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Cryptocurrency for Beginners

What is Bitcoin ? The Ultimate Guide For Dummies

6 min read
Bitcoin is like any digital currency, it is 100% online , however, you can send any amount of Bitcoin to anyone around the world within minutes with only a couple of dollars worth of transaction fees.What makes Bitcoin disruptive is that you can send any amount of Bitcoin (potentially millions of dollars worth of Bitcoin) to anyone around the world within minutes for only a couple of dollars.

What is Bitcoin ? In plain English

In simple terms, Bitcoin is  like real money except it exists only online.

You can send any amount of Bitcoin to anyone around the world and they will receive it within minutes.

What’s so special about  Bitcoin compared to regular money, is that it’s not a government which creates and controls the prices.

Instead people all around the world participate in creating and verifying transactions.

 

In this guide, we will not only explain what is Bitcoin, where did it come from ,

But most importantly, what all the fuss is about.

Beside the price…

 

 

What is Bitcoin ? (The short definition)

Bitcoin is a cryptocurrency which is a type of digital currency with all anonymity of physical cash.

It runs on decentralized algorithmic technology called Blockchain which runs like vending machines.

When you use Bitcoin, you are leaving the government banking system and tracking just like with physical bills.

 

So to enter the blockchain world, you need to buy Bitcoin on cryptocurrency exchange.

Then you can send the Bitcoin around the world within minutes, even in the north pole

And even to someone you don’t know.

 

Bitcoin is the most popular on top of being the first successful cryptocurrency.

It is also the biggest player on the market, with more than 50% if the total cryptomarket cap.

 

Bitcoin was very popular among hackers and criminals in because it allowed them to safely send large amount of money safely around the world within minutes.

 

Bitcoin definition
Definition

 

How Bitcoin is different from other cryptocurrencies

The Bitcoin algorithm (blockchain) can be compared to very first version of Windows ( Window1.0x)

It was ahead of its time. Windows has since released plenty of other version since on November 20, 1985.

Then Apple and Linux released theirs.

 

Bitcoin can be compared to Window1.0x with cryptocurrencies (altcoins) like Litecoin, Dogecoin and Bitcoin Gold (Fork) .

Other cryptos like Ethereum and USDT can be compared to Apple and Linux, with completely different blockchains.

 

Ironically, whether what makes Bitcoin different good or bad, it quite a heavy debate.

 

Bitcoin drives the prices of the prices of the crypto market.

And other cryptocurrencies react to its prices.

Being the first crypto gives Bitcoin first mover advantage.
Most cryptocurrencies have Bitcoin pairs , which result in their prices rising when Bitcoin rises.
They also crash when BTC drops.

 

Anonymous founder

Unlike most cryptocurrencies and blockchain projects, no one really knows who Bitcoin’s creator is.

Therefore, its growth was organic with the help of a strong community.

Whereas other crypto companies (and tech companies) have a founder who acts like mascot or face of the company.

For example

Roger Ver is the face of Bitcoin Cash.

He created Bitcoin Cash because he thinks Bitcoin is not easy to use because it has too many zeros.

Charlie lee is the face of Litecoin.

He created Litecoin because Bitcoin transactions at the time were too slow on top of being too volatile.

 

Charlie famously dumped his Bitcoin at its peak in 2017.

 

Can Bitcoin go to zero?

All the other cryptocurrencies are called shitcoins or scams because they usually crash 97% after a brief pump and dump.

A majority of the Bitcoins mined in the early days were lost.

And this prevents Bitcoin’s prices crashing to zero unlike other cryptocurrencies.

The holders act like the price cushion.

 

Inflationary like Gold

Bitcoin gains value over time unlike traditional money (fiat)

One of the biggest problems with saving your money in banks is that money loses value over time.

In other words, traditional government issued money loses value as the government prints more money (a.k.a inflation)

On the otherhand, BTC solves the problem of inflation because of its limited supply.

Only 21 million Bitcoins can ever be created unlike traditional money (fiat).

 

BTC Price History

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

The first ever Bitcoin created in 2009, was priced on the mining power to created on BTC which was around 10cents.

 

An alternative investment hedge to gold.

Bitcoin is becoming a investment hedge like gold.

People are always seeking out other ways to prevent their hard earn savings from losing value through investments.

For millenias, gold and precious stones have been used as currencies for trading (buying and selling goods), but also as savings.

 

For example, women would buy jewellery and pass it down to daughters because they knew that the jewellery would keep or increase in value with time. They also knew that the same chain could potentially cost a lot more in 20 years.

