A Beginner’s Guide to Bitcoin and Blockchain

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Find out what the blockchain is, why the price of Bitcoin has exploded, how to buy and store Bitcoin, and how the banks are maneuvering to dominate the system.  This is not a recommendation to buy Bitcoin, but a guide for what to expect should you decide to do so. [We believe that lots of money will be made and lost in the early stages of cryptocurrency. The more you know about it, the better your chances are for success. If you decide to speculate, our advice is (1) do not risk more than you can afford to lose, and (2) routinely withdraw some of your gains as you go rather than let it all accumulate.] -GEG

Bitcoin has risen by about 1700% in 2017, which averaged more than 100% per month! There are thousands of Youtube videos about cryptocurrencies and blockchain, and we are including a few to help untangle some of the mysteries of the new technology.

The first 2-minute video explains how blockchain is an accounting system used for trade between peers. It is a system, like a ledger,‚Äč that can accept new data without changing prior data. Parties who are trading with each other do not need to trust each other but only need to trust the system. Experts warn that ICO (initial coin offerings) are currently over-hyped on a large scale.

The price of Bitcoin has gone through the roof, hitting over $20,000 per coin. Bitcoin was created to have a set limit of 21 million coins; more than 16.7 million already have ‚Äčbeen created. One of the major reasons its value has exploded in recent weeks is
‚Äčincreased speculation on other cryptocurrencies which, at this time, can only be purchased with Bitcoin. The author of this article from ZeroHedge says Bitcoin will keep rising for this reason.

Here is an essential chart from CoinMarketCap.com that lists the top‚Äč 100 traded cryptocurrencies, their price, trading volume, number of coins in circulation and market capitalization.

This next video explains Bitcoin’s new ‘Lightening Network‚Äô that will allow off-chain trading between peers. This is increasingly important, because Bitcoin can process only 7 transactions per second with the current 1-megabyte block size. For comparison, Visa averages 4,000 transactions per second and can scale up to‚Äč 65,000 transactions per second. This is a serious limitation that, unless overcome, will prevent Bitcoin from ever becoming a viable cryptocurrency in everyday commerce.‚Äč

The Lightning Network hopes to solve this problem by allowing users to trade with each other outside of the blockchain system if they both have a certain amount of Bitcoin stored in a multi-signature ‚Äčonline ‚Äčaddress that acts like an escrow‚Äč safe that can be opened only ‚Äčwhen both parties agree and sign off with their private keys.
‚ÄčThere would be no limit to the amount of transactions per second‚Äč, because they occur entirely outside the blockchain. Either party can close the payment channel at any time by broadcasting the balance sheet on the blockchain network‚Äč‚Äč, which will
trigger the actual ‚Äčrelease of funds.¬† It is set for roll-out in 2018.

A YouTuber who goes by the handle ‘Decentralized Thought’ explains how Bitcoin has been infiltrated by
‚Äčbanks and other institutions that hope to profit from transaction fees. These players are taking advantage of the slow rate of Bitcoin transactions. One scheme to justify handling fees is the idea that those who pay the fee will go to the head of the line. People who pay higher fees go to the front of the line‚Äč, while others wait … and wait.‚Äč

Instead of raising the block size, as was ‚Äčintended by the original design, the Bitcoin‚Äč development team adopted the ‘Lightning Network’, which acts like an I.O.U. that promises very fast transactions with fees‚Äčcharged only when payment channels are closed and settled. The problem‚Äč, however, ‚Äčis that payment channels must be pre-loaded with money to draw against, like pre-paid phone cards, and this would have to be done with everyone from whom you purchase anything.

Not a workable solution.‚Äč

The Lightning Network solution is the creation of payment’ hubs‚Äô consisting of many buyers and sellers clustered around institutions that will clear all your transactions through their own accounts. That way, you can work from only one pre-payment account, much like a checking account with a bank.

‚ÄčHubs are expected to occur naturally, but they will no longer be private. All transaction data will be accessible, all transactions will still carry a fee, and the hubs will be subject to the same government regulations now applied to banks. In fact, it is expected that the banks of today merely will morph into the transaction hubs of tomorrow.

B‚Äčanks are not fighting cryptocurrency because they intend to be the cryptocurrency administrators of the future.

According to ‚ÄėDecentralized Thought‚Äô, the 1-megabyte blocks that are restricting Bitcoin are ‚Äčbeing maintained ‚Äčpurposely by developers in order to create transaction fees and long wait times that create pressure for a solution the banking industry will like.

The block size restriction was placed as a temporary safeguard by Bitcoin’s creator, Satoshi Nakamoto. As soon as the blocks were full, the number was supposed to be raised again. Satoshi Nakamoto, the name used by the unidentified creator/s of Bitcoin, left the project in 2010, but left instructions on how to raise the block size‚Äč,‚Äč and Gavin Andresen was put in charge of the project.¬† Once Satoshi left, however, ‚Äčthe banks entered the system, and a company called ‘Blockstream’ emerged. A large part of the Bitcoin development team was hired by this company and they soon agreed not to increase the block size, ‚Äčin spite of that being the original design.

He says that Blockstream took control of the development of Bitcoin through censorship, organized attacks‚Äč,‚Äč and manipulation. Those developers who opposed them were forced out of the company. The blockchain will not be ‚Äčexpanded because Blockstream has said ‚Äčit plans‚Äč to sell side chains to businesses to overcome the processing delay‚Äč.

The system that was designed to give freedom, stability and power to the people of the world has been ‚Äčhijacked.

This last video features Cody Zazulak who speculates in cryptocurrencies, explaining how to buy Bitcoin and store it. He uses the trading chart by GDAX and the CoinMarketCap.com list to check prices and movement.

He purchases Bitcoin from Coinbase and then removes it from the exchange because exchanges are a massive hacking target. He stores small amounts of money in ‘Blockchain’, an online wallet for small amounts. Blockchain wallets only store Bitcoin and Etherium.

For larger amounts, Cody uses Exodus, a desktop wallet that he says is pretty safe. Your currency can be easily converted from Bitcoin into Etherium, Litecoin and more.

Finally, he describes offline hardware wallets that are safest storage option that can be unplugged from your computer- the top brands are Trezor, Keep Key and Ledger. Good luck buying this gadget as the companies may be sold out of the product.

In the last part of the Cody’s presentation, he explains how to make interest from loaning your money to BitConnect, a cryptocurrency company.¬† Caution: Financial experts at Motley Fool say that BitConnect is similar to a pyramid scheme.

Hopefully, this ‚Äčinformation¬†will help people to avoid the pitfalls of using this new technology.

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Bill Goode
Bill Goode
4 years ago

Blockchains are slow and lack anonymity. Much better to use a crypto currency that does not use blockchains. Cloudcoin is such a currency that does not use blockchain technology.

Not using blockchains allows Cloudcoins to remain as anonymous as cash and faster than Visa.