The Complete Introductory Guide to Bitcoin
"Change is the only constant thing."
There was a time when the only means of communication was mainly verbal wherein messages were transmitted through the spoken word. Then came the pigeons and falcons, letters through post offices, and now we have mobile telecommunications.
The same applies to the world of finance; from trading by barter and coins to fiat money. Transactions were carried out with centralized authorities like banks and financial institutions to enable the movement of value between the parties involved.
Now, a new sheriff is in town: blockchain technology. Blockchain is the technology behind cryptocurrencies like Bitcoin, Ethereum, Tether and others. The main goal of blockchain technology is transforming the finance sector and virtually every industry known to man.
In 2008, an unknown person (or group) published the Bitcoin whitepaper under the pseudonym Satoshi Nakamoto, launching the technology which is rapidly taking over the finance world.
Since its creation, Bitcoin has become popular and has achieved mainstream adoption to a large extent. However, the fact remains; not everyone knows or understands what Bitcoin entails or how exactly it works.
That’s why the Finvesting team created this guide to introduce Bitcoin to you and help you understand how it works.
What Is Bitcoin?
Bitcoin is a decentralized digital currency that uses a peer-to-peer technology for operation and a consensus mechanism for verifying transactions without a third party.
It can be used as an investment or as a store of value. Bitcoin is different from fiat money such as the dollar that you see and feel. Unlike fiat currency which is controlled by the government and requires third parties like banks for transactions, Bitcoin is transferred directly between the parties involved in the transaction using peer-to-peer technology.
Bitcoin is produced and processed online on the blockchain and it is used by millions of people and hundreds of businesses.
Although not all businesses have accepted the use of Bitcoin to transact, some have and more businesses are joining the Bitcoin wave daily.
Since its creation in 2009, its popularity has spread like wildfire and its value has increased astronomically; and it keeps rising every day. We won’t be surprised if the world recognizes Bitcoin as a legal currency in no time.
Meanwhile, we all know that Bitcoin operates through blockchain, so let’s understand what blockchain is.
What Is Blockchain?
If you have been following technology trends over the past decade, you’d have heard of the term “blockchain” at least once. Simply put, it’s the underlying technology behind Bitcoin.
Blockchain is an online decentralized ledger where information is recorded in a way that it becomes challenging or very impossible for anyone to hack or alter the records.
Another accurate description of the blockchain is this:
Blockchain is a digital ledger of various transactions which can be duplicated and shared across the various nodes on the blockchain.
Here’s a simple description of how blockchain works. Every ‘block’ on the chain contains a few transactions and every time that you carry out a new transaction on the blockchain, there is a record of such transaction which will be included in the ledger of every participant.
Blockchain is usually described as a distributed ledger. This is because, for a malicious user to modify the data in one block on the chain, they’d have to take control of the majority of the nodes on the network.
As such, it’s difficult for hackers to gain access to a blockchain network. Bitcoin, Ripple and Ethereum are prime examples of popular blockchain networks.
How Does Bitcoin work?
It’s common knowledge that Bitcoin transactions take place on the blockchain. Bitcoin can only be transferred digitally and unlike fiat currency it isn’t subject to any interference from the government.
You also don’t need to have a bank account when trading with Bitcoin; all you need is a Bitcoin wallet.
Are you new to Bitcoin? All you need is to install a Bitcoin wallet on either your smartphone or computer.
Once that is done, your Bitcoin address will be created then you can receive Bitcoin there and also trade Bitcoin through your wallet. Bitcoin can be used to purchase products or pay for services online.
What Is Bitcoin mining?
Bitcoin mining is the process of including transaction records digitally to the blockchain.
Simply put, mining is a process of keeping records that can only be executed through effective computing power. Bitcoin mining is more like creating a new Bitcoin, so for every time mining