What are bitcoins - how do bitcoins work

What is a Bitcoin – The Easiest Guide for Beginners

What is a Bitcoin? 

So what is a Bitcoin exactly? Bitcoin is the world’s first cryptocurrency ever created. Bitcoin is Peer-to-peer electronic cash system like Paypal meaning you can send and receive Bitcoin, or BTC instantly to anyone from any country.  It runs on a distributed ledger system called the Blockchain and the transactions are powered and verified by users all around the world. Bitcoin has been around since 2009 and was created by someone under the pseudonym of Satoshi Nakamoto. 

Bitcoin for dummies

Bitcoin works like the dollar

  • Bitcoin is the world’s first decentralized digital currency and works just like Paypal, Internet Banking or money on your bank card
  • Decentralized means that it is not run by any government, company or individual
  • You can send Bitcoins to any one around the world
  • It is both a currency and payment system.

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How to store your Bitcoin

First you need a wallet to store your BTC.

You can get a dedicated Bitcoin Wallet or you can get a multicurrency wallet which allows you to store other cryptocurrencies such as Litecoin or Ethereum.

I would recommend getting a multicurrency wallet instead of one wallet for each currency. 

So if you do not already own a cryptocurrency  wallet, head over to Exodus.io, download their their wallet.

It takes less than 5 minutes to set up.

How to send bitcoin to another person

  1. Ask the other person to give you their BTC wallet address
  2.  Enter the amount and click send

How to receive BTC

Give the other person your BTC Address (also known as public key)

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How to get started with Bitcoin

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 What can I buy with Bitcoin?

There are a few marketplaces similar to Amazon where you can buy or sell products with Bitcoin:

Here are 5 of the major companies who are accepting Bitcoin as payment

  1. Paypal
  2. Subway
  3. Shopify
  4. Microsoft
  5. Etsy

2017 has also seen a surge of Bitcoin Merchant Directories and Listings like CoinMap.Org.

Why aren’t more businesses accepting Bitcoin as payment

  1. Tax Filing –Due to the lack of regulation, many businesses are having a hard time to account for cryptocurrencies
  2. Users prefer to hold (or HODL) onto their Bitcoins instead of spending them

Pros of using Bitcoin over traditional banking systems:

  1. The recipient immediately receives the bitcoin even if they are in another country
  2. It is a peer-to-peer payment system, meaning that users send money directly to each other without a bank acting as an intermediate.
  3. Lower transaction fees
  4. Payments are irreversible
  5. Transactions are anonymous (No need to provide names, emails, account numbers , ID numbers, phone number etc)
  6. There is no price manipulation by the government 
  7. Transactions can not be duplicated or changed

Cons of using Bitcoin:

  1. Many governments have banned Bitcoin
  2. In countries where Bitcoin is not regulated, banks and financial institution avoid doing business with crypto-related business
  3. Cryptocurrency exchanges are the favorite targets of hackers due to the anonymity

Where can I buy Bitcoin?

Here are 3 ways to get Bitcoin

1. With a creditcard or debit

2.Cryptocurrency exchanges:

3. Local Listings

How are Bitcoins created?

The process of creating new Bitcoins is called mining.

In simple terms, mining is the process of verifying Bitcoin transfers in exchange for Bitcoin as rewards.

Mining is the process of validating transactions on the bitcoin network by answering a series of math problems The users and computers powering the network are know as the miners.

How Bitcoin mining work?

Bitcoin is also a payment system as well as a currency.

The transactions are powered on the bitcoin payment network.

First a person sends BTC to another persons, the transaction then gets verified by a series of complex math questions by other users on the network.

Finally, the system rewards the users who have helped solve the problems in form of BTC. 

Related article: How does cryptocurrency mining work?

Is Bitcoin Mining Profitable?

Here are some facts to consider:

  • Limited Supply: Only 21 million bitcoins can ever be created
  • Scarcity: Every 4 years, the amount of bitcoin which can be mined per year is halved
  • Randomness: The network randomly rewards miners every 10 minutes
  • Efficiency: Bitcoin mining can be done through CPU, GPU or Asics Miner

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What is bitcoin mining and how does it work

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What is the Value of Bitcoin?

BTC Price History

Bitcoin founder Satoshi Nakamoto mined the first Bitcoin in 2009.

He also priced the Bitoin mining energy required to created a bitcoin which was around 10cents at that time.

The price has gradually increased and reached an all time high of $20,000 in Korea and Japan in late 2017.

what are bitcoins - bitcoin price history

Bitcoin History

Who created bitcoin ?

Satoshi Nakamoto , or someone under than pseudonym, started working on the code 2007 and mined the first block in January 2009. He (or they) also founded Bitcointalk forum as well as the Bitcoin.org domain.

Though,  it is still unclear if Satoshi Nakamoto is an actual person, team or pseudonym, Craig Wright claimed that he was the real Bitcoin founder.

However, he has never been able to provide concrete proof.

Why it’s not important

The creator of Bitcoin designed the system in a way that it would work entirely on its own.

  • Demand and supply of bitcoins determine its price
  • The code is open source, so the users can work on the code to improve it.

As a result, the Bitcoin Network does not need one person to exist nor grow. 

Who is Bitcoin For?

The First users of Bitcoin

  • The first Bitcoin users were the computer nerds who had extra computers who liked the idea of using their spare computers to mine these cryptocoins knowing they may or may not make any profit.
  • The next users that followed were the stock traders who saw the money making potential.

The future users of Bitcoin

Users sending large sums of money and want to save money on transaction fees

  • Peer-to-Peer transactions eliminate the bank and intermediaries which in turn reduce transaction fees consequently hidden fees.

Those who like the idea of a limited supply of Bitcoin

  • Many people don’t like the idea of central banks ‘printing money’ whenever they feel like it and consequently worry a lot about hyper inflation.

Political Reasons

  • There are a lot of people who don’t trust fiat currency because of the government making the decisions. So, they like the idea of the market determining the price on demand and supply.

Those who wish to stay anonymous

  • Charities and donations (Bitcoins is what allowed wikileaks to survive when Paypal cut off its services)
  • Gambling websites
  • Drugs and weapons

 Final Thoughts

Digital currency is nothing new and we are gradually transitioning to a peer-to-peer system

You won’t be able to truly understand the impact decentralization and the implications unless you own your first bitcoins.

The system works exactly like exchanging any foreign currency meaning you can buy $100 worth of Euros or Bitcoin- Makes sense? 😉

Let me know if this info was helpful for you 😉
Cheers,
Marie
Founder of Satoshi Library

Owner of SatoshiLibrary

PS
Thank you for visiting!
And also, if you feel comfortable enough to give me your email, just enter it below and I just might send you an email one of these days 😉

Disclaimer: I am not a financial advisor and the information provided does not replace professional advice. Cryptocurrency prices are highly volatile as well as evolving very quickly. This post may contain inaccuracies, so please do your own research before placing money in any website. Thanks!

Marie is a crypto-enthusiast who was born in the Seychelles and is currently living in Mauritius. She has 13 years experience in the BPO and the teaching industry. She specializes in keeping things easy and simple.