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What is Bitcoin?

BTC, short for Bitcoin, is a decentralized virtual currency that was invented by Satoshi Nakamoto. The anonymous inventor or group published a white paper in 2008 as a proof of concept, then released it as open-source prototype software in 2009. Bitcoin uses peer-to-peer technology to operate without a central authority or banking institution; managing transactions and issuing new BTC, also known as mining, is carried out collectively by the network. Bitcoin has many unique characteristics compared to traditional credit cards such as international payments, low transaction fees, irreversible transactions for merchants, and security through encryption.

How BITCOIN created?

Bitcoins are only created as a reward for proof of work involving cryptographic hashes called mining. Users offer their computing power to verify and record payments in to a public ledger, known as the blockchain. Bitcoin that is already mined is in circulation and can be exchanged for goods and services. There will only ever be 21 million bitcoins in existence, with the final fractions of bitcoin being redeemed by miners in the year 2140. If this great bitcoin experiment succeeds and people still use it after that point, BTC miners will be supported exclusively by numerous small transaction fees – which are required to let your transactions be included swiftly into the blockchain. However, these coins can be divisible into smaller units, unlike regular currencies bitcoins are divisible by up to 10^8, which means that over time people will have the ability to use tiny little fractions of bitcoin to buy things. The smallest divisible unit of a bitcoin is aptly named a ‘Satoshi’.

What makes it different from normal currencies?

Bitcoin can be used to buy things electronically. In that sense, it’s like conventional dollars, euros, or yen, which are also traded digitally.

However, bitcoin’s most important characteristic, and the thing that makes it different to conventional money, is that it is decentralized. No single institution controls the bitcoin network. This puts some people at ease, because it means that a large bank can’t control their money.

What is bitcoin based on?

Conventional currency has been based on gold or silver. Theoretically, you knew that if you handed over a dollar at the bank, you could get some gold back (although this didn’t actually work in practice). But bitcoin isn’t based on gold; it’s based on mathematics.

Around the world, people are using software programs that follow a mathematical formula to produce bitcoins. The mathematical formula is freely available, so that anyone can check it.

The software is also open source, meaning that anyone can look at it to make sure that it does what it is supposed to.

What are its characteristics?

Bitcoin has several important features that set it apart from government-backed currencies.

1. It's decentralized

The bitcoin network isn’t controlled by one central authority. Every machine that mines bitcoin and processes transactions makes up a part of the network, and the machines work together. That means that, in theory, one central authority can’t tinker with monetary policy and cause a meltdown – or simply decide to take people’s bitcoins away from them, as the Central European Bank decided to do in Cyprus in early 2013. And if some part of the network goes offline for some reason, the money keeps on flowing.

2. It's easy to set up

Conventional banks make you jump through hoops simply to open a bank account. Setting up merchant accounts for payment is another Kafkaesque task, beset by bureaucracy. However, you can set up a bitcoin address in seconds, no questions asked, and with no fees payable.

3. It's anonymous

Well, kind of. Users can hold multiple bitcoin addresses, and they aren’t linked to names, addresses, or other personally identifying information. However…

4. It's completely transparent

…bitcoin stores details of every single transaction that ever happened in the network in a huge version of a general ledger, called the blockchain. The blockchain tells all.

If you have a publicly used bitcoin address, anyone can tell how many bitcoins are stored at that address. They just don’t know that it’s yours.

There are measures that people can take to make their activities more opaque on the bitcoin network, though, such as not using the same bitcoin addresses consistently, and not transferring lots of bitcoin to a single address.

5. Transaction fees are miniscule

Your bank may charge you a £10 fee for international transfers. Bitcoin doesn’t.

6. It’s fast

You can send money anywhere and it will arrive minutes later, as soon as the bitcoin network processes the payment.

7. It’s non-repudiable

When your bitcoins are sent, there’s no getting them back, unless the recipient returns them to you. They’re gone forever.

So, bitcoin has a lot going for it, in theory. But how does it work, in practice? Read more to find out how bitcoins are mined, what happens when a bitcoin transaction occurs, and how the network keeps track of everything.

What is Ethereum?

Ethereum is a smart-contract platform, utilizing blockchain technology. Ethereum allows the execution of computer code for smart contracts across all of its nodes and recording the execution results in the blockchain. The idea is that a digital contract can be executed and is tamper-proof due to the consensus rules around the blockchain, provided at least 51% of the nodes are honest, tampering with the result cannot happen. It allows sending and receiving of funds in a functionally similar way to Bitcoin using public/private key pairs.

This has many potential uses, from basic smart contracts, to the area of being able to digitally vote in political elections, due to the tamper proof nature of the blockchain when secured to a high degree on separate nodes.

Ethereum has its own Turing-complete programming language for smart contracts.

