All about how bitcoin works for dummies in simple words

Irreversibility

Once a transaction is created, when a block of new information is generated, the transfer data cannot be canceled or destroyed. They are included in the ledger chain and a copy is sent to the network nodes. The blockchain is an open ledger where any movement of assets can be tracked.

Anonymity

Registering a bitcoin wallet does not require confirmation of identity. All transactions take place with a high level of confidentiality. But Bitcoin cannot be considered a completely anonymous network. Recently, many online services have switched to a customer verification system (KYC). This is due to emerging laws on the regulation of the cryptocurrency market. By identifying the owner of a wallet, it is possible to trace all transactions sent from it through blockchain browser sites.

Security

Cryptographic tools for recording information in blocks provide high security and availability of data. Each new segment of the chain contains a part of the previous one. This continuity makes it impossible to change or delete information.

However, with control of 51% of the network’s capacity, it becomes possible to make any entries in the chain. If attackers start controlling the majority of nodes, all coins will be directed to hackers’ wallets. In large projects like bitcoin, such an attack is almost impossible. To do so, huge computing power must be created or captured. Small or just emerging crypto projects are much more susceptible to hacking.

Freedom

Data transfer in a blockchain network takes place without the involvement of a central server. This allows any user to connect. Communication between wallets is also decentralized based on peer to peer (P2P) technology. Independence from states or regulatory bodies makes free movement of cryptocurrency possible.

Bitcoin uses

Digital money is used in the same way as traditional fiat money. They can be used to invest, buy goods, make transfers and protect capital against inflation.

Choosing a wallet for storage

Many applications and devices for working with digital money have appeared. All wallets can be divided into 5 main types.

Creating a wallet

There are many types of cryptocurrency storage. It can be difficult for beginners to choose the optimal one. For beginners, online wallets are recommended. Including the storage of assets on the deposit of crypto exchanges is suitable.

Below is a step-by-step instruction for creating a bitcoin wallet on the Binance website. This platform is attractive with a good reputation. To open an account and deposit cryptocurrency, you need to perform such actions:

1. Click the “Registration” button on the main page of the site.
2. Write your email and come up with a password.

3. Enter the code from an e-mail or a message in your cell phone.

Registration through a browser is the easiest way to start a digital wallet. But it should be remembered that such platforms are vulnerable to attacks by hackers. In this case, users will lose money.

Replenishment and withdrawal of funds

The easiest way to purchase coins is to use the services of the exchange. From the proposed payment methods on the platform choose the one that is convenient for the client. Important criteria: minimum commissions, speed of execution.

Exchange of fiat money for Bitcoin

Cryptocurrency is becoming popular due to the increase in the number of sites where you can use it to buy goods. There are 3 main ways to get digital assets:

• Exchange services.
• Crypto exchanges.
• Private intermediaries.

Exchanger

Instruction on Bitcoin from scratch cryptocurrency exchange using the example of the service (Telegram platform) Chatex:

1. Download the Telegram application (messenger on which the platform runs) via Google Play or App Store and create an account in it.
2. Go to the chatbot.
3. Make up a login.
4. Create a new ad in the “Exchange” section. Select the “buy/sell” type.
5. Specify the method of payment in fiat money.
6. Select the rate – the transaction will take place at this rate. Specify the source of quotes (exchange, which will give the estimated current price).
7. Specify the terms of fulfillment of obligations to avoid disputes.
8. Confirm the order by pressing the “Create” button.

Exchange

On cryptoplatforms, many payment methods are available when withdrawing or buying digital currency. It is convenient to engage in trading on such sites. In addition to the usual trading of cryptoassets, on the exchange you can:

• Buy tokens and coins with leverage (borrowed money).
• Invest in staking, lending and other investment instruments.
• Earn from affiliate (referral) programs.

Real meeting

It is difficult to find a reliable private intermediary online. For a safe transaction, it is better to meet the seller in person. There are special sites and forums where you can agree on this. Sending coins is done at the time of transferring cash to the seller.

Transferring money to another address

Transactions with a large commission have a high priority and are the first to be processed by the mining nodes. In the instructions, where to start learning bitcoin, usually in the first place put the mastering of simple operations with a cryptocurrency wallet. You need to:

1. 1. Select a transaction currency.

