Welcome to Bitcoin Basics Lesson 3: Bitcoin Exchange Rates

How Can I Store My Bitcoin Safely?

To start using bitcoin you’ll need to use a bitcoin wallet. A wallet stores the information necessary to handle your bitcoins. Wallets are often described as a place to hold or store digital currency. But, bitcoins are inseparable from the transaction ledger, the blockchain. A better way to describe a wallet is as “something that stores the digital credentials for your bitcoins and allows you to access them”. Bitcoin uses public-key cryptography, in which two cryptographic keys, one public and one private, are generated. You could say a wallet is a collection of these keys.

There are also several types of wallets to choose from. Software wallets connect to the network and allow you to spend bitcoins in addition to holding the credentials (the cryptographic keys) that prove ownership. There are also online wallets that offer similar functionality. In this case, the keys to access the money are stored with the online wallet provider rather than on the user's hardware or software app. There are also physical wallets that store the credentials offline, which could, for example, be just the keys printed on a piece of paper in your pocket, or remembered in your head. Because a piece of paper can't be hacked, this is the most secure method of storing bitcoins (assuming your physical wallet can be kept safe).

The Blockchain

All bitcoin transactions are stored in a public ledger called the blockchain. It’s not maintained by an authority, but by a network of communicating nodes and miners running open-source bitcoin software. Transactions are sent to this network using readily available software applications (such as wallet apps). These nodes can validate transactions, add them to their copy of the blockchain (the ledger), and then forward these additions to other nodes. The blockchain is a distributed database, which means each network node verifies and stores its own copy of the blockchain.
As I explained before, bitcoin prices were first set by enthusiasts on bitcoin forums and exchanged both offline and online. Nowadays everything has moved to online exchanges where participants offer bitcoin buy and sell bids, just like on other commodity exchanges.
The price is subject to the market forces of supply and demand which, at this point in time, go hand-in-hand with the trends and whims of speculators. The price can move suddenly and sharply up or down in response to news events.

Buying and Spending

You can buy bitcoins online from Bitcoin.com using a credit card, or by using an exchange via a bank transfer of fiat currency. Bitcoin can also be purchased locally using services like Localbitcoins or Bitcoin ATMs.

So where can you spend your bitcoins? Well, the currency is up and running with some of the most popular ecommerce platforms and point-of-sale systems. Additionally, hundreds of thousands of merchants and vendors, both online and offline, already accept bitcoin for payments.

A Brief Word on Bitcoin Mining

In traditional money systems, governments simply print more money when they need to. This leads to inflation which reduces the value of each unit of the currency previously printed. But in bitcoin, money isn’t printed—it's discovered.

Computers around the world ‘mine’ for coins by competing with each other. To succeed in mining you’d need a specialized mining computer, as they are much faster than your regular laptop and specialized to complete mining work. Mining is competitive business today and requires specialized equipment to earn return. Mining is the act of processing and verifying transactions on the Bitcoin network and securing them into the blockchain. Each set of transactions are processed into blocks, secured by the miners, and added to the blockchain.

This ends today's lecture. Now you know a little more about bitcoin. Let’srecap:

· Bitcoinisn’tstrictlyanonymous

· You can make use of a wallet to protect and access your money

· Bitcoins are stored in a public ledger called the blockchain

· You can buy bitcoins online, with a credit card, at exchanges, or via ATM’s

· Bitcoin isn’t printed like regular money, it’s discovered or ’mined’ by a network of computers worldwide

In the next lesson, we will discuss more about Bitcoin price.

By the way, If you would like to move ahead a bit, you can start using bitcoin today by installing the Bitcoin.com Wallet on your computer or mobile device.

Welcome to Bitcoin Basics Lesson 3: Bitcoin Exchange Rates

In Lesson 2, you learned that bitcoin is pseudonymous rather than anonymous and that you can make use of a wallet to protect and access your money. You also learned that bitcoins are stored in a public ledger called the blockchain, and that you can buy bitcoins on exchanges, with a credit card, or by using ATMs. We explored how bitcoin isn’t printed like regular money; it’s discovered, or ’mined’, by a network of computers worldwide.

InLesson 3 youwilllearn:

· Bitcoin has a value set by the laws of supply and demand

· Because of its current adoption phase and limited distribution, exchange rates are often influenced by news

· Bitcoin has a fixed supply that is limited to 21 million units total

Bitcoin's Value

How is the value of bitcoin determined? Well, all currencies and commodities have an exchange value, agreed upon by the seller and buyer. Bitcoin is a currency because it is a limited medium which people have agreed possesses value. This agreement is no different from ancient merchants who at one time did the same thing with materials such as seashells, precious stones, gold, or silver. The difference between bitcoin pricing and the pricing of paper money is that bitcoin’s value is set solely by the supply and demand within the community. There is no governing body like a central bank e.g. The Federal Reserve to influence or control the flow of money. Given that bitcoin is in its infancy, and has yet to fully find its identity and function, the price is easily influenced by news and rumours.

Large markets like the EU, China, Japan or the US may announce new bitcoin regulations, either favourable or restrictive to bitcoin’s growth, causing the price to rise or fall respectively. Other factors that can influence the value of bitcoin are internal issues. Examples of this include miners’ conferences or a meeting to decide changes to the Bitcoin protocol. The price may sometimes dip if an agreement on a subject cannot be reached, or seems to be too far off.

Supply&Demand

The supply of bitcoin is limited to 21 million units. This was set according to the initial design of the Bitcoin software, and this limitation is fixed into the bitcoin algorithm. As more and more people come to use Bitcoin, the increased demand combined with the fixed supply will force the price to go up. Because the number of people using Bitcoin in the world is still relatively small, the price of Bitcoin (in comparison to a more traditional currency) can fluctuate significantly on a daily basis. As more people continue to use Bitcoin, the value of the network increases. In early 2011 one bitcoin was worth less than one USD, but in early 2017 one bitcoin was worth more than one thousand USD. If Bitcoin continues to grow, a single bitcoin could be worth more than a hundred thousand dollars.

Due to the limited number of bitcoins in circulation, and the fact that new bitcoins are created at a predictable and decreasing rate (currently 12.5 bitcoins on average every 10 minutes), the demand for bitcoin must follow the supply increase to keep the price stable.

Like any other money, the value of Bitcoin will grow with more user adoption and trust. This can be measured by its growing base of users, merchants, and startups. As with all currencies, bitcoin's value is determined directly by people willing to accept them as payment.

This ends today’s lecture. Now you know that bitcoin has a value set by the laws of supply and demand, and because of its relatively early phase of adoption and limited distribution, prices are easily influenced by news. You have also learned that the total supply of bitcoin is limited to 21 million units.

Tomorrow you will learn more about how bitcoin wallets work.

If you want to stay updated on bitcoin prices, stop by Bitcoin.com!