Investors call Bitcoin “Digital Gold” due to its limited supply just like gold.

 

Who owns Bitcoin?

Bitcoin is not owned by any one person , company or government.

It belongs to the buyers, selllers and miners all around the work.

 

Who invented bitcoin?

Bitcoin was invented by a cryptograhy advocate (a.k.a Cypherpunk) under the pseudonym Satoshi Nakamoto.

The bitcoin whitepaper was published under the name Satoshi Nakamoto. Satoshi Nakamoto also founded Bitcointalk forum but disappeared in 2009.

It is unclear if Satoshi Nakamoto is an actual person, team or pseudonym. There have been many allegations of who the true founder of Bitcoin is but has never really been proven.

 

The Cyperpunks advocated and created for software which protected online privacy.

When I purchase a magazine at a store and hand cash to the clerk, there is no need to know who I am. When I ask my electronic mail provider to send and receive messages, my provider need not know to whom I am speaking or what I am saying or what others are saying to me; my provider only need know how to get the message there and how much I owe them in fees. When my identity is revealed by the underlying mechanism of the transaction, I have no privacy. I cannot here selectively reveal myself; I must always reveal myself. – Eric Huges  (9 March 1993)

source: A Cypherpunk’s Manifesto

 

Possible identities of Satoshi Nakamoto

No one really knows who the real founder of Bitcoin is.

But there have been theories and arrests.

  • Hal Finney – (May 4, 1956 – August 28, 2014) Received the first ever  Bitcoin transaction from Satoshi Nakamoti
  • Dorian Nakamoto – A cypherpunk who also worked on the Bitcoin project in its early days.
  • Nick Szabo – A cypherpunk who also worked on the Bitcoin project in its early days. 
  • Adam Back – A cypherpunk who also worked on the Bitcoin project in its early days.
  • Elon Musk – Musk is the original founder of paypal which was created in 2008 around the time as Bitcoin.
  • Gavin Andresen – A cypherpunk who also worked on the Bitcoin project in its early days.
  • Craig Wright – Founder of Bitcoin SV and Coingecko , has been claiming that we is the true founder of Bitcoin.

 

Why it’s not important

The Bitcoin Network was developed not to be dependent on person or entity. The network has survived almost a decade with growing adoption.

The entire point of a decentralized cryptocurrency is for the system not to be influenced by one person or government.

 

How are Bitcoins made?

New Bitcoin as created through a process called mining.

Mining is the process of validating transactions on the bitcoin network by answering a series of math problems

Each time a Bitcoin transaction gets verified , the person who verifies the transaction first gets fresh new bitcoin as a reward.

 

In very simple terms, Bitcoin Mining is what powers the Bitcoin network (a.k.a blockchain) .

The term Bitcoin mining is derived from the term “data mining” .

  •   This process approves the transfer of one BTC wallet to another.
  • This also verifies transactions
  • This also creates new BTC

 

How many Bitcoins are there?

Only 21 million Bitcoins can every be created.

And so far, more than 19.5 million Bitcoins have already been mined.

However, most of the Bitcoin mined in the early days are lost.

The early miners where doing it for fun and it not expect the prices to take off.

 

How many Bitcoins are left to mine

 

 

How many Bitcoins are there
How many Bitcoins are there

 

Transactions

Bitcoin works just like any currency (USD/Euro/Yen), except it is 100% online.

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

The transactions are powered on the bitcoin payment network.

You can send any amount of Bitcoin to anyone around the world within minutes.

The best part is that it costs only a couple of dollars of transaction fees.

Each time a person sends BTC to another persons, the transaction gets verified by a series of complex math questions by other users on the network. The system also rewards the users who have helped solve the problems in form of BTC

 

What makes Bitcoin disruptive is that you can send any amount of BTC (potentially millions of dollars worth of BTC) to anyone around the world within minutes for only a couple of dollars.

All this is because BTC is not only currency (money), but it is also a bank and payment network.

 

Are bitcoins safe to use?

Bitcoin uses an encryption called cryptography.

Millions have tried hacking Bitcoin’s encryption but have been unsuccessful.

 

Is Bitcoin anonymous?

The original goal of the cypherpunks was to protect the privacy of transactions just like with regular cash.

However, as inflation skyrocketed BTC became an interesting investment hedge.

With traditional money, the government decides on the prices.

This usually results in money losing value and things becoming for expensive over time.

A $100 bill 30 years ago can not get you the same value of groceries today.

However, for Bitcoin, prices are decided on market demand and supply.

In other words, the buyers and sellers decide on how much Bitcoins are without government interference.

