CRYPTOCURRENCY

What Is Bitcoin and Cryptocurrency?

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In this guide, you will learn all about Bitcoin (BTC) and cryptocurrency, how they work, why they exist and what kind of technology is behind Bitcoin. It wasn’t too long ago when people started hearing the words ‘Bitcoin’ and ‘cryptocurrencies.’

Few people outside of the crypto-communities knew what they were and many thought it was just another fad that was bound to fail in a few years or so. The value of one bitcoin was just a few cents then so obviously it wasn’t worth a lot. For this reason, it was ignored by the masses. There were far more profitable investments one could make, after all.

Those who invested sums of money on the new digital currency either believed in the system proposed by its founder, Satoshi Nakamoto, or they simply wanted to see how it works.

Either way, those who believed were rewarded greatly, and continue to be rewarded, as a single bitcoin now costs thousands of dollars.

It only took Bitcoin five years to breach the $1,000 mark in late 2013, and just a few years later, Bitcoin prices are at an all-time high – way past the $10,000 mark for a single bitcoin!

With skyrocketing prices and extremely fast growth, more and more people are curious about bitcoins and cryptocurrencies as a whole.

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A Look At Cryptocurrency and Bitcoin’s Colorful Past

Cryptocurrencies are digital currencies which are electronic in nature. They do not have a physical form like paper money or coins which you probably have in your wallet right now. You can't hold them physically, but you can buy things with them.

Depending on the merchant you're doing business with, they may accept more than one cryptocurrency as payment.

According to CoinMarketCap (https://coinmarketcap.com), there are more than 1,000 active cryptocurrencies right now. If you’re looking to invest your hard-earned cash but can’t afford Bitcoin prices right now, there are plenty of alternative cryptocurrencies to choose from such as Ethereum, Litecoin, Ripple, Dash, Monero, Zcash, and more.

*** We would, of course, advise you to do some in-depth research on the cryptocurrency you want to invest in as not all cryptocurrencies are equal. Some are more stable than others and would, therefore, make for better investments.

Bitcoin is not the world’s first cryptocurrency, but it is the most successful. Many have come before it but all have failed. And the reason for failure? Virtual currency had an inherent problem – it was easy to double spend.

You could pay $100 to one merchant and use the same amount of money to pay a second merchant! Scammers and fraudsters simply loved this loophole.

Fortunately, in 2007, Satoshi Nakamoto started working on the Bitcoin concept. On October 31st the following year, he released his white paper entitled “Bitcoin: A Peer-to-Peer Electronic Cash System” which outlined a payment system that addressed the double spending problem of digital currencies.

It was a brilliant concept that drew the attention of the cryptographic community. The Bitcoin Project software was registered in SourceForge just a little over a week after the white paper was published.

In January 2009, the first ever Bitcoin block called the ‘Genesis block’ was mined. Days later, block 170 recorded the first ever bitcoin transaction between Hal Finney and Satoshi Nakamoto.

The very next year, in November 2010, Bitcoin’s market cap exceeded $1,000,000! This was a very pivotal moment in the development of Bitcoin as this lead to more people getting interested and investing in bitcoins. The price at this point was $0.50/BTC.

However, in June 2011, Bitcoin experienced the so-called “Great Bubble of 2011” after reaching an all-time high of $31.91/BTC. Just 4 days after reaching its highest price, the exchange rate plummeted to just $10/BTC.

Many investors panicked at losing so much money and sold at a loss. It took almost 2 years for the exchange rate to recover and surpass the previous all-time high. Those who kept their bitcoins made the right decision as the price has continued to climb and surpass everyone’s expectations.

What’s really interesting about Bitcoin is that while all transactions are public and nothing is hidden from anyone, no one actually knows anything about Satoshi Nakamoto.

Many have speculated that he is not just one person but rather a collective pseudonym for a group of cryptographic developers. Some have come forward claiming to be Satoshi, but to date, his real identity remains a secret.

Why Do Cryptocurrencies Exist?