Ethereum has gone through many developments over the course of its life since its introduction. A major development is the ‘forking’ of Ethereum into two currencies.

The Fork

Ethereum started out as a single token following the same consensus rules. There was a smart contract called the DAO which received large amounts of investment, and around 12% of all ether at the time was tied in this contract.

A hacker discovered a flaw in this contracts code to allow draining of the ether into a child contract, by which they would cash out after some time had elapsed.

Due to the substantial investment in the DAO running into the multi millions, all of which stood to be lost to a hacker, the community was divided on the solution. Some wanted to leave the network running as it was, their nodes would become the Ethereum Classic coin. The network had not malfunctioned and in their opinion, the blockchain should be left alone and not edited or altered in any way.

A note that most hashing power is run by very few nodes, as many people mine in mining pools, so a large proportion of miner’s mine on a single node.

Most full mining nodes chose the second option, where there was a divide in opinion. To update their nodes to ‘hard fork’ the block chain, that is change the consensus rules. These new consensus rules would prevent the hacker taking money out and move all the stolen funds to a ‘holding wallet’ to return them to the investors. This required most of the network nodes to agree to do this to allow the changing of events that had happened on the chain. This approach didn’t modify the blockchain much but made adjustments to the code of nodes to bar access to the hacker of the funds and to move them to the holding wallet.

Nodes forked at over 80% consensus, although the community and many investors are divided. Many feel it was the right thing, but others feel that modifying the blockchain in such a way so as to change a record of what happened damages the credibility of ether.

Ethereum Classic

Ethereum Classic maintains the original Ethereum blockchain and consensus rules. This was the unmodified blockchain, it allowed the hacker to withdraw their funds, but kept the immutable system which had no flaws running perfectly as it was. Ethereum Classic stands as of 02-09-2016 at $1.44 USD. It made up 10% of network hashing power at the time of the fork, but this increased afterwards, especially after a major Ether pool owner threatened to use his pool’s mining power to 51% attack the coin, the attack was foiled by the increase in honest hashing power.

This fork has received criticism for allowing the hacker to profit from his hack, but the divide on being able to modify a blockchain or not has created a rift in opinion between the two communities.

Ethereum

Ethereum is the forked Ethereum which modified the blockchain and consensus rules after the bug in the DAO contract resulted in the stolen funds. This was met with joy by some, but criticism by others due to the modifying the immutable record of what had happened and trying to reverse it, when the problem was in the poorly coded smart contract rather than Ethereum itself. The change penalized the attacker by preventing them withdrawing funds on this version.

The fork achieved at the time 90% hashing power consensus from major mining pools, although Ethereum classic increased in its power. The price of Ethereum is $11.30 at the time of writing on 02-09-2016.

Which is better?

This is hard question due to the nature that surrounds the reasons for the fork. If you believe in an immutable blockchain not to be modified under any circumstances when nothing was wrong with the blockchain, currency or protocol, Ethereum Classic is suited to you in terms of ethical considerations. In monetary and investment situations Ethereum Classic is priced lower than Ethereumand its current market should be considered before investing. It works to execute smart contracts as the system was intended to do. This followed the rule of the blockchain being immutable no matter what happens, as there was no fault with the blockchain, or the Ethereum protocol.

Ethereum is good if you feel that the fork was the right thing to do to deprive the hacker of his funds, at the expense of modifying the blockchain based on consensus decision. Its current investment price stands higher than Ethereum Classic. It functions as intended for smart contracts, and potentially with a higher security margin due to more hashing power, but the community is more likely to potentially try forking again in the future should a similar situation arise, so is the blockchain immutable in this case? (if it grew with plenty of separate nodes with large hash power, it would be much harder to manipulate, at the time of the fork over 90% of the mining power was from major mining pools so only a few nodes, even though the number of miners was much higher). The fork did however return lost money to investors, so this aspect should be considered in your decisions. Would they bail a large contract out again? Or is it just a one-off? Not enough information exists on this issue, but this should also be considered.

How to buy ethereum

Purchasing Ethereum can be done easily at an Ethereum exchange. Once Ether has been purchased for fiat currency such as USD or EUR, the funds can be stored on the exchange itself or in your own secure wallet. For small purchases of Ethereum, users may wish to store their crypto on the exchange for ease-of-use. For larger purchases it is recommended that the funds are moved into a secure wallet. There is some additional information regarding wallet security further below.
Purchasing Ethereum from an exchange
This section will expand over time and many other exchanges are also available. The Ethereum exchanges listed below all have a strong reputation in this cryptocurrency purchasing and have operated successfully for many years.
The process of purchasing Ethereum through an exchange is simple. Register an account with an exchange below, deposit US dollars, Euros etc and purchase Ether through the platform