1. 1. Fill in the address and select the recipient network.

1. Enter the amount including the commission fee.
2. Confirm the payment using two-factor authentication.

How to sell bitcoins

If the user decides to exchange cryptocurrency for fiat money, you can choose the following methods:

• Sell on the exchange and withdraw to a payment card.
• Through an online exchanger.
• Convert to cash when meeting with an intermediary.

Cryptocurrency trading

Digital assets are becoming an increasingly attractive medium among traders. The market is very volatile and alternates between sharp periods of rise and fall.
There are several strategies to capitalize on it. Short-term selling and buying (speculation) requires a deep understanding of the market and skills in working with assets.

In this case, it is most convenient to store capital on trading platforms to save on commissions when moving money. In addition, exchanges offer leverage for transactions.

Margin trading is a way of making transactions with cryptocurrency using borrowed funds. This allows you to buy assets not only with your personal money, but also with funds provided by the platform. This type of trading increases the results of trading. You will be able to get more profit from successful trades, but the risks will also increase.

Long-term investments – investing in cryptocurrency and keeping it for a long period of time in anticipation of growth in the value of the asset.

Bitcoin network transaction fees

Thanks to the interest for transfers, the decentralized system is maintained and the miners who ensure its functioning are encouraged. Many wallets now allow you to charge a payment fee. The size of the commission does not depend on the amount of the transaction. When the network is heavily loaded, transfers with a high fee will be processed first. Due to the growth of the exchange rate against the dollar, it becomes unprofitable to send small amounts. The fee may be higher than the transfer itself. You can find out its actual size using online calculators (Bitcoinfees).

Legal side of the issue

In Russia, Federal Law No. 259-F3 “On Digital Financial Assets, Digital Currency” has been in effect since January 1, 2021. The maximum amount of cryptocurrency purchase is set at the level of 600 thousand rubles per year. The sale is subject to personal income tax (13%). You can store and send bitcoins, but you cannot accept payment for goods and services in them.

In the Republic of Belarus, Decree No. 8 has been in effect since 2017, legalizing the circulation of digital coins in the country. Trading and investment operations with cryptocurrency are allowed.

The Parliament of Ukraine in 2021 adopted the draft law No. 3637 “On virtual assets”. The President vetoed this decision.

Thus, cryptocurrency is not legalized in all countries, but the process of regulating digital money has been initiated by many states.

Security Memo

The issue of protection against cryptocurrency theft is becoming more and more urgent with the growing popularity and increasing value of digital assets. The first rule is not to keep your savings in one place. Having gained access to the wallet, attackers will withdraw all the funds. It is necessary to study articles about the functioning of digital money to better understand what information is susceptible to theft.

Protect your PC and phone

There is a lot of important data stored on the hard disk. It is extremely undesirable that the keys to access the wallet fall into the wrong hands. Therefore, protecting information on PC and phone is an important security aspect for any user.
To reduce the risk of device hacking, these recommendations will help.

Scammers’ techniques

Offering to invest in cryptocurrency by transferring money to an unknown wallet or company account is a popular scheme to deceive gullible people. This can seriously ruin the acquaintance with bitcoin for a beginner.

However, even experienced users fall into the networks of attackers:

• Phishing sites. Copies of real projects, where data (keys) are immediately stolen. Or malware is downloaded to the victim’s computer.
• Fake applications. Look almost like the real thing with minor changes. May contain viruses.
• Crypto pyramid schemes. Promise high returns without risk. The first investors manage to get their money back and even earn money. All subsequent investors lose capital.

Long-term prospects of bitcoin

Bitcoin, the largest cryptocurrency by market value, reached a price peak of $66 thousand in October 2021. This happened after transactions with the first Bitcoin-ETF (exchange traded fund) began in the United States. Digital currencies offer efficient solutions for financial systems. Prospects for investing on a legal basis are emerging. Bitcoin is gaining popularity as a tool for inflation protection. The availability of articles, videos that tell everything about BTC and cryptocurrency for beginners attracts new market participants.

Frequently asked questions