The Rise and Fall of Bitcoin and Cryptocurrencies. This is what you need to know about it.
In December 2017, the hottest topic that generated so much attention was the sharp rise and fall of the virtual currency. It was a shocking turn of events particularly when Bitcoin, the world’s most popular digital currency, lost nearly half of its value. But despite the market correction, the inflows of investment are foreseen to further increase in the future.
Ever since the bitcoin network came into existence in January 2009, bitcoin became the symbol of cryptocurrency. The virtual currency originated in Japan yet at present, only a minority group is in possession of bitcoin. However, while only a small fraction of the expected majority holds bitcoin, the number is increasing year after year. In truth, the interest on bitcoin is rapidly rising.
If you’re starting to have an interest or want to be educated on virtual currency such as bitcoin, then read on. This article will explain the mechanics of starting virtual currency and how you can actually own it.
A review of the basic knowledge of Bitcoin
Bitcoin is regarded as the “face of virtual currency” because it has the largest amount of circulation among all cryptocurrencies. A virtual currency, including bitcoin, is an electronic cash system utilized as a medium of exchange. The issuance of the currency and sales transactions are performed via a distributed network called peer-to-peer (P2P). There are no centralized management organizations that oversee the market. Hence, it is not supervised by a government agency nor regulated by a central bank.
The common description, as well as the denomination of the currency unit, is as follows: “BTC (bitcoin)”, “mBTC (millibin coin)”, and “μ BTC (micro/bitcoin).” A unit of bitcoin is referred to as “satoshi” which was taken after the name of its founder Satoshi Nakamoto.
1 mBTC = 0.001 BTC (1 / 1000th of 1 BTC)
1 μBTC = 0.000001 BTC (one millionth of 1 BTC)
1 sat i* = 0.0000 0001 BTC (one hundred millionth of 1 BTC)
*satoshi is the smallest unit of bitcoin
Rise in value
As soon as operations began in 2009, the value of bitcoin rose year-on-year. The world witnessed the first surge in 2011 when the value of 1bitcoin temporarily surged from $0.3 to $32 dollars. That value has since climbed to tens of thousand dollars at one point in December 2017.
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Creating a virtual currency account “Wallet”
The first thing you need to do when starting a virtual currency is to open an account. It’s the equivalent of opening a bank account. For this type of currency, the storage location is called a “Wallet”. Instead of a bank account number, it assigns a “bitcoin address” which is made up of 27 to 34 alpha-numeric characters.
Creating your wallet can be done in three ways. You can either use your personal computer, smartphone or online via the cloud. When using a personal computer or smartphone, you place your account in the “local environment.” You can disconnect from the internet anytime. If you created a wallet online, you’re automatically, if not always, connected to the internet.
Disadvantages in each wallet environment
- Personal computer or smartphone
The biggest disadvantage when making a wallet on a personal computer or smartphone is the risk of losing or breaking your computer or smartphone. Your account is not retrievable and can never be used again. There’s also the risk of viruses infecting your personal computer.
- On-line wallet
A wallet that’s created wallet online will be installed in a site managed by a vendor who provides virtual currency operation and management service. The main difference compared to wallets created using personal computers or smart phones is that the vendor has absolute administrative authority over the account. The risk is when the manager encounters operation problems that could result in damage not attributed to the wallet holder.
Therefore, it is very important to choose a reliable administrator when creating a wallet online. Further, when a vendor-managed website goes down or closes for some reason, there is a possibility that all virtual currencies managed by the vendor will be lost. The recurrent concern with online wallet services is that the vendor sites are potential targets of hackers.
To store and manage multiple virtual currencies
After successfully creating your account “Wallet” to store your virtual currency via the three methods, the next step would be familiarization with the actual services provided. The key points to consider are the “types of virtual currencies supported” and the “security countermeasures.”
Support for various types of virtual currencies
There are various types of virtual currencies apart from bitcoins although it generally represents virtual currencies. It is an advantage and more convenient if you can manage and handle multiple virtual currencies in your Wallet.
Next to bitcoin, the prominent virtual currencies are Ethereum (Ripple), Litecoin (Light Coin), IOTA (Dot), and Dash (Dash). Currently, there are nearly 1,500 kinds of digital currencies in the world.
As an example, one of the online wallet services called “bitFlyer” handles seven virtual currencies namely: Bitcoin, Bitcoin Cash, Ethereum, Ethereum Classic, Litecoin, Monacoin, LISK. BitFlyer was the first online wallet in Japan and caters to Japanese clients. Its popularity arose from its ease of use.
BitFlyer is also known for strengthening countermeasures against security threats and breaches, in addition to securing a highly secure communication environment by introducing the latest cryptographic system and encryption technology.
Their 2-step authentication and login history management is intended to secure and protect users. By restricting IP addresses that can be connected to the system, it prevents unauthorized use by third parties.
Online wallets compatible with 13 types of digital currency
Awareness in the digital currency in Japan rose rapidly after the establishment of Coincheck.
Coincheck is the largest bit coin exchange in Japan. It consists of 13 kinds of virtual currencies such as bit coins and other digital currency. User feedback had been mostly positive, as the exchange built its reputation on its operability, among others.
