What is Bitcoin?
Bitcoin is an online virtual or digital currency that can be used to buy goods and services over the internet. Unlike regular currencies, Bitcoin is a mathematical rather than a physical currency which means it only exists virtually and is not available as bank notes or coins.
Bitcoin is created or generated by thousands of computer-savvy people around the world in a process called ‘mining.’ Miners use open source (freely available) software that uses state-of-the-art encryption techniques to generate, verify and regulate Bitcoin. As such, Bitcoin is a 100% independent decentralised peer-to-peer currency that is not owned or controlled by any central bank, financial institution or government.
This digital currency is processed on a private network of computers linked together via a shared program where every transaction is recorded on a ‘blockchain’ (a constantly growing ledger or record book) and updated across the network. These ‘blocks’ of Bitcoin are linked, verified and secured using the latest cryptography, hence the name cryptocurrency.
Bitcoin can be bought and sold at a variety of ‘Bitcoin Exchanges’ with payment methods like credit cards, debit cards and cash. But before you can buy and spend them, you’ll need a safe and secure place to store, send and receive them, which is where Bitcoin wallets come in.
There are four main types you can choose from:
- Online Wallets – Arguably the quickest and easiest type of Bitcoin wallet, these comprise any 3rd party online wallet you can access from any computer or mobile device that has an internet connection. The main drawback is that online wallets are more susceptible to security breaches and hackers than most other wallet types.
- Software Wallets – These are wallets you can install on your desktop computer or mobile device (regardless of its make, platform or operating system), although they can require a lot of disk space. This type of wallet requires some computer know how to set up and is only as secure as the computer /device that it’s installed on.
- Hardware Wallets – These are wallets stored on regular USB devices such as flash or external drives that must be plugged into a computer whenever you transact. When unplugged, they’re protected from computer malware and viruses and act as a ‘back up’ of your wallet. Being portable, you can keep this wallet with you at all times.
- Paper Wallet – This type of wallet consists of your Bitcoin public and private keys printed or handwritten onto a piece of paper. As such they’re considered the most secure of all Bitcoin wallets as they’re 100% ‘off the grid.’ This means they cannot be accessed over the internet and can only ever be comprised if lost or stolen.
The type of Bitcoin wallet you choose may depend on many factors. For instance, if you’d like to use Bitcoin to fund your South African casino accounts with a few bucks once in a while, an online or software wallet is the way to go as they’re so easy and convenient.
If, however, you have a substantial amount of Bitcoin and are very concerned about keeping them safe, a hardware or software wallet is likely your best bet. Or, if you’d like to eradicate the possibility of having your Bitcoin hacked online, a paper wallet is recommended.
But whatever Bitcoin wallet you select, as with all banking methods, the more you protect and secure your particular devices, software, information, usernames and passwords, the safer your Bitcoin will be. Don’t ever leave your public and private keys lying around.