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Many people have started thinking that cryptocurrencies, Bitcoin in particular, are on the brink of replacing our national currencies such as the US Dollar, British Pound Sterling, Euro, Canadian Dollars, and more. This is because cryptocurrencies have started to become very viable alternatives to traditional currency.

Cryptocurrencies exist to address weaknesses in traditional currencies which are, of course, backed by central banks and governments. This makes traditional currencies prone to corruption and manipulation, among a host of other issues.

Unlike traditional currencies, there is no governing body that backs Bitcoin and other cryptocurrencies which means they aren’t subjected to anybody’s whims.

Bitcoin is completely decentralized, open source and transparent. This means that you can see all the transactions that have ever been done on the network and you can check and review the blockchain data yourself to verify the authenticity of each transaction.

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Bitcoin runs on highly complex mathematical algorithms to regulate the creation of new bitcoins and to make sure no double spending ever occurs on the network (remember, this is the Achilles’ heel of failed virtual currencies before Bitcoin).

The Bitcoin code is so secure and advanced that it’s virtually impossible to cheat the system so if you’re thinking you can create an unlimited number of bitcoins, you’re greatly mistaken.

One of the main problems of traditional currency is that these aren’t limited in number. This means that governments and central banks can print more money when they see fit.

When more money is printed and enters the economy, this reduces the purchasing power of our paper money which means we need to spend more for an item we’ve only spent a few dollars on before; this is called inflation.

Bitcoin, on the other hand, is a different story. The Bitcoin Protocol states that only 21,000,000 bitcoins can ever be mined and created which means that bitcoin is, in fact, a scarce resource.

Also, like national currencies, bitcoins are divisible, much like cents to a dollar. The smallest bitcoin unit is called a Satoshi, and it is 1/100,000,000 of a bitcoin. This means you can invest a few thousand Satoshis at a time until you finally get a whole bitcoin.

Of course, if you go this route, it may take you some time to get to 1 BTC but if the price continues to skyrocket, then buying a few Satoshis regularly may pay off in the long term.

Another reason why cryptocurrencies are gaining in popularity is that it is highly portable which means you can bring it with you anywhere you go. You can do the same with physical money and gold. However, a large amount will lead to a heavy load on your wallet or bag.

Try putting a million dollars in a briefcase or carrying a bag of gold! It’s certainly not as light as it looks in movies.

With cryptocurrency, you have different wallet choices, all of which are highly portable, so you can easily make payments whenever and wherever you want.

Bitcoins are not subject to bank and government regulations. This means you don’t need to pay those hefty bank fees which you incur whenever you send payments to other people.

You also don’t need to wait several hours or maybe even a few days for your payments to clear or post as bitcoin payments are made almost instantly (usually in 10-45 minutes).

 

How Bitcoin Works

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In this section, we will do our best to explain the Bitcoin process as simply as possible without going into too much technical jargon.

The first thing you need to do is get yourself some bitcoins. You can either mine this yourself, receive some as payment for goods or services, or buy at a Bitcoin exchange like Coinbase or Kraken. There are different wallets for you to store your new bitcoins in.

You can use a desktop wallet, mobile app wallet, paper wallet, hardware wallet or an online wallet. There are pros and cons to each type of wallet.

However, most experts agree that online wallets, specifically those on exchange sites, are not so secure because both your private and public keys are saved online. This makes your wallet highly vulnerable to hackers.

When you’ve selected the most suitable wallet for your needs, you can then start making bitcoin transactions. To send bitcoin to another user, all you have to do is just get their email or bitcoin address, enter the amount you wish to send, write a quick note to tell them what the payment is for (this is optional), and hit the Send button!

Alternatively, if you’ve got the QR code to their bitcoin wallet, you can simply scan it and hit Send. The transaction will appear in the other person’s account in a short period of time, usually between 10-45 minutes. The reason for this ‘wait’ is explained more fully in the next section.

And that’s it! Bitcoin transactions are quick, safe, cheap and the perfect alternative to paying with bank-issued credit and debit cards, and even paying in cash.

 

The Technology Behind Bitcoin

On the surface, Bitcoin transactions appear to be fast and easy – and they truly are. However, behind the scenes, the technology that makes the Bitcoin network run seamlessly is a massive ledger known as the blockchain.

