What is Bitcoin (A to Z Explained)

There are more than 5000 cryptocurrencies available in the market. Out of which, Bitcoin is one of the most widely used cryptocurrencies across the globe.

The purpose of this article is to give you a clear understanding of Bitcoins so that you know before trading, where you are investing your money.

This article will provide you with every bit of information related to Bitcoins, how it works, its uses, etc.

What is Bitcoin?

In 2008, Satoshi Nakamoto suggested a way of creating a system for a decentralized currency called Bitcoin. This cryptocurrency is a transparent ledger that allows you to have full control of all the transactions that you are using for trading.


Bitcoin is a digital currency, which is open, transparent, and trackable. However, one thing that you will never know is who owns these balances or who is behind all those transactions.

Bitcoin is the best alternative to fiat money in the market. It also eliminates a lot of middlemen from the process of transferring money from one user to another on the peer-to-peer bitcoin blockchain network. Hence, it is much cheaper to use bitcoin than traditional wire transfers or money orders.

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How does it Function?

 Let us now learn how Bitcoin transactions take place.

A large and distributed network of computers uses special software to process all the Bitcoin transactions.

Whenever a transaction takes place, the network records the addresses of the sender’s and receiver’s, and also the transferred amount. Then it enters this information onto the public ledger called a Blockchain.  A copy of this blockchain is sent to every computer that processes Bitcoin.

Each transaction is encrypted and verified to ensure every computer that processes Bitcoin is using identical copies of the blockchain. And that is where Bitcoin miners come into action who carry out the verification process.

Many merchants accept Bitcoins. Some of them are Microsoft, Expedia, Wikipedia, etc.

What are the transactional properties of Bitcoins?

  1. Transactions cannot be reversed – Once a transaction is confirmed, it is impossible to reverse it. Hence, you must be careful while making a transaction.
  2. Pseudonymous – Bitcoin transactions are transparent and trackable, but it is impossible to find who is behind those transactions. No matter how much you try, you would never be able to find the real identity of the user who is making those transactions.
  3. Fast and Global – The network takes only a couple of minutes to process the transaction after its confirmation. The reason behind calling it global comes from the fact that geographical location doesn’t affect the process of sending Bitcoins. You can send your Bitcoins to anyone, anywhere as the location does not hinder the process.
  4. Secure – Bitcoin funds are encrypted with a public key cryptography system. Nobody except the owner of the private key can do the exchange of cryptocurrencies.

It is nearly impossible to break into the network as it uses strong cryptographic technologies and large complex numbers to make the cryptocurrency secure to use.

  1. Does not require any permission – Unlike the traditional currencies where you need the permission of the bank to carry out the transactions, you need not require to do that in the case of cryptocurrencies. There is no need to seek anybody’s permission before you make any exchanges. This free software allows you to have full control over your cryptocurrencies without the interference of any third party.

Is it safe to invest in Bitcoins?

If you are seriously going to invest in Bitcoins, then maybe it is time that we share some information on how you can do it safely.

First of all, you must own your bitcoin wallet, just how you use the traditional ones to keep your money safe and secure.

In the case of cryptocurrencies, the newly-generated Bitcoins go directly into the Bitcoin wallet. The sole purpose of these wallets lies in providing full security to your digital currency.

There are few applications/ clients which download the history of all transaction blocks at one time and connect it with the wallets of the users. These clients update the wallet whenever the user makes any transaction.

Different types of Bitcoin clients include:

  1. Full clients: It operates on special hardware. This application manages all aspects of the protocol without the help of third-party services.

The user gets to have full control over their incoming and outgoing funds from the beginning till the end. However, it is not a beginner-friendly client.

  1. Lightweight clients: Lightweight clients do not download the entire history of transactions. It only connects to a mail server to get access to a mailbox, i.e., it requires a third-party-owned server to make the transactions.
  2. Web clients: This application also relies on a 3rd-party server. You do not get to control your incoming and outgoing funds. The third-party takes over and manages all the transactions.

There are five different types of wallet technologies – Desktop, mobile, web, paper, and hardware and each of these comes with its own set of advantages and disadvantages.

Legality of Bitcoins

The legality of Bitcoins depends on where in the world you are making your transactions.

As it is a decentralized currency, a concern of corruption immediately arises. This is the reason why some countries are still trying to figure out the concept behind Bitcoins/cryptocurrencies.

The concept of semi-anonymity is also another reason why it is considered illegal in some countries.

At last, the legality of Bitcoins only depends on your geographical location. You will find it illegal in some countries and legal in others.

Can Bitcoins be used to buy and sell stuff?

Buying and selling items with Bitcoins is just as same as buying things using cash/card or other traditional methods. The only difference between the two is that Bitcoins do not have physical proof.

Whenever you buy or sell something using Bitcoins, it gets recorded on the blockchain network. A blockchain includes all the confirmed transactions as blocks. These blocks then enter into the system and get shared with the peer-to-peer computer network for confirmation.

This protocol allows full transparency as each user gets aware of all the transactions and it also helps in preventing stealing and double-spending, i.e., spending the same currency twice.

