Cryptocurrency is quite the buzzword, and for a good reason. While there are many different cryptocurrency options available, Bitcoin is by far the most prominent.
You might have concerns that your financial activity is easily traceable. That’s one reason Bitcoin is so popular. Many people believe that Bitcoin is a completely anonymous payment system. While it’s not entirely foolproof, there are many measures incorporated to protect your privacy. How safe is it, though?
Learning more about cryptocurrency helps you make an informed decision over how you want to shop online. It’s important to understand the basics of cryptocurrency before you start trying to use Bitcoin.
What Is Cryptocurrency?
Cryptocurrencies are a secure, digital payment method. For the most part, whenever you make a transaction online, your information is easy to trace. Nearly everything—from credit cards to PayPal—has some connection to your identity. Bitcoin helps protect your privacy in transactions.
Bitcoin is a type of cryptocurrency. Using cryptocurrency for online transactions is the equivalent of buying something in cash. Bitcoin is somewhat like a computer file that holds a specific value. In January 2020, for example, that value increased to around USD 50,000. This value does fluctuate with time and can be unpredictable.
Is Bitcoin Really Anonymous?
Bitcoin is not exactly anonymous. It is what is known as pseudo-anonymous. Transaction histories are kept in a massive public log, known as a blockchain. Where Bitcoin is a specific type of cryptocurrency, blockchain is a technology incorporated into Bitcoin to facilitate anonymity.
Blockchain is a technology that acts almost as a neutral third-party during transactions. Rather than making a contract or relying on trust, transactions use blockchain that automatically changes individuals’ funds based on the orders executed. The computer file, known as a distributed ledger, keeps track of all users’ balances.
The Bitcoin blockchain ledger is shared across thousands of connected computers, known as nodes, that update in real-time to reflect different balances following a transaction. For transactions to complete, each node updates the same information accordingly. If only one or two nodes try to change a balance, it won’t work.
Transactions are encrypted using public and private keys, which are attached to your cryptocurrency wallet. Your public key shows up with your transaction and acts as a receiving address for incoming cryptocurrency.
What makes it anonymous, per se, is that coins are not necessarily attached to your information.
Again, consider it as akin to paying by cash. While someone can determine where and when a cash transaction happened, it’s easy for someone not to convey any personal information during their purchase.
If someone reuses the same public key many times, a little detective work can link the transactions back to an individual. Remember, you can make as many wallets as you’d like, each with a different public and private key. Although cryptocurrency is often associated with criminal activity, you can use Bitcoin for legitimate and legal purchases, too.
How Do I Buy Bitcoin?
Purchasing with real money is a straightforward technique to obtain Bitcoin. You’ll need to find a trusted online vendor to order codes from.
While many people purchase Bitcoins to use for themselves, others see these purchases as an investment opportunity.
Bitcoin is very expensive, and the market value is largely unpredictable and changes significantly, so this is easier said than done.
Remember: Bitcoins are digital and not physical items. Do not let online sellers scam you into purchasing novelty coins that hold no value alone.
Receiving Bitcoin
To receive Bitcoin, you need a Bitcoin wallet, such as BitPay via Apple Pay. Your Bitcoin wallet app generates a unique Bitcoin wallet address for you that people can send Bitcoin to.
Once you have a Bitcoin wallet address, you can publish the address anywhere, and people can send you Bitcoin in exchange for goods and services.
What Is Bitcoin Mining?
Mining Bitcoin is the process of “making” new Bitcoins. Because they are not physical items, this involves using powerful computers and a lot of resources. Eager people set up incredibly expensive computers and have them “mine” Bitcoins.
Mining is the process that validates the transactions made on the Bitcoin blockchain. Several transactions are bundled together into a “block,” which is broadcast to the connected miners. The miners (computers) work to solve a series of complex mathematical equations, which validates the transactions contained in that block.
Once a miner matches all of the equations in the block, it is added to the blockchain. The successful miner receives a block reward, which currently stands at 6.25 BTC per block.
It’s important to note that this is much easier said than done. The computers needed are ridiculously powerful and expensive. The amount of energy that goes into keeping these computers online and mining is also very costly.
Making Bitcoins is difficult. If it was too easy, an excess of the currency could cause the value to plummet. It could be years before your mining efforts generated a single coin. It’s possible the expenses of the computer and the cost of the electricity required to mine may not even be worth it.
Is Bitcoin Legal?
Owning, purchasing, selling, and using Bitcoin is perfectly legal—depending on the country you live in. While Bitcoin is legal in most countries, some do have restrictions on owning, using, and trading cryptocurrencies, so make sure to brush up on local laws.
What you do with your Bitcoin purchases is another matter. Cryptocurrency has a reputation for illegal use. Understand that while Bitcoin is safe and secure to use, it does not excuse you from criminal activity, nor does it completely mask your identity.
If police officials link illegal Bitcoin transactions with you, you will face legal repercussions. While it is more difficult to link someone’s cryptocurrency use with a transaction than a debit card, it is still possible.
Is Bitcoin Safe to Use?
Bitcoin is incredibly safe and secure to use. Cryptocurrency, in general, is an excellent way to maintain your anonymity when shopping online. Although unpredictable, it doesn’t look like Bitcoin is going away any time soon.
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