It’s massive because it contains a record of all bitcoin transactions that have ever taken place since Bitcoin was first released in 2009.

As more time passes by and more transactions occur, the size of the blockchain will continue to grow. So here is how the blockchain works:

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When you send a payment, your wallet or app sends out a request to the entire Bitcoin network which is made up of computers or nodes. These nodes then validate your transaction using known algorithms.

Once your transaction is verified and confirmed, it is then combined with other transactions to create a new block of data for the blockchain.

This new block is then added to the end of the blockchain. When this happens, the transaction becomes complete and is now permanent.

This entire process takes about 10-45 minutes from start to finish (this is why Bitcoin transactions don’t happen instantly). Once the transaction is finalized, no one can undo or delete the transaction. The person you’ve sent the bitcoin payment to (the receiver) will now see your payment in his wallet.

So who verifies and confirms transactions if there’s no central body governing the network?

The answer is the miners. The miners are literally the lifeblood of the entire bitcoin network. Some have even compared miners to being hamsters in the wheel that keep the entire Bitcoin network going! And this is true.

Miners play such a huge role in the success of Bitcoin that they truly deserve getting rewarded in precious bitcoins. Without them, no new blocks would be created and added to the blockchain.

If nothing is added to the blockchain, no transactions are ever finalized. This means no bitcoins payments are sent and received by anyone on the network. No new bitcoins will be created.

Because miners are indispensable to the Bitcoin network, they are compensated for their hard work in terms of bitcoins (it would not make any sense to reward them in traditional paper currency). They are almost like employees of the network.

Since there are only a limited number of bitcoins (21 million), the number of bitcoins that miners are paid with will continue to dwindle until all bitcoins are exhausted by around 2140.

 

Bitcoin Value – How Is The Value Of Bitcoin Determined

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Bitcoin has been getting a huge amount of hype recently. It’s one of the many digital currencies in existence today which acts and functions like regular money but exists entirely electronically— like data inside computers.

And that can be kind of confusing, because if there is no actual physical bitcoin:

  • How can it have value?
  • How can you use digital currency in a physical world?

Well actually, the question of how bitcoin has any value at all isn’t so far off from the question of how most real-world money has value.

First off, Bitcoin has no actual intrinsic value, which means that it has little to no use to us outside of its economic context. But the same can be said for most real-world currencies: money only has value because the government that issues it says it does.

This is called ‘fiat currency,’ because its value is not tied to any physical commodity and relies on the backing of a government.

But unlike fiat currency, Bitcoin does not have an issuing authority that gives it value. Bitcoin is a decentralized currency, meaning there is no governing body that regulates its production and transactions.

It doesn’t answer to any government or organization, so there isn’t really a reason why it should have value, yet it does - and it can all be boiled down to utility, scarcity, and supply and demand.

 

Bitcoin’s Value Lies In Its Utility

Before we discuss the utility of Bitcoin, first you must understand the basics of how it works. You are connected to the community of Bitcoin users through a computer network, and the ledgers that Bitcoin uses is called a blockchain: transactions are compiled into blocks, which in turn are connected in a chain-like manner, hence the name.

The ledger keepers are called miners, because what they are doing, essentially, sounds very much like gold miners who work hard to find gold: they are working for the reward in the form of bitcoins, which, like gold, are limited in supply.

So now you know how Bitcoin works. What does that have to do with its value? Everything, actually. Bitcoin’s value is in its utility: its decentralization, security, and ease of transaction.

First, let’s look at Bitcoin’s decentralized system. Bitcoin is designed such that there is no need for any governing authority to control it. It operates through a peer-to-peer network where all transactions are recorded in the blockchain.

On the most basic level, this would mean that it is not tied to any state and therefore is the only truly borderless currency. What this means is that you can conduct transactions with people from different countries easily because you’re using the same currency.

On a deeper, much more complicated level, the decentralization of Bitcoin's system creates the possibility of transforming the finance industry.

The finance industry offers multiple ways to simplify transactions for ease of convenience. There are credit and debit cards, money transferring systems, electronic bank transfers, etc. But all of these systems need to have a middleman to function—they need a company or authority to facilitate the exchange.