Like for example, suppose you go to a grocery store and buy some items. You decide to pay for the stuff using your bitcoins. At first, you will have to send the bitcoins to the correct public address of the store’s manager. Then using your private key, you will sign off the transaction. After that, the miners start their work and verify the validity of your transaction.

Once the verification is over, the manager receives the bitcoins. The manager can use your private key to unlock the bitcoins, and meanwhile, your transaction will get added on the public ledger. After this process, the platform will take nearly ten minutes to confirm the transaction through a process called mining, which will give the manager a score to decide if he wants to carry the transaction forward or not.

Bitcoin Mining

Mining is the process of adding new blocks to the blockchain and maintaining the sequence. After the transaction gets complete, the block is removed from the main chain. This protocol’s only concern is verifying transactions and providing security to the Bitcoin network.

Besides providing security, mining also participates in generating new bitcoins using software technology. These technologies indulge in solving complex cryptographic problems. This process helps people in providing incentives to mine as it is just a smart method to issue coins.

The process of mining involves:

  1. Bitcoin mines use an advanced software technology called ASICs to mine the coins.
  2. Miners are continuously involved in solving complex cryptographic problems.
  3. If they solve the cryptographic problems, then a new block gets added to the blockchain network for which the miners get a reward.
  4. The current worth of a bitcoin block reward is near about 12.5 BTC.

Some important points to remember about mining –

  1. Mining requires a lot of money as well as computing power to mine a Bitcoin.
  2. If you are thinking about doing it alone then let us remind you that it is a very difficult process with very low profit. This is why miners often connect with other groups for this process and create a mining pool.
  3. Hashrate is the calculating value of miners at which they are doing the work. High speed and security are the results of high network hashrate.
  4. With an increase in bitcoin hash rate, the difficulty level also increases as the miners need to keep in mind the strict bitcoin block time period of ten minutes.

How to keep bitcoins secure?

To keep your Bitcoins safe, you can store your everyday use coins on your computer, mobile, and other servers and store the rest of your Bitcoins at a secure location.

A few more tips on how you can protect your Bitcoins:

  • If you use an online wallet, then do not forget to set a strong password for it and also remember to back up your wallet. Back up would help you get access to your wallet if you ever lose your device.
  • Separate your day-to-day transactions with the rest of your Bitcoins. Store the remaining Bitcoins in an offline, disconnected wallet for more security. You can create as many wallets or Bitcoin addresses as you desire to store your coins.
  • Never store your digital currency in Bitcoin exchanges or any kind of third-party storage location.
  • Keep track of the latest software and keep them updated. You can also use the ‘Bitcoin multi-signature feature, which will ask for multiple independent confirmations while you make a transaction.
  • Use hardware wallets to store your coins, and with so many options available in the market, which one you should pick. As there are so many hardware, which provide great security, we would suggest you go for Nano Ledger X. A portable and low price ($65) hardware that comes with advanced technology for the purpose of security.

The safety of your Bitcoins lies in your hand, and you should take all the necessary steps to keep your coins safe & secure.

Advantages and Disadvantages of Bitcoins


Bitcoin transactions are private and do not require any intermediaries to carry the transaction forward. There is a direct transfer of coins to any person living in any part of the world. As you know, traditional currencies involve limited payment, but in the case of Bitcoins, there is no such rule. There can be unlimited payments with minimal or no transaction fees.

Bitcoin transactions are fast and take less than 10 minutes to process a transaction.

As bitcoins are decentralized, no one has control over it except you. Unlike the traditional currencies, which require the permission of your bank to make the transaction, Bitcoins give full control in your hands.


Bitcoins are not accepted everywhere. Most of the merchants are not fully aware of cryptocurrencies, and that is why they do not trust them.

As more and more people are joining this field, the chances of scams and hacking have also increased to a great extent.

Sometimes, the user also reports the problem of transaction processing. It takes more than the usual time to confirm a transaction making the process extremely slow.

The four major bitcoin scams you should be careful about are mentioned below.

  1. Ponzi Scams – These investment programs charge interest rates, which are higher than the market rates (1-2% interest every day). This way, they redirect your money to their wallets and keep changing their names to get away with it. Do not trust those companies as they give some random Bitcoin addresses for incoming payment. It is always safe to stick to the common payment processors such as BitPay or Coinbase.
  2. Bitcoin Mining Scams – They will offer to mine a lot of Bitcoins in return for money. Beware of these mining scams as they will neither give you Bitcoins nor refund the money.
  3. Bitcoin Exchange scams – These scams provide features that common Bitcoin wallets do not offer. These features involve “PayPal/Credit card processing” or “better exchange rates.” Whereas their main concern only lies in getting money from in return for some features they do not even provide.
  4. Bitcoin wallet scams – This is the most common type of scams users have encountered. The robbers ask for money and, if they like the amount, they lead the Bitcoin address to their account. This is how they rob and get away with your money.

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Bitcoin is slowly becoming widely popular throughout the world. With more countries making Bitcoin a legal form currency, it will certainly rule the world in the upcoming years. However, it still has a lot of flaws when it comes to security and protection.

We have mentioned all the necessary information in this article related to Bitcoins and what all steps you can take to avoid falling for a scam. Read all the points carefully before you decide to invest in Bitcoins.