Bitcoin: What is it? Complete Guide

Bitcoin

Bitcoin is a word that was once merely discussed as an academic idea among technology enthusiasts, then became a hushed mention among law enforcement tackling online drug trades. It’s the first digital currency or so-called cryptocurrency.

Now, There is so much coverage of people getting rich from Bitcoin. It has become a hot investment and people buy it for all sorts of different reasons. Bitcoin’s astonishing success has made it something people want to know about.

And recently it is a craze for those looking to make rich quickly. But what is bitcoin? and how does it work?

Don’t worry! this guide is designed to resolve your all concerns about Bitcoin. So stay with this guide and you’ll we get everything that you need to know.

What is Bitcoin (BTC)?

Bitcoin is a store of value, a transactional medium, and an idea that some claim could change the entire future of economics. It’s not a physical thing, but an entirely digital entity with no middle-man controlling it or you can say simply, Bitcoin (BTC) is the first open-source, peer-to-peer, cryptocurrency.

Bitcoin works on cryptography rules for regulation and generation of units of currency. It’s an advanced and original payment network or a new kind of money. Bitcoin is like an online payment that you can use to buy products and services, but not many stores accept Bitcoin yet.

Characteristics of Bitcoin

  • Decentralized: Bitcoin network is independence from any governing authorities. It is designed so that if some part of the network goes down, the money will keep moving.
  • Anonymous: Bitcoin is very different, you don’t have any need to be linked to any personally identifying information.
  • Transparent: If your wallet address was publically used, anyone can know how much amount is in it by carefully studying the blockchain ledger.
  • Fast: The Bitcoin network processes payments take just a few minutes while normal bank transfer can take several days.
  • Non-repudiable: Bitcoin transactions are irreversible.

The History of Bitcoin

In late 2008, a person or group using the pseudonym Satoshi Nakamoto published a white paper on bitcoin, explaining how the cryptocurrency would work.
After that in 2009, Nakomoto mined the first-ever bitcoin, known as the genesis block.

In may 2010, a programmer from Florida named Laszlo Hanyecz offered 10,000 bitcoins in exchange for two pizzas. This is believed to be the first time BTC was used to make a purchase and celebrated as Bitcoin Pizza Day.

In 2011, Ross Ulbricht has founded an online dark-web marketplace dubbed Silk Road, who ran the site using the pseudonym Dread Pirate Roberts. He wanted SilkRoad to grow into a force to be reckoned with that can challenge the power that is and at last give people the option to choose freedom over tyranny.

After that in March 2013, the value of Bitcoins hit $1 billion in circulation and started attracting the attention of Silicon Valley and venture capitalists. Bitcoin stagnated for several years after 2013. But in 2017, the end of the year sees a huge price peak, coming close to $20,000 in Bitcoin value as shown in graph(below).

Bitcoin Price Chart (graph):

bitcoin price chart

How Bitcoin Works

Bitcoin concept might be quite complex: it isn’t only a digital currency, but a decentralized network. That means there is no central server, BTC is a peer-to-peer network. Bitcoin ledger is distributed or public, you can store it on your computer.

Each bitcoin is basically a computer file which is stored in a cryptocurrency wallet app on a smart device such as a smartphone and computer. you can send Bitcoins to your BTC crypto wallet and to other people. These transactions are recorded in a public list called the Blockchain which requires an electronic signature, is supported by a proof-of-work protocol to provide the security and allow only legitimate transactions.

*** If you want to know more about blockchain, you can learn from our guide on blockchain technology. ***

A blockchain is used to generate new BTC and verify the ones that are transferred from one user to another. These transactions are irreversible, and the pseudonymous public ledger the transactions are made on giving it a level of transparency other financial system doesn’t offer.

how_do_bitcoins_work

The advanced explanation:

The technical side of Bitcoin working is a bit more complex. Each new transactions are recorded an verified onto a new block of data in the blockchain and each block in the chain includes cryptological code linking to it.

bitcoin working

These transactions are highly secure due to the cryptography at every step in the process, which can take quite a lot of time to verify.

However, there is a possibility to steal bitcoins by discovering someone’s digital wallet and the password. So it is highly recommended to secure your Bitcoin wallet.

What is Bitcoin Wallet?

In order to buy or sell Bitcoins, you’ll need a Bitcoin wallet to store them in. There are many types of cryptocurrency wallets available such as software and hardware wallets.

A hardware wallet allows you to store your cryptocurrency offline while a software and mobile wallets are online. Because these wallets have just private and public keys, you can use paper wallet also. Paper wallets have a QR code of your public key on a paper piece. To know more about cryptocurrency wallets, you can learn from our guide on multi cryptocurrency wallets.