And what you’re doing whenever you make a transaction is that you’re putting your trust on the middleman—that they will get your money through or keep your money safe among other things. There is also the matter of transaction fees, which, considered per transaction, is not too much, but can easily pile up over time. What Bitcoin does is it eliminates the need for these middlemen.

As mentioned above, all transactions in the Bitcoin network are recorded in the blockchain by miners. While the blockchain and miner network has the semblance of a governing body in the sense that it keeps track of all bitcoins in existence, it’s still in the public domain and therefore cannot be monopolized.

This means that no single person or group of persons has a hold on the network—which, in turn, means that bitcoins can remain fully transparent and neutral in its transactions.

But if there is no official body acting as a regulator, who can you trust to make sure that transactions do go through? The answer: no one. And it sounds bad, but it’s actually a good thing.

The Bitcoin system is designed to operate without the need for trust. See, it’s not simply a digital currency, it’s a cryptocurrency, which means that it is heavily based on encryption techniques to keep it safe.

Instead of operating based on customer trust, Bitcoin operates using tried and tested mathematics (more on that later). Cheating the network is impossible due to its public environment.

Not only that, but the system is encrypted so that trying to commit fraud would require an extremely large amount of computing power, which would by then have been more useful if you just used it to mine more bitcoins.

The security system, aside from ensuring the reliability of Bitcoin transactions, also ensures that the identity of the Bitcoin users can be protected. Unlike in credit cards, your account number does not have any value in your transactions, which are ultimately verified using a private and public key.

It works like this: you put a digital signature to your transactions using your private key which can be verified by the users of the network using your public key. The keys are encrypted so that the public key can only ever work if you had used the correct private key in the first place.

This means that:

  1. Your identity can’t be stolen by criminals to make fraudulent transactions in your name.
  2. You can choose to remain completely anonymous in the Bitcoin network, which may prove useful for some.

Lastly, bitcoins have the possibility of providing an ease of convenience that surpasses the traditional paying methods that we already have now. According to the Bitcoin site, using bitcoins allow you “to send and receive bitcoins anywhere in the world at any time.

No bank holidays. No borders. No bureaucracy. Bitcoin allows its users to be in full control of their money.”

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Bitcoins Are Incredibly Scarce

Fiat currency has a technically unlimited supply in the sense that governments can produce money whenever they want. Obviously, they don’t do that because it will lead to inflation, so the production and release of money is controlled by the government based on intensive research on market trends and needs. Bitcoin, as you might have guessed, does not work the same.

Because Bitcoin is decentralized, there is no authority that decides when to make new bitcoins. The system is designed so that new bitcoins can only be created as part of a reward system for the miners.

And the reward is well-deserved: the backbone of the Bitcoin system is cryptography, or the art of writing and solving codes which requires a hefty amount of work to solve.

To update the blockchain, miners from all over the world have to race to solve a specific math problem called SHA-256, which stands for Secure Hash Algorithm 256 bit.

It’s basically a math problem wherein you’re given an output and you’re supposed to find the input, like solving for x and y given that x + y = 2.

The only way to solve this kind of problem is through guesswork, and to solve the SHA-256, you’d have to go through an insane amount of possible solutions before you find the answer—for which you’d need an extremely powerful (not to mention expensive) computer.

Miners invest a lot of money on these supercomputers (as well as the huge amount of electricity it needs to run) all to mine new Bitcoins.

Jason Bloomberg, in an article for Forbes, writes that the value of Bitcoin is representative of this effort: because mining bitcoins take hard work, they become more valuable.So, first point to its scarcity is that bitcoins are hard to come by. You’d need a sizeable investment just to be able to create new bitcoins.

But they’re even made scarcer due to the fact that there can only ever be a certain number of bitcoins in existence, which is 21 million. (If you’re wondering why 21 million, it’s basically because that’s what’s written in the source code.)

The cap on Bitcoin production is there to ensure that Bitcoin wouldn’t ever be hyperinflated.

