What is bitcoin?


Bitcoin is a decentralized cryptocurrency. This means that the value of a bitcoin is only regulated by supply and demand and not by a government or an organization.

 How does it work?

 Bitcoins are organized with so called wallets. These wallets contain a public key (also know as address) and a private key. As the name says the private key should be kept private and should not be shared with anyone. With these keys the owner of the wallet can use the amount of bitcoin that is displayed in his wallet. There are many providers that offer these wallets and they are normally completely free of charge. You can also use them to send and receive bitcoins.

There are online, software and offline wallets with online wallets being the less safe and offline wallets being the safest.

When sending bitcoin the transaction is signed with your own private key. This transaction will be validated If the private key that was used for the signature is related to your public key and if it is confirmed that you didn't already send the bitcoin to someone else.

Then the transaction is included in a block which is appended to the so called blockchain. Just like its name says the blockchain is a chain of blocks that are connected to each other because every block contains a hash of the previous block. 

A hash is the result of a hash function (which is a difficult mathematical function) and contains 64 characters. The result of a hash function cannot be predicted as it will drastically change even if the input is only changed a little bit. And because the hash function is a mathematical function, if the input doesn't change the output won't change neither. But if the input changes the output will change as well.

So if one block contains the hash of the previous block, if someone changed a block in the blockchain he would have to change all following blocks to make it seem natural. This is practically impossible.

What is important to know is that the sender has to pay a small fee for the transaction. This fee goes to the so called miners. Miners process the transaction and add it to the blockchain. You can read more about bitcoin mining here.

After sending bitcoin you will have to wait until your transaction has a certain amount of confirmations. Your transaction will get its first confirmation when the block that contains it is added to the blockchain. Then every block that is added after that will add a confirmation as well.

How do I use it?

First of all you will need a bitcoin wallet. You can use this feature from bitcoin.org that tells you which wallet suits you the best. I use the mobile wallet from  bitcoin.com. But there are also more secure wallets like electrum.

Now that you have created your wallet, you can send and receive bitcoin. This wallet should also have an address that looks similar to this: 1BScd8QqU3QqaTCioyhTvSBW8WN2TrCCPN. The address identifies your wallet and is used to receive bitcoin. 

Now you are ready to purchase your first bitcoin if you want. You can look here if you are not sure where to buy them from.

If you have some bitcoin in your wallet you can spend them on many internet sites and shops. There are even local businesses that already accept bitcoin. Just look out for the bitcoin logo or a slogan that says 'bitcoin accepted here'.

Now if you want to send bitcoin you just need to find the send function in your wallet. Then you can choose the amount of bitcoin you want to send and have to enter the wallet address of the receiver. You should check several times that you entered the right address as else your bitcoin won't arrive. I think it is the best method to copy-paste the address of the receiver.

Alternatively you can scan the QR-code of the receiver's wallet. I normally prefer this method, as it is less likely that you make a mistake.

Positive and negative aspects 

  • fast payments
  • send money worldwide
  • decentralized
  • anonymity (to a certain degree)
  • high volatility
  • relatively high fees if you send very small amounts
  • less accepted than 'normal' currencies

Bitcoin and anonymity

You can often read that bitcoin is an anonymous payment method. That is only partly true. Obviously it is much more anonymous as payment methods like bank transfer or credit cards. But it is not absolutely anonymous. 

When you buy bitcoin, you might have to enter your name and address or upload a picture of your id. And if that is not the case the site where you buy bitcoin might track your ip address. 

And the details of every transaction are saved and everyone can look at them. So your bitcoin transaction could technically be traced back to you by someone who has the necessary means and knowledge.

But for the normal user this shouldn't be dramatic since you have to put much effort into tracing back a transaction. So you could say that the anonymity of bitcoin is enough if you do not commit any crimes linked to it (which you definitely shouldn't!).

Bitcoin and the Darknet

Bitcoin is often associated with cyber criminality as it is the main payment method used in the so called darknet. Theoretically the darknet itself isn't criminal as it just offers anonymity to its users. But this anonymity leads to the fact that many criminals use the darknet for their activities. 

Unfortunately there are many scams on the darknet, as well as weapon dealers, child porn and abuse videos.

(I definitely do not support any of the just named things. In my opinion these things shouldn't be available anywhere.)

But you can also find many interesting darknet sites that have nothing to do with illegal stuff.

You might have read above that bitcoin isn't completely anonymous. Thats why some people use bitcoin mixers to make transactions much more difficult to trace back to them. You can also see a growing acceptance of the cryptocurrency monero in the darknet as the transaction details are not saved when using monero.