 

Can Bitcoin replace banks

Bitcoin is not only a currency but a decentralized bank.

This means that when you own Bitcoin, you are 100% in control of your account or Bitcoin Wallet.

In other words, you can send any amount of BTC to whoever you want in any country (if they have a  wallet too) without

government/banking restrictions.

 

Cheaper transactions

BTC is also referred to as e-cash or peer-to-peer.

This means that there is no middle-men, because just like regular cash, it does not have exorbitant banking fees.

Bitcoin therefore promises cheaper international transactions

 

Faster transactions

Bitcoin runs on a technology called Blockchain.

Bitcoin is also a type blockain which is a global network a people around the around the world verify the transactions.

It also protected by an encryption called cryptography.

This process is called Mining and is also how new Bitcoins are created.

 

Who is Bitcoin for?

The Early Bitcoin users

  • 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.

Then it evolved to those who were unhappy with how governments were printing money.
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  • During the Covid-19 pandemic Crypto saw institutional inflow with big corporations like Tesla and Facebook seeking hedges.
  • BTC is also popular among forex investors for its volatility.
  • BTC is gaining popularity by counties with unstable local currencies.

We also saw El Salvadore make Bitcoin its official currency.

    • Bitcoin and other cryptocurrencies are become popular with GenZ and millenials because of its low barrier to entry.
    • Bitcoin is also an interesting solution for online business who want to bypass banking limitations to expand their businesses globally.

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number of active bitcoin addresses 2023
The number of unique addresses that were active in the network either as a sender or receiver. Only addresses that were active in successful transactions are counted. (Source: Glassnode)

Every 4 years, bitcoin mining goes through a halving.

This means that the number of Bitcoins which Bitcoin miners can create are cut by half.

The halving will result in less new Bitcoins be put onto the market.

Historically, the crypto bull run has started after the halving.

The next halving will happen in 2024.

 

The Future Bitcoin users

Those who want to save money on transaction fees

By eliminating the bank and intermediaries, transaction fees are reduced considerably

 

Those who like the idea of limited supply of Bitcoin

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

 

Political Reasons (Anti-Establishment)

There are a lot of people who don’t trust fiat currency because of the government making the decisions. They like embrace the idea of price being determined by supply and demand

 

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

 

Bitcoin Adoption with Businesses

Bitcoins are used for international transfers by online businesses as payment gateways like Paypal and Stripe make them available on their platform.

Merchants play a large role in adoption.

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

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

 

2017 has also seen a surge of Bitcoin Merchant Directories and Listings

 

Advantages for customers

  1. The recipient immediately receives the bitcoin even if they are in another country directely in their wallet
  2. Payments are irreversible
  3. Transactions are anonymous (No need to provide names, emails, account numbers , ID numbers, phone number etc)
  4. Only a limited supply of Bitcoins can ever be created
  5. Transactions can not be duplicated or changed

 

Problems of using Btcoin

The reasons more businesses are not accepting Bitcoin as a mode of 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 saving them
  1. Cryptocurrency exchanges are the favorite targets of hackers due to the anonymity
  2. The cryptocurrency market is fairly new for investors and small compared to other markets which have been around for decades.For this reason, Bitcoin is highly volatile compared to traditional investments.
  3. Bitcoin and other cryptocurrencies are not regulated and are banned in several countries in an attempt by governments to protect investors as well as provide the proper legal framework for taxations.
  4. You will often hear traditional  stock investors argue that the value of Bitcoin is too speculative. But a counter argument is that safe haven goods (such as gold) and forex do not give as high returns.

 

Where to get Bitcoins

The safest way to buy Bitcoin is on established cryptocurrency exchanges

  • Coibase (US)
  • Bitpanda (Worldwide)
  • Kraken (Worldwide)
  • Binance (outside of the US)

 

Can bitcoin be converted to cash?

Bitcoin can be converted to cash through cryptocurrency exchanges.

Depending on which country you live in, there are withdrawal options on the above mentioned exchanges which allow you to cash out directly to your bank account.

 

Conclusion

The first Bitcoin ever mined in 2008 was only worth a few cents.However, these days it is worth several ten of thousands of dollars.So it’s safe to say that it has come a long way since 2008.

The blockchain network has successfully been processing transactions without any downtime throughout this time.

The technology is still in its early phases and anyone placing investments in these periods can be considered an early investor.

 

 

Now that you understand what is a Bitcoin , CLICK HERE if you would like : a Step-By-Step Guide on How to get started with Bitcoin.

or Check out: How safe is Bitcoin as an investment.

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