How do people get Bitcoins?

If you want to get a substantial amount of bitcoins fast, you need to spend money buying them, or if you want to get bitcoins for free, you need to spend a lot of time earning them.

Bitcoins

There are three main ways to get Bitcoins.

  • Buy Bitcoins using fiat money.
  • Sell things and let people pay you with Bitcoin.
  • Create Bitcoins using computational power (Bitcoin mining).

Bitcoin Mining

Collecting Bitcoins can be boiled down to a simple premise: miners, as they are known, purchase powerful computing chips designed for the process an use them to run specifically crafted software day and night.

That software forces the system to complete complex encrypted calculations- imagine them digging through layers of digital rock. If all goes to plan, the miners are rewarded with some Bitcoins at the end of the process. To learn how to mine Bitcoins, read our complete guide on Bitcoin mining.

Buying and Selling Bitcoin

It is entirely possible to both buy and sell Bitcoins. Buying Bitcoins is quite easier than mine Bitcoins because there are many BTC exchanges that allow you to purchase bitcoins using your credit/debit card or PayPal.

These Bitcoin exchanges usually allow you to buy and sell your BTC. This is where you’d want to have your bank account information ready in the exchange and your security measures in place so that you can safely sell your bitcoins back to the exchange and get the fiat currency back into your account.

**** If you want to know how to buy and sell Bitcoins, read our guide here. ***

Bitcoin Exchanges

Exchange Currency Payment methods
Coinbase USD, EUR, GBP Credit card, bank transfer
LocalBitcoins (P2P) All currencies Cash, PayPal, bank transfer
Bitstamp USD, EUR Credit card, bank transfer
Bittrex 190+ crypto pairs Cryptocurrency
CEX.IO USD, EUR, GBP, RUB Credit card, bank transfer, Ethereum
Kraken USD, EUR, CAD, GBP, JPY Bank transfer, Altcoins
CoinMama EUR, USD Credit card, Ethereum
Bitfinex USD Bank transfer, Ethereum, Dash, Monero, Zcash
Poloniex 75+ crypto pairs Cryptocurrency
Bisq (P2P) 59+ crypto pairs Cryptocurrency, bank transfer
GDAX USD, GBP, EUR Bank transfer, Ethereum, Litecoin

Pros

  • Freedom
  • High portability
  • Choose your own commission
  • No Payment Card Industry
  • Safety and Control
  • Transparent and neutral
  • It can’t be counterfeited

Cons

  • Legal questions
  • Level of recognition
  • Lost Keys
  • Volatility
  • Continuous development

People to follow

  • Andreas M. Antonopoulos: The author of Mastering Bitcoin & The Internet of Money books.
  • Adam Back: Co-Founder & CEO at Blockstream.
  • Alex Tapscott: Co-author of ‘Blockchain Revolution’ book and CEO of Northwest Passage Ventures.
  • Barry Silbert: Founder & CEO of DigitalCurrencyGroup, a venture capital company focusing on the digital currency market.
  • Brett King: He leads Breaking Banks, global fintech podcast.
  • Brian Armstrong: Co-founder & CEO at Coinbase.
  • Don Tapscott: The father of Alex Tapscott & a co-author of ‘Blockchain Revolution’ book.
  • Erik Voorhees: Writer, entrepreneur & armchair economist. СEO of Coinapult.
  • Gavin Andresen:  Lead developer for bitcoin & chief scientist of the Bitcoin Foundation.
  • Jon Matonis: He is founding Director at Bitcoin Foundation & CEO of Hushmail.
  • Nick Szabo: A computer scientist who designed a mechanism for a decentralized digital currency called “bit gold” in 1998.
  • Patrick Byrne: Founder & CEO of Overstock, the first major retailer which accept bitcoin as payment.
  • Peter Wuille: Bitcoin Core developer & the co-founder of Blockstream
  • Roger Ver: Investor in Bitcoin startups including Bitcoin.com, Blockchain.com, Zcash, BitPay, Kraken, and Purse.io.
  • Charlie Lee: He is the creator of Litecoin & Ex-Director of Engineering at Coinbase.
  • Tyler Winklevoss: He is a co-Founder & CEO at Gemini (bitcoin exchange). And one-half of the Winklevoss twins, who sued Mark Zuckerberg over the Facebook concept.
  • Vitalik Buterin: He is a co-founder of Ethereum & a Bitcoin Magazine.