It’s even designed to be produced steadily: the reward system goes by half every 210,000 blocks added to the chain (i.e., every four years), with the SHA-256 problems even varying in difficulty depending on the amount of miners—more miners mean harder problems to ensure that not too many bitcoins get produced all at once.

Projecting from this trend, the last bitcoin is estimated to be mined around the year 2140. To put things in perspective, there are about 16.74 million bitcoins in existence at the time of writing.

That fewer and fewer bitcoins can be mined as time goes by drives up the interest of the people in the currency, because rarity is desirable and highly marketable.

This increases the value of Bitcoin, because it operates using a network—the larger the network, the greater use you can get out of Bitcoin.

 

Supply And Demand Affects Bitcoin Value Directly

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The market value of Bitcoin—that is, the money that people are willing to pay for it—follows the same old basic demand and supply rule: a high demand increases its price and a low demand decreases it.

Before we go in any further, just remember that the value of something is not the same as its price; value is what people perceive a product is worth, while price is what they pay for it. Even so, value and price go hand in hand: the price of something is directly related to its value and vice versa.

According to an article in the Economist, the increasing trend in the price of Bitcoin is what drives people to invest in it.

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People are investing because they believe that, following the trend so far, they would be able to sell their Bitcoins for a much higher price in the future—which the article argues is a perfect example of the greater-fool theory.

Basically, the greater-fool theory states that the price of a product is determined not by its intrinsic value, but by the beliefs and expectations that the consumers put on the product.

From this perspective, the surging price of Bitcoin serves not to increase its actual value, but to render it irrelevant.

The market is driving the price of Bitcoin up because of growing belief that it will be worth more in the future, not because they think its value is increasing over time. However, some people argue that the surge in Bitcoin prices that the past year has seen is not indicative of it being a bubble.

In the Bitcoin site itself, it argues that it is not a bubble, citing that bubbles are artificially overvaluations of a product which tends to correct itself eventually.

It cites its relatively small and young market as the reason for the volatility in Bitcoin prices—that “choices based on individual human action by hundreds of thousands of market participants is the cause for Bitcoin's price to fluctuate as the market seeks price discovery.”

It argues that the volatility of Bitcoin prices are due to many forces such as:

  • Loss of confidence in Bitcoin
  • A large difference between value and price not based on the fundamentals of the Bitcoin economy
  • Increased press coverage stimulating speculative demand
  • Fear of uncertainty
  • And old-fashioned irrational exuberance and greed

As such, Bitcoin is arguing that its growing prices can be attributed to more and more people finding the product increasingly worth their money based on its utility, thereby validating its value.

So, in summary: Bitcoin’s utility and scarcity gives it value, but its prices seem to send opposing signals as to whether it’s truly valuable or not.

With more and more people beginning to show interest in Bitcoin, perhaps we are barely scratching the surface of what its true value may be.

 

Different Techniques To Acquire Bitcoin

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There are many different techniques to acquiring bitcoins, and in this guide, we will show you the most popular methods of getting yourself some units of the world’s most popular cryptocurrency.

Buy Some Bitcoins

Buying bitcoins is a very simple and straightforward process. You can simply go to a bitcoin exchange website such as Coinbase or Kraken, and exchange your US Dollars, British Pounds, Euros, Canadian Dollars, and other supported currencies (this will depend on the platform) into some bitcoins.

Of course, with the ever-increasing value of bitcoin, this is easier said than done.

Right now, you can expect to shell out more than $15,000 for a single bitcoin! The good news is that you don’t have to buy a whole bitcoin. Each bitcoin can be divided into 100 million units called Satoshis (named after Bitcoin founder, Satoshi Nakamoto).

This means you can buy a few thousand Satoshis for a few dollars. While this won’t make you rich, you can at least get a feel for how bitcoins and cryptocurrency works.

Here are some of the best places where you can buy bitcoins:

Cryptocurrency Exchanges

There are plenty of platforms where you can buy and sell cryptocurrency. The most popular ones that have been around a few years are Coinbase, Kraken, Gemini, Coinmama, and CEX.io.

You’ll have to do some research, however, if your state or country is supported and what currencies and payment methods they accept as each platform would have their own rules and regulations.

