verify that signature. However, if you ever lose your private key, you will never be able to spend your bitcoins and they will simply be useless. This is because the Bitcoin network does not recognize any evidence of ownership except the private key.
To use bitcoin and digital currency you don’t have to be a technical or financial Guru.
You have to simply follow the below steps:
You create a bitcoin wallet (Installing an app on your computer or phone or create a login on a bitcoin wallet website)
This will generate your first Bitcoin public address. This address can be used for people to transfer you money (bitcoins) to it
You will have as well a private key that will certify that you are the owner of the wallet you are using
A wallet stores the digital credentials for your bitcoin holdings and allows you to access (and spend) those bitcoins. There are different types of wallets:
- Software wallet that you can install on your phone or computer
- Online wallet that you access online using a certain website with the proper credentials (coinbase.com is one of them)
- Hardware wallet is a small equipment that stores your credentials and that can plug into a computer to transact (Such as TREZOR bitcoin wallet)
To get Bitcoins added to your wallet, there are several ways:
- Sell something you have and ask the buyer to pay you using Bitcoins to your wallet address
- Ask your employer to pay you in Bitcoins
- Purchase Bitcoins through your credit card by using a trusted bitcoin exchange
- Earn free bitcoins using bitcoin faucets (Discussed at the end of the article)
We mentioned that the bitcoin address is not mapped to a specific individual. However, some specific bitcoin exchanges, where bitcoins are traded for traditional currencies like USD or Euros, may be required by law to collect personal information on the owner of a specific wallet. However this remains private and is used for compliance purposes only.
To spend Bitcoins, you can do online purchases from organizations and merchants that accept Bitcoin payments. Some of those are listed below:
- https://purse.io/ allows you to search for items available on Amazon and purchase them using Bitcoins while saving 5% of the actual amount
- dell.com/ offers online purchases of computer equipment using Bitcoins
- https://www.thuisbezorgd.nl/ offers people in Netherland to order food delivery from several restaurants using bitcoins
Bitcoin value is increasing over time as you can see from the below chart. Seven years back, on the 22nd of May 2010, during the early stages of Bitcoin, Laszlo Hanyecz a programmer paid 10,000 BTC (Bitcoins) for two Papa John’s pizzas worth 25$ during that time. As of the writing of this article, one Bitcoin is worth 2700 USD, which means that those two pizzas, were the most expensive pizzas of all times and are worth today more than 20 million US dollars.
So what are the real use cases of Bitcoin technology?
- Online Purchases: A lot of websites and companies allow you to purchase goods from them through Bitcoins. These include dell.com, purse.io, foldapp and others.
- Trading bitcoins as if they were stocks. A lot of people trade Bitcoins through Bitcoin exchanges. With the prices getting higher, some prefer to buy and hold bitcoins and then sell them later for a premium
- Illegal activities: Unfortunately and since most bitcoin transactions cannot be traced and are sent to digital addresses rather then known individuals, Bitcoin can be easily used in illegal activities by hackers for ransomware or other criminal aspects
- Gambling: There are a lot of websites for gambling using bitcoins.
Do you know that you can earn some free bitcoins? Or a fraction of bitcoins at least?
- Join a Faucet (such as FreeBitco Website) and start earning some bitcoins by joining the page each hour and solving the captcha. Then after accumulating some amount, you can transfer it to your wallet public address to have it in your account for usage.
It is true that Bitcoin has limited use cases for the moment, but is a promising technology for the future. Many companies and financial institutions are investing in startups related to digital currency or cryptocurrency in one way or another. This will be one of the hottest technologies to watch out for the future.
Michael