Bitcoin can be extremely difficult to explain to even the most technically savvy people let alone your grandparents. Obviously this isn’t exclusively reserved for elders as it’s a fantastic simplistic way of explaining bitcoin to young and old alike.
Have you ever tried too clue in Grandad on Bitcoin? Rise up to the challenge by getting the basics right. Rather than gabbling breathlessly on cryptography, use this streamlined guide to usher Grandpa into the Bitcoin universe.
So… What Is Bitcoin?
Bitcoin is a currency, just like those fiat currencies you use on a daily basis and those you use on your holidays such as the United States Dollar ($), Great British Pound (£) and the Euro (€).
The main difference between Bitcoin and fiat currencies is that bitcoin is a decentralised/digital currency.
Bitcoin Is Similar & Different To Conventional Money…
Fiat currencies are backed by products, services and the issuing country which has proven to be less stable than we take for granted in recent times. Bitcoin however is also backed by products and services but also a sound consensus of users, taking power away from the government and handing it to the people that use it..
Fiat currencies are governed by centralised bank, usually with high government interest and increasingly being a law upon themselves. Bitcoin however is governed by it’s users based upon mathematics and distributed computing.
Transferring between bank accounts internationally whether for personal or business use can take 3-4 days+. Bitcoin transfers on the other hand, inflict discrepancies in terms of timing no matter the location with payments being confirmed in minutes.
International transfer costs can be a little unsettling at times, varying from 2-3%+, usually up to around £10 ($15). This may not sound like a large sum of money but when compared to a bitcoin national and international cost of approx $0.01, sending a lot of money overseas could easily add up when using fiat currencies.
Once you’ve accepted a payment by debit/credit card you are leaving yourself open to chargebacks which is when a customer may contact their card issuer and claim fowl play, thus receiving a refund after their purchase. With Bitcoin all purchases/transactions are final, once you’re paid, your money is secure.
Imagine, a bank account or credit card: instead of paying in cash, buyers transfer conventional money via a bank, no physical transfer of funds takes place. Bitcoin works in a very similar way – you can buy products on the internet or trade it in for other currencies. What’s new is that you are actually cutting out the middleman: banks and payment processing companies.
There are a few ways in which you can actually get hold of bitcoins, ranging from exchange and direct deposit which is most similar to funds within your bank account. There is also the option of obtaining a physical bitcoin, much like having cash in your wallet. Then something quite unique, you can actually create bitcoins! Let’s dig in a little deeper into each method…
Online Exchange/Direct Deposit
Picture a bank where you open an account in a foreign currency:
- You walk in.
- Open a bank account.
- Hand in some money in exchange for the foreign currency of your new account.
Bitcoins work very similar to this, so this is how it works in the world of Bitcoin.
- Log into a bitcoin exchange/direct deposit platform.
- Create a Bitcoin wallet.
- Wire money (£,$,..etc) from your bank account or pay at a local Moneygram agent in cash in exchange for Bitcoins in your wallet.
This is considered the most popular and most secure method of obtaining bitcoins.
There are various websites where you can source physical bitcoins, however you may need to pay a little extra for this type of bitcoin as they do come at a premium compared to their digital counterpart.
Now this is where it really does get interesting, it is actually possible to mine bitcoin (you can find out more about mining bitcoins here). There are various ways of doing this, in short you are creating bitcoins. You can do this with your average computer or laptop (this isn’t as profitable as it once was), the other option is what’s called an ASIC (application specific integrated circuit) which is a system made to do one thing and one thing only and do that job extremely well, in this case, mining bitcoins.
Storing Your Bitcoins
There are various ways to store your bitcoins, much like your local currency you might have coins in your pocket (you can have physical bitcoins in your pocket), you have an online bank account (you can also have online bitcoin wallets), you can access your money on your banks dedicated app (you can access bitcoins through mobile bitcoin wallets) and one method more unique to bitcoins is desktop wallets. So let’s look into these methods of storing your bitcoins.
Desktop Bitcoin Wallets
There are various desktop bitcoin wallets for you to play around with, if you went ahead and installed the original bitcoin client (Bitcoin Core) then guess what? You’ve already got your hands on a stable and secure Bitcoin desktop wallet. This Bitcoin client doesn’t just relay transactions, it also acts as a wallet to create bitcoin addresses as well as receiving and sending bitcoins.
This isn’t the only bitcoin wallet available though, there truly are endless options with more and more appearing everyday. All with their unique features and selling points.
Some Bitcoin wallets are aimed towards enhanced security, others focus on anonymity and some focus on usability.
Mobile Bitcoin Wallets
Obviously there are benefits to using a mobile bitcoin wallet or bitcoin wallet app and I’m sure you’ve guessed why already, yep it’s mobile. These app based bitcoin wallets can store your bitcoin wallet private keys for your bitcoin address, enabling you to pay for goods and services directly on the fly.
One of the advantages which you’ll appreciate if you’ve been through the agony of downloading the bitcoin client (a full bitcoin client has to download the entire bitcoin blockchain, which grows every day and is in the double digit GB’s at present). Obviously this wouldn’t be very practical for mobile devices for various storage and data usage reasons.
Online Bitcoin Wallets
There’s a wealth of online bitcoin wallets available if you don’t fancy using a desktop or mobile bitcoin wallet. Most bitcoin exchanges have built in bitcoin wallet functionality although these are usually avoided for long term storage due to security reasons.
Blockchain is the most well known and widely used online Bitcoin wallet (and a personal favourite of mine), it’s extremely secure is various authentication methods to make sure no one but the rightful owner can access the Bitcoins.
Now you fully grasp the concept of bitcoin and it’s similarities and differences to fiat currencies, why not give it a go? Try sharing your newly gained knowledge with friends and family. And most of all please let us know if there’s anything we missed out that we can add to help others understand bitcoin a little better.