When you get into the details of Bitcoin, it’s almost unbelievable how money is created. Although it appears to be fiction, it is the most well-known form of digital currency in use today.
I put together this complete beginner’s guide to Bitcoin to help you understand what it is, how it works and how to earn Bitcoins.
Before we move ahead, I’d like to highlight that investing in crypto coins or tokens is highly speculative, and the market is largely unregulated. Anyone thinking about it should expect to lose their entire investment.
A bit of bitcoin history
Bitcoin was the first cryptocurrency to be established—a digital asset that is encrypted and can be exchanged like currency. When Bitcoin became available to the public in 2009, other versions of cryptocurrency had been launched but never fully developed.
The development of Bitcoin was did lead by the anonymous Satoshi Nakamoto—possibly an individual or a group whose true identity is still unknown—who stated that the goal of the technology was to create “a new electronic cash system” that was “completely dispersed with no server or central authority.”
What is the Guinness record for the most expensive pizza?
Someone managed to sell their Bitcoins for the first time in 2010 to buy two pizzas for 10,000 Bitcoins. I hope the pizza was good, because those Bitcoins would be worth more than $100 million today if that person must have kept them. Nakamoto disappeared after sharing the source code and domain names with the Bitcoin community in 2011.
What actually is Bitcoin?
Since Bitcoin is a digital currency, there are no coins or bills to mint or print. It is decentralised because it is not controlled by a government, financial institution, or other authority. Bitcoin owners are anonymous—there are no account numbers, names, social security numbers, or other identifying features that link Bitcoins to their owners. Bitcoin connects buyers and sellers by utilising blockchain technology and encryption keys. A Bitcoin, like diamonds or gold, is “mined.”
How are Bitcoins created?
Bitcoins are not printed like paper money, but they are “mined” using computers to solve complex math puzzles.
At the time of creation, Satoshi Nakamoto decided that there could only ever be 21 million Bitcoins.
Currently, it’s not that easy to create a Bitcoin. It takes a lot of computing power, which uses up a lot of electricity.
Miners are incentivised to create Bitcoins because if they solve a mathematical puzzle that creates a new Bitcoin, they currently get rewarded with 12.5 Bitcoins – that’s a lot of money.
Currently, a new Bitcoin gets created every 10 minutes.
How do I go about obtaining Bitcoin?
“Bitcoin” or cryptocurrency exchanges are good places to buy or sell Bitcoins with different currencies.
Coinbase is a well-known exchange and cryptocurrency wallet that is easy to use.
In terms of security, it is just no different to a bank where they store your password, personal details, and your private key to your Bitcoin wallet.
Most people buy Bitcoin from Etoro, which is a notable cryptocurrency exchange in the UK and US.
Platforms like Coinbase, Etoro, and Bitfinex are prime targets for hacks, so be careful about storing your cryptocurrency on exchanges.
Bitfinex got hacked in 2016 and had US $72 million worth of Bitcoins stolen from them.
How do I store Bitcoins?
Once users purchase their Bitcoins on an exchange, they should immediately store them in a “digital wallet”.
A wallet is simply a collection of addresses and the keys that unlock the funds within it.
The digital wallet is like a virtual bank account, which allows the user to send or receive bitcoins.
They can also use it to pay for goods, like when buying a car or saving money to finance a car.
The difference between most Bitcoin wallets and bank accounts is that the owner is fully responsible for the security of those funds.
Digital Bitcoin wallets
There are different types of wallets that users can have, with different security levels for each.
Individuals can choose from a variety of types of wallets, which include web, desktop, mobile, hardware, and paper versions.
Users have the option of selecting what works best for their needs with different security levels.
A web and mobile wallet store the entire history of Bitcoin transactions, manages the user’s wallets, and can initiate transactions directly on the Bitcoin network.
Coinbase is an example of a web and mobile wallet that users trust to keep their funds safe.
A desktop wallet allows users to download and install software on their laptops to store their coins and have complete control over them.
The most secure methods of storing Bitcoins are hardware and paper wallets, which store a user’s private keys offline.