The transaction fees involved will also vary in each platform so you’ll definitely have to look around to find the best cryptocurrency exchange that would suit your bitcoin needs.

Cash Exchanges

If you want to avoid bitcoin exchange platforms and pay directly in cash (or another payment method that’s popular in your local area), use cash exchanges like LocalBitcoin or Wall of Coins. These platforms allow you to trade directly with another person.

There are no expensive transaction fees involved. However, they may charge a fee for successful trades. We would suggest that you look for a platform that offers an escrow service to make sure the seller doesn’t run away with your hard-earned cash!

Trade Your Other Cryptocurrencies For Bitcoin

If you’ve got a digital wallet full of other cryptocurrencies, you can easily trade these for bitcoins. You can go to sites like ShapeShift.io which allows you to quickly trade your non-bitcoin cryptocurrency to bitcoins.

You don’t even need an account to make a trade. Simply enter the amount you wish to convert or trade, your bitcoin address, and your cryptocurrency refund address. That’s it! You’ll have your new bitcoins in a few minutes.

 
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Get Paid With Bitcoins

Getting paid with bitcoins is not a complicated process at all. You simply need to have your own bitcoin wallet so you can start receiving payments. For starters, you can create a free online wallet on Blockchain.info or Coinbase.

All you need is a valid email address to sign up and begin receiving payments! Once your wallet is set up, you can either generate a QR code or use the long alphanumeric address and send it to the person you wish to receive bitcoins from.

Here are some ideas on how you can get paid with bitcoins:

Work For Bitcoins

There are many different types of work you can do to get paid in bitcoin. It doesn’t matter if you work online or offline as making and receiving bitcoin payments is so simple you don’t really need technical know-how to do it.

Solopreneurs find this payment method so much more convenient as they don’t need to wait 24-48 hours (or more for international workers) to receive bank transfers from their clients. They can receive their payment, salary, or wages in just a few minutes.

It’s a big relief to workers knowing they don’t need to wait in limbo, unsure if they’re going to get paid for their hard work or not. Employers or clients also like the idea of not paying those exorbitant bank fees for doing transfers especially to workers or freelancers overseas.

With bitcoin payments, they get to save plenty of money just in bank fees alone!

Sell Products Or Services

Whether you are an online shop or a brick-and-mortar store, you can choose to receive payments in bitcoin. With a growing community of bitcoin users, you’re bound to get new and repeat customers who will do business with you simply because you’re forward-thinking enough to accept bitcoin payments.

The added benefit to customers is they can easily send you payments straight from their bitcoin wallets while you receive their payments almost instantly. 

For online shops, you can use plugins or scripts to start accepting bitcoin payments on your site. If you’re unsure of how you can do this, it’s best to hire a developer to make sure it’s set up right (you don’t want those bitcoin payments going somewhere else!).

When your customers go to your checkout page, they’ll see the bitcoin option and select that if they want to pay using bitcoins.

For local shops like hotels, restaurants, bars, cafes, flower shops, groceries, etc., if you want to receive bitcoin payments in person, all you have to do is just print your wallet’s QR code and pin it near your cash register.

When your customers are ready to pay, simply direct them to the QR code, have them scan it on their mobile phones, enter the amount they need to pay, hit Send, and wait for your bitcoins to arrive.

Oh, and don’t forget to add a giant ‘Bitcoin Accepted Here’ sign at the entrance to invite the bitcoin community to come inside! To attract even more bitcoin users, add your business to Coinmap and other similar sites where the bitcoin community hangs out and searches for places where they can spend their bitcoins!

Receive Tips From Customers

You don’t need to be in the service industry to receive tips. If you have a blog, you can set up a bitcoin payment gateway where your loyal fans and readers can tip you if they so desire.

Don’t underestimate the generosity of your audience especially if you produce content that provides a lot of value to them. Try it out – you just might be surprised to see some bitcoins on your wallet after a few days!