In addition to adopting the 2-step authentication with SMS and an application provided by Google Inc., the salient security feature was that the virtual currency owned by users could be managed in an offline environment, separated from the internet.
However, despite its best efforts, Coincheck was hacked in late January in one of the largest cryptocurrency heists in history. Hackers made off with nearly US$500 million worth of NEM coins. Since then, Coincheck paid the 260,000 affected investors almost US$435million, and resumed limited trading.
Zaif is another well known digital currency exchange. It does not only manage Bitcoin, it also manages Monacoin. Monacoin originated in Japan back in 2013. Zaif’s unique offering is that the transaction fee for buying and selling virtual currencies is -0.01%.
In late February, Zaif encountered a system glitch that allowed 7 customers buy bitcoins for free, though none of the customers were allowed to resell the bitcoins for profit.
These series of security breaches and glitches, highlights the importance of knowing who investors are trading their cryptocurrencies with. Prior to buying and selling virtual currency, it is important to conduct a preliminarily comparison by reviewing the different characteristics of each online wallet. It is also a must to be updated on the latest information. Regular or periodic visits to the websites of each service will aid you in making a well-informed investment decision.
The local wallet
The next important method that needs to be described in detail is called the “local wallet.” This wallet manages virtual currency in the local environment of personal computers and smartphones.
There are two kinds of local wallets: complete type” and “simplified type.” Both are installed with dedicated software and applications that can be used on a personal computer or a smartphone.
The complete type
Once you start the virtual currency, the complete type manages the wallet immediately after downloading all the transaction data. However, it utilizes space so you would need a larger hard disk (HD) capacity in your PC. Download time takes longer as well.
Conversely, the simplified type, is used without downloading all past transactions. At first glance it seems easier to use, but sometimes it can’t be done without a complete model.
Mining in virtual currency
The term used to acquire a virtual currency is mining or “excavation.” In simple terms, mining refers to work performed in securing and managing the virtual currency using the computing power of your computer.
In recent years, the activities of several venture companies focused on mining, have continued to accelerate. Joining the fray are other major and mid-sized enterprises from various countries around the world.
Some companies have even started “mining factories” and “mining bases” against the backdrop of abundant financial and technical capabilities. Their main focus is on mining the virtual currency continuously by keeping the mining computers running indefinitely. On the other hand, these companies would incur soaring electric bills since they need to keep their computers running, 24/7. The topic of mining will be discussed in more detail in the latter part of the article.
Comparing wallets by ease of use and security level
The “Bitcoin Core” is the first full-type bitcoin wallet. Many found it to be fast, reliable, and rich in features. Several names followed suit but the Bitcoin Core remains the most trusted bitcoin wallet because it is the original. People in Japan find it very user-friendly because a user can use one wallet simultaneously with multiple personal computers.
For beginners, using the Bitcoin core as the first wallet would be advantageous. The transaction history is comprehensive as all fully validated transactions are stored locally instead of other party servers.
Next to Bitcoin Core, a powerful cryptocoin storage solution is the “mSIGNA”, which is also known for complete software.It boasts of a security feature far superior than that of the bitcoin core. in terms of security. For Bitcoin Core, the virtual currency is backed up digitally, whereas mSIGNA even offers paper backup.
The method of storing virtual currency offline is called “cold storage”. Data is safe and highly secure using paper as back up in contrast to the higher exposure to hacking risk via digital means. The drawbacks in the paper backup method are paper or ink deterioration and loss or damage due to fire, among others.
Comparing the simplified local wallet services
For simplified local wallets, “Copay” and “airBitz” are well known in Japan. In Copay, there is a feature where multiple users can view and manage the same wallet. Also, Copay is preferred because during actual remittance of the virtual currency, the consensus of multiple users is required. If you want to manage your wallet with family and friends, you can choose Copay as it is listed as one of the options.
It is also necessary to choose a local wallet to match the type of virtual currency you own. For example, MyEtherWallet is suitable for storage of Ether, Ethereum Classic, and any standard Ethereum token. In terms of the volume distribution of virtual currency, it is the second largest in the world after the bitcoin.
Thus, when choosing a local wallet software to choose, it is best to compare and evaluate the features that will serve your specific purpose and means.
5 ways to obtain bitcoins
After explaining the preparation to start a bitcoin, we finally come to the “practice edition” or the actual ways to acquire and trade bitcoins. “Mining,” which has already appeared in several articles can be counted as one of the acquisition methods.
There are five main methods of obtaining bitcoins. Specifically, the five types of acquisitions are: 1) acquiring by trading (purchasing) at virtual currency exchanges; 2) acquiring from third parties, 3) obtaining at a sales office; 4) obtaining as compensation through mining; and 5) obtaining them for completing tasks and watching advertisements.
- Obtained by individuals through mining
Acquiring bitcoin through mining can be very difficult for individuals. The reason is that mining is basically competing with others in a field on a “first come first serve” basis.
Mining refers to connecting the transaction record of the virtual currency to “block chains” or distributed ledgers. Since there is only one person who can receive the mining fee for each transaction, it is necessary to complete the work ahead of the others.
