What is Bitcoin?
The high demand around various cryptocurrencies is caused by the popularity of Bitcoin. Bitcoin is a new generation of digital currency (cryptocurrency), the creator of which, according to the official version, is Satoshi Nakamoto.
Bitcoin is a worldwide payment system through which you can conduct transactions with very low fees in comparison with other global payment systems and without intermediaries in the form of banks.
This currency is fundamentally different from all previously created electronic currencies and payment systems, since its main task is to decentralize the system: operations take place exclusively in a network of equal customers, and the price of a coin is formed by market supply and demand.
Key features of the Bitcoin system
- Anyone can become a member of the network.
- There are no "controlling" organizations.
- Value is formed only by market supply and demand, there is no reference to real assets.
- There is no reference to the user's identity, and there is no "registration".
- There are no intermediaries in transactions: funds can be sent directly between network users.
- It is impossible to block the transfer, as well as cancel transactions already confirmed on the network (including even those transactions that were mistakenly sent to someone else's or nonexistent account).
- You can store bitcoins in your online wallet or on the stock exchange, as well as on a computer, smartphone or on hardware media.
- A limited number of bitcoins, the volume of which will not exceed 21 million.
- Openness of the system and the publicity of transactions: Bitcoin is a non-anonymous currency, information on completed transactions can be viewed freely on the network using various blockchain browsers (for example, Blockchair.com, Blockchain.com and others).
How to get started with Bitcoin?
First of all, you need to register an online wallet where you plan to store bitcoins, as well as record and securely store a secret phrase from 12 randomly generated words, which is the key to recovery.
Bitcoins can be obtained in several ways. The easiest is to buy through an exchange or exchange, exchanging a different currency.
The second way is to start mining. Bitcoin mining occurs through the use of computer computing power. In this case, it is worth thinking about economic feasibility, comparing the costs of equipment and electricity with the profit. However, mining alone is already unprofitable, since there are many pools of miners with high power.
Bitcoin network fees are among the highest among cryptocurrencies due to its popularity. At the time of writing, the average transaction fee for the last quarter was $0.05 — $1.43. At the peak of the load and price in December 2017, the transaction fee could exceed $60!
The commission for sending transactions is appointed voluntarily by the sender, their size affects the priority when confirming the transaction and is measured in Satoshi per byte. You can read about how transactions in the Bitcoin network confirm, in our article. Usually wallets suggest the optimal amount of commission at the time of sending the transaction.
If you want to set a commission manually and in your wallet there is such an opportunity, you can focus on the optimal commission indicators that are presented on the website with information about the commission.
Transactions with a minimum commission (less than or equal to 1 Satoshi) are possible and also processed, but are not recommended, since their processing time is unknown and can be quite large.
Bitcoin Address Formats
There are 3 types of addresses:
- P2PKH or Legacy address (old address format) is the first version of a Bitcoin address that starts with the number "1" and has 26 to 36 characters.
- P2SH is the new address type is structured similarly to P2PKH, but starts with "3" instead of "1".
- P2WPKH or Bech32 is an advanced type of address. Addresses start with "bc1" and are longer than P2PKH and P2SH.
More details about address types and comparison of their effectiveness are written in our special article "Bitcoin address formats and performance comparison".