Complete Small Tasks On Websites

There are now plenty of sites on the Internet that offer free bitcoins (usually just a very, very small fraction of it) for every task you complete. Some websites require you to complete surveys, watch videos, click on ads, answer questions, sign up for trial offers, download mobile apps, play online games, refer friends, shop online, and more. Payment is usually quick and easy.

Some platforms just require your bitcoin wallet address while others require you to sign up and create an account. While it’s true these jobs are mostly small and can be done in a few minutes, earning only a few hundred or thousand Satoshis at a time may not be worth it especially if you value your time. But if you’ve got nothing better to do and you want to experience first-hand the joys of owning cryptocurrency, then you’ve got plenty of micro-tasking sites to choose from.

 
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Join Bitcoin Faucets

Bitcoin faucets are just websites that give away free Satoshis at set time intervals. These sites bring in a huge amount of traffic from people wanting to get free bitcoins so expect lots of competition and, depending on where the faucet is hosted, slow loading times.

Some faucets give away Satoshis with no work involved, that is, you just need to have the site up on your browser, while some require you to solve little tasks before you earn your Satoshis (much like the micro-tasking websites we’ve discussed in the previous section).

Sites like these are a major time drain as well so it’s really up to you if you can afford to exchange your precious time for a few Satoshis.

 

Mine Your Own Bitcoin

Bitcoin miners play an extremely important role in the Bitcoin network. Without miners, there would be no new bitcoins, and no transactions would be confirmed. Bitcoin miners are so important to the Bitcoin ecosystem that they are justly rewarded with bitcoins for their hard work. However, bitcoin mining is not as profitable as it seems.

When Bitcoin was still in its infancy, miners were getting paid 50 bitcoins for every block mined. But every 210,000 blocks (this is around 4 years), the reward is halved. So this means that the initial 50 bitcoins was halved into 25 bitcoins.

And now, at this particular point in time, the block reward is down to 12.5 bitcoins. If you consider the price for one bitcoin right now (well over $15,000), this is still is a very attractive reward indeed. And experts predict the price will continue to go up as the number of bitcoins in existence slowly go up, too, and the demand for more bitcoins continue to increase.

Mining bitcoins is not an easy job, much like any other physical mining job in the real world. Bitcoin miners may not get dirty from soot and mud, but their powerful computers do.

The difficulty in mining new blocks has gone up so much that individual miners are finding it extremely difficult to solve complex cryptographic functions on their own. Many different miners or mining groups compete to discover a new block and the mining difficulty are at extremely high levels now.

Most, if not all, miners are forced to work in mining pools where several miners work together as a group to add new transactions to the blockchain. When a new block is mined, the reward is split according to the work each miner’s computer has done.

Mining bitcoins doesn’t come cheap. You can’t just use any computer as solving cryptographic functions will take so much of your computer’s processing power.

Not even a high-end laptop or desktop computer can do the job anymore – it’s really that difficult to mine new bitcoin blocks today!

Even if you join mining pools, you’ll need to invest a lot of money to buy the right hardware. In the beginning, a powerful CPU (Computer Processing Unit) and GPU (Graphical Processing Unit) were sufficient to mine new blocks. However, as the difficulty of mining bitcoins have gone up, more processing power was needed.

Today, an ASIC (Application Specific Integrated Circuit) chip is seen as the only way to succeed in mining. A bitcoin-mining ASIC chip is designed specifically to mine bitcoins. It can’t do any other task apart from mining bitcoins.

While this may be viewed as a downside for some, remember that mining is a hard job. You need all the resources you can use to find the next transaction block so you can add it to the blockchain and get rewarded bitcoins in the process. Professional miners find this hardware very powerful, more than other technologies used in the past.

Also, it’s not as power hungry as other hardware out there. It will still consume plenty of power, however, so consider that if you’re worried about your electricity bills.

If you are prepared to buy the technology to mine bitcoins as well as pay more costly power bills, then mining bitcoins will be a great way for you to acquire this particular cryptocurrency.

However, we’d like to say that this is not a job for the uninitiated. It’s best to leave this task to the experts or those with an in-depth knowledge of how bitcoin mining works. As we’ve shown you in this guide, there are many ways you can acquire bitcoins that don’t require a healthy investment of both time and money.