Trezor and Ledger Nano hardware wallets are popular today and can be purchased online.
A paper wallet is a method of storing bitcoins offline that is created by writing a new public address and private key on paper.
Users must keep the printed wallet containing their private key details in a safe place.
When you lose your private key or forget your pin code or password with a paper wallet, there is no one to call.
Who controls Bitcoin?
It was once thought that a central entity, such as a major bank or government, had to stand behind a currency and work to ensure economic stability.
But, only a few decades ago, the so-called Debt Economy began to take shape, propelled by ineffective monetary policy. It is the era in which central banks can literally create money and print new bills out of thin air without any backing from a tangible asset (such as gold, for example.)
As seen in the years leading up to the global COVID pandemic in 2020, excessive printing of money in the trillions, while providing a short-term fix, causes major long-term problems. The Consumer Price Index for All Urban Consumers in the United States – a metric widely used to gauge levels of inflation – reached 8.3% in May April 2022, the highest level in over 40 years. This depreciates currency value over time.
In contrast, Bitcoin gives us complete control. It is governed by mathematics based on a clear algorithm that is verifiably predictable and unaffected by human decisions. It gives us complete control over the funds in our possession.
Who is eligible to create a Bitcoin account?
Unlike banks, anyone can create a Bitcoin wallet on their own. This brings many benefits, and perhaps the most important ones are accessibility and censorship-resistance.
You see, banks create policies, and customers must oblige. If they fail to do so, the banks have the authority to shut down their accounts. They can also reverse or freeze transactions. This can’t happen with Bitcoin – there’s no central authority. Oh, and Bitcoin’s network works 24/7, 365 days a year.
In terms of accessibility – literally, anyone in the world with access to the Internet can obtain, send, store, and transact with Bitcoin and open a “Bitcoin account.” All they need to do is download a digital wallet app. Sending large amounts of BTC is a lot quicker and cheaper than sending fiat currency through traditional bank transfers. When was the last time you sent $300 million for a $1 fee?
How to buy Bitcoin?
The simplest and easiest way to buy Bitcoin is online through a reliable exchange or through a Bitcoin ATM—there are many of these located around the world.
What is the cost to send Bitcoin?
The only cost associated with sending Bitcoin from one address to another (no matter the physical distance) is the transaction fee, which is added to each order and paid to the miner for his work. Remember that miners must validate and verify the transaction before adding it to a block.
Relative to the means of money transfers, the cost of transferring Bitcoin is significantly cheaper. The fee is not fixed, and most of the digital wallets automatically calculate the minimum necessary fee.
The higher the fee, the faster the transfer will be (i.e., your transaction will be prioritised because of the higher fee) As of writing this, Bitcoin’s transaction cost (fee) is even less than $1 for most transactions.
To emphasise how cheap it is to send vast amounts in Bitcoin, this transaction of $101,000,000 was sent only for $121 in fees, which is roughly 0.00001%.
How do I start bitcoin as a beginner?
How to Invest in Bitcoin in 4 Steps
Join a Bitcoin Exchange.
Get a Bitcoin Wallet.
Connect Your Wallet to a Bank Account.
Place Your Bitcoin Order.
Can you invest $100 in Bitcoin?
If you’re new to cryptocurrency, you might be wondering, “Can I start by investing $100 in Bitcoin?” The answer is definitively yes.
How do Beginners explain Bitcoins?
Bitcoin is a digital currency with a decentralised network. Every Bitcoin transaction is recorded in a public log, and users can use encrypted keys to remain anonymous in the network. Transactions can be completed without the use of a middleman, which eliminates the need to go through a bank.
How do I cash out my bitcoins?
Methods of Cashing Out There are two main ways to convert bitcoin to cash and eventually transfer it to a bank account. To begin, you can use a third-party currency exchange broker. Third parties (such as bitcoin ATMs and debit cards) will exchange your bitcoins for cash at a set rate.
How much profit will I make if I invest 100 in bitcoin?
A $100 bitcoin investment could buy 0.003295 BTC. If Bitcoin returns to its all-time high of $68,789.63 in November 2022, that $100 investment would be worth $226.66.