In short, individuals have the disadvantage because of the presence of large companies with enormous capital and technical capabilities participating in the virtual currency market.
On top of higher electricity bills you will have to pay to continue mining, you might need to update your personal computer. That would be your added expense. Keep in mind that the circumstances surrounding mining have changed considerably since the release of bitcoins.
Meanwhile, there is a mechanism called “cloud mining“. By using this mechanism, you can receive mining rewards even if you do not have your own facilities. A user pays a fixed amount to a company engaged in mining business and a company is asked to mine on behalf of the principal client. The amount of remuneration received by the user is the amount obtained by deducting the electricity bill, labor cost, facility cost, and maintenance cost.
- Buy and sell virtual currency on the online exchange
The most common and standard way to obtain bitcoins is through the virtual currency exchanges. As mentioned in the earlier part of this article, BitFlyer, CoinCheck, Zaif are some well known examples.
The virtual currency exchange operates just like the stock market. Bitcoin transactions are conducted at the exchanges. It is where you can confirm the “price per 1-bit coin (BTC)” and the corresponding amount sold or purchased. In effect, you can buy and sell bitcoins at the exchange.
Whether you are selling or buying, you need the original virtual currency. The first step is to create your own wallet at the exchange. You then deposit the actual currency equivalent, Japanese yen, Singapore dollar or US dollar. Once the process is completed, you can begin trading.
There are differences in exchanges. Each exchange has its own characteristics that differ from the others. Hence, examining each platform before selecting which one to use is mandatory. It is best to study and learn about latest information on the leverage ratio of margin trading, futures trading, and various fees. That would work to your advantage.
- Acquired as consideration for product sales and service provision
Another way to obtain virtual currency is from a third party. This method involves the acceptance of the virtual currency as compensation or payment for product sales and service provision. It is basically the same as the cash system.
Shops that accept bitcoin payments and other general sites found in the Internet are growing by the numbers in Japan. Among the comprehensive sites are DMM.com, which deals with DVD rental and video distribution as well as online mail order sites and Japanese product sales sites for overseas.
Home appliance stores, foods, bars and restaurants, interior, beauty salons, cars and motorcycles dealers, and other service industries are also accepting bitcoins as mode of payment. Even using bitcoins for rental payments on properties is gradually spreading.
The typical practice of shops doing business in Japan is to convert the bitcoin payments for product sales or service provision into Japanese yen and use it. Business owners have the option save it for possession but in most cases they are converted to actual currency for use as operating expenses or to defray payables.
If the popularity of bitcoins continues in the future, the time will come when nearly all sales and purchases are done using bitcoins.
- Buying bitcoin from a “Sales Office”
You can also purchase bitcoin at the “sales office”. There are already many vendors offering bitcoin wallet services and are engaged in sales of bitcoins. Unlike in exchanges, a sales office has a uniform rate per bitcoin that you can purchase at a desired amount.
- Is there any way to get Bitcoin for free?
After going through the four various ways to obtain bitcoin, the last method to acquire bitcoins is through certain sites on the Internet.
Some sites will reward you with bitcoin for watching advertisements, completing simple tasks and for answering forum questions. It isn’t the most efficient method of obtaining bitcoins, but it is a start.
A service provided by BitFlyer that allows users to save bitcoins is called “get bit coins.” The service is ideal for those whose objective is to save bitcoins. You need to register an account with bit flyer as a pre-requisite. Answer questionnaires and participate in their free campaigns in order to begin saving up on bitcoins.
2017 – The year virtual currency took flight
Almost all of the valuable information on bitcoin has been covered in this article – from the preparation stage to the five methods of actually obtaining bitcoin. Lastly, let me share the latest news on bitcoins.
The price of bit coin sharply increased to the highest ever record of $19,800 in December 2017. After a week, it dropped sharply to $1,400 at one point. Although the price of bitcoins has been on the rise year by year since its publication in 2009, it has become news that validates the fact that volatility is present in this asset class and the broader cryptocurrency market. That is the reason for the sharp price fluctuations.
With the circumstances surrounding the bitcoin performance, the year 2017 can be called the “virtual currency’s first year.” This was the year Japan became the first country to regulate cryptocurrency.
The revised fund settlement law or so-called “virtual currency law” that was enacted in April in Japan aimed to implement a system for registering virtual currency exchanges. The law took effect in December and exchanges were required to register with the Financial Services Agency (FSA) in Japan. So far, 16 companies were registered, while another 16 continued to operate while its applications were being processed. More exchanges in Japan are expected to register in 2018.
Coincheck was among the 16 that had yet to be registered with FSA. Following the Coincheck heist, the FSA has slapped the exchange on the wrist with demands to step up both its security systems and its customer protection. FSA also halted the operations of two cryptocurrency exchanges Bitstation and FSHO, when their anti-money laundering policies were found lacking. News reports also added that FSA would continue to conduct onsite inspections at the remaining unlicenced exchanges, while the regulated exchanges were in talks to form a self-regulating organization registered with the FSA.
The world will continue to watch as Japan’s cryptocurrency industry and their watchdog make their moves.
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