How Bitcoin Works

Bitcoin trading is a cryptocurrency and a new and unique financial vehicle, unlike anything the world has ever seen. It’s called a cryptocurrency because it uses cryptography to control the creation and transfer of money. Despite the name, there is no physical coin to speak of, Bitcoin is a completely electronic form of money.

Bitcoin Basics
It’s a peer-to-peer virtual currency which means that in order for a transaction to occur, no middlemen or central authority is needed. You can send any amount of bitcoins to anyone living anywhere in the world, completely eliminating the need for traditional third parties like banks or money transmitters. The cryptocurrency also allows the bypassing of capital and AML restrictions.

How to get a bitcoin address
You can get a bitcoin address either by downloading the Bitcoin client or by getting an online wallet. The two most popular BTC clients are Bitcoin-qt and Multibit. The main difference between these two clients is in the size of the blockchain that needs to be downloaded. If you decide to go with Bitcoin-qt, have at least 10 Gigabytes free space on your hard drive for the blockchain.

Where are my bitcoins stored?
It can also be stored in online wallets. There are specialized websites that offer bitcoin wallet services. Due to these sites being a frequent target for hackers, keeping bitcoins in online wallets is not recommended when you can easily store them offline on your computer. Wallets can be useful for storing small sums of bitcoins so that you can make quick online purchases. BTC exchanges are a somewhat safer place for your bitcoins compared to online wallets because they keep most coins in what is known as ”cold storage”. Usually, over 90% of the bitcoins deposited on an exchange are kept offline. A small 5 to 10% reserve is kept onsite for immediate redemption purposes. There are plenty of guides online on how to store/secure bitcoins, go over them.

Bitcoin Advantages
It has several advantages compared to traditional money transmitting services. We already mentioned two of these above, the elimination of the need for third parties and the bypassing of restrictions. Another major plus of the new cryptocurrency is the very low cost for sending and receiving bitcoins. While it’s possible to send transactions completely free of charge, it is recommended to pay the small fee in order to speed up the sending process