How can one obtain bitcoin?
Let’s start off with the million-dollar question first. There are four main ways by which one can obtain Bitcoin:
- Trade your fiat currency (Euro, U.S. Dollar, etc) to Bitcoin using an exchange such as Bitstamp
- Ask someone to send you Bitcoin
- BTC Faucets – these are websites which give out a nominal amount of free Bitcoin, sometimes in exchange for a Facebook-page “like” and so on.
Keep in mind that a single BTC unit is divisible up to 100,000,000 times, that is up to 0.0000001 BTC; this smallest unit is known as a “Satoshi” (in honour of BTC’s creator). So if you happen to receive 0.05 BTC for example, don’t feel bad about it; in fact, that translates to 45 Euro at the current exchange rate!
Moving on to the thousand-dollar question: where do you store Bitcoin?
Think of Bitcoin wallets as a far more flexible and versatile alternative to your (faux) crocodile leather wallets and purses. You can store them digitally, create multiple backups and can choose from a myriad of different Bitcoin wallets, all with different features and handy tools. The basic purpose of a Bitcoin wallet remains the same throughout, namely that of accessing your Bitcoins and sending/receiving Bitcoins to your own wallet address.
A wallet address is a unique string of letters and numbers to which one can send or receive Bitcoins, and is the only means by which a sender or receiver can be identified, making Bitcoin a pseudonymous cryptocurrency. Endless wallet addresses can be created, with many persons opting to use a different address for each transaction in order to increase one’s privacy. Wallet addresses are generated from the public key, which can be safely shared with other people (unlike the private key, but we’ll leave that one aside for now). Naturally you still want to share the wallet addresses rather than the public key itself, as Bitcoins cannot be sent to your public key but only to your wallet address.
A typical Bitcoin wallet interface looks something like this:
Sending Bitcoins is simplicity in itself – click on Send Coins, paste the wallet address of the recipient, input the amount to be sent and hey presto! Transaction complete.
Disclaimer: we will be entering into a slightly more technical, but still largely superficial, explanation of how transactions work. You are more than welcome to continue reading, but if you prefer lying back on a sofa and binge-watch Game of Thrones, then that’s perfectly fine as this will not impact your usage of Bitcoin.
First of all, it is important to keep in mind that transactions are encrypted and the encryption protecting them can only be unlocked by the recipient of such transaction. This means that as the transaction is travelling through the network, no other person can access sensitive data in that transaction, and that includes the node processing the transaction. The only accessible information is that which is listed on the public ledger, such as the transaction size and amount; no one can, say, stop the transaction, alter the amount from 0.1 BTC to 10 BTC and redirect the transaction to another address, not even if that person were to control more than 51% of the network.
Bitcoin transactions work a bit differently than fiat currency transactions, with the major difference being the following one. If you have 10 BTC and you want to send 1 BTC to another person, you are not just sending out 1 BTC, but in actual fact you are sending out all of your 10 BTC. This is known as the transaction output. 1 BTC will be sent to the recipient, and 9 BTC will be sent back to you, the sender, minus any transaction fees of course. In this way, a record can be kept of spent and unspent Bitcoins associated with your wallet address(es), and if one were to follow the trail of a single Bitcoin unit or a fragment thereof, one can trace it back to the block out of which it was generated.
For more in-depth explanations about the workings of Bitcoin and the blockchain technology, check out this fantastic video by Curious Inventor: