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Bitcoin Basics : What do I Need to know? - Noel Matthews

Bitcoin Basics : What do I Need to know?

Bitcoin is a digital currency that has been around since 2009. Bitcoins aren’t printed, like dollars or euros – they’re produced by people, and increasingly businesses, running computers all around the world, using software that solves mathematical problems. It’s not controlled by a single entity, like the Federal Reserve or the European Central Bank, but rather an open network of people who share their computing power to process and record transactions on its ledger known as the blockchain.

If buying bitcoin has advantages how will they enhance my financial life ?

Bitcoin can be used anonymously without revealing personal information such as name, address and bank account number. This makes it useful for those who don’t want to share this data with companies they do business with online. Secondly, there is no third party involved in the transaction because you use bitcoins directly from person-to-person (P2P).

The advantages of bitcoin for novice investors are:
1) You have complete ownership of your bitcoins*
2) Bitcoin transactions are secure
3) Bitcoin has low transaction fees compared to other forms of investment
4) Low risk to investors provided you are long-term and diversified.

What impact would the disadvantages of bitcoin have on my finances?

This is actually a false question. The disadvantages of bitcoin are all based on your ability to be careful and take steps to protect your holding.

Bitcoin is a relatively new, decentralized digital currency that operates without the involvement of banks as I have said.
It has many advantages, but it also has disadvantages. For example, because bitcoins can be stolen and are not insured by any government or other organization, they’re riskier to own than dollars or euros. You could lose your entire bitcoin fortune if you don’t back up your wallet with a secure password and you have no way to recover it if someone gains access to your account.

So the solution is, remember your password and back up your bitcoin wallet. Two simple actions like that have been beyond the wit of many but should be top of the list for every new crypto investor.

Which wallet would work best for my situation?

Storing bitcoin does pose some challenges for those who would like to use it. One of the biggest questions novice investors have is which bitcoin wallet would work best for their situation

Hardware Wallets

A hardware wallet for crypto is a physical device that stores cryptocurrency and secures the private keys. Hardware wallets can provide increased security against hacking. Wallets like Ledger Nano S and Trezor offer an additional layer of protection by storing your private key in a secure chip with on-device encryption.

Grab A Hardware Wallet in the UK:

Grab A Hardware Wallet in the USA:

Multi-Signature Wallets

Multi-signature wallets are quite popular. A multi-sig wallet requires three keys instead of one – two keys are used for an initial transaction, while the third key can be set as a recovery key in case something goes wrong. This makes it much more difficult for hackers or other malicious entities from accessing your funds.

Scenarios for use would be where you want transactions approved by a husband and wife, parents of a child with crypto assets or business partners and associates where all spending needs joint approval.

Multi-sig wallets are generally desktop applications and popular examples include Electrum, Armory and Bitpay

Cold-Storage Wallets

A cold wallet is a computer that generates and stores private keys offline, on an air-gapped machine. Unsigned transactions are generated online–transferred to the clean device for signing–sent back out via “watch only” wallets (meaning you can watch but not spend). The process of the unsigned transactions being generated online, transferred offline for signing, and then signed before going back to get broadcasted onto the Bitcoin network is a technique that not many people know about and is a little clunky from a practical point of view.

Cold wallets are similar to hardware wallets, except that the transferring of transactions can be fiddly and unweildy. Unlike a hardware wallet where you have more practicality in carrying it around with you, cold storage is not so easy for doing this, because who is going to want to lump a computer around with them?

Hot Wallets

A hot wallet is an online account that lets you store and spend some of your coins without having to download any software or apps. Critics would say they vulnerable to hacking attempts and malware. You may want to consider a hot wallet as a novice simply because you will find it more convenient. If you decide to begin investing by opening a Coinbase account then your holding will be held on their system. That is a hot wallet. If you move currencies out, it will cost you a transaction fee. Coinbase were just floated on the NASDAQ and is the biggest crypto trading exchange in the USA. You may judge for yourself whether your crypto is safe with them or not.

Is investing directly in bitcoins a wise decision for me?

Investing directly in bitcoins, just like any investment, carries risk. Bitcoin is an emerging digital currency that has grown significantly in the last few years. Bitcoins are not backed by any tangible commodity or government and can be traded on online exchanges for traditional currencies, such as dollars or euros. The price of bitcoin fluctuates wildly and you could lose a lot of money if the price crashes tomorrow!

Bitcoin, for the novice investor, should be something you invest in and forget about. Either the value rises over time and you win, or not. Those making wild claims for crypto wealth are talking about either buy low sell high investment strategies requiring you to sit in front of a computer gawping at price movements all day long or they are getting excited about the dawn of Bitcoin ETFs. ETF stands for Exchange Traded Fund and it has nothing to do with owning the asset. The value is derived from betting on whether the price will rise or fall and by how much. That is certainly not something a novice bitcoin investor should consider. Losses can be HUGE.

Would accepting bitcoins for a good or service I’m providing make sense?

One question that people often ask is whether they should accept bitcoins for a good or service. The answer depends on the nature of your business, but there are some general principles to keep in mind when making this decision.

Having read this far you should be convinced that Bitcoin is just safe and secure, but it’s practically impossible for hackers to take control of the network. The bitcoin network, or blockchain, is so secure that it would take a team of nation states to hack it. Like a football team.

Bitcoin payments cannot be refunded or charged back without your consent, which means they are 100% yours as soon as you receive them.

The transaction fees for Bitcoin are incredibly inexpensive, especially if you’re sending a large amount of currency. This is because the charge that’s assessed to process transactions varies with how much data there is in each individual payment and not necessarily on its value.

As a merchant, one option that will allow you to accept Bitcoin is a third-party service provider who can enable your business to issue an invoice in the form of bitcoin for any customer who wants it. Your customer can then make a payment in Bitcoin to the payment processor, who in turn settles with you in your chosen currency for a fee in the form of a percentage of the transaction.

Bitcoin and other forms of cryptocurrency are here to stay. The decentralized, pseudonymous nature of these currencies will keep them safe from the influence or interference by any single government or central bank. Cryptocurrency can also be a powerful tool for those living under oppressive regimes who want to divest themselves of their local currency in order to protect their finances from inflation and devaluation. As more people realize this, they may choose to invest in Bitcoin as an alternative store of value that is not tied down by any one country’s monetary policy. Such demand will only increase the value of the supply and that is the ambition of the majority of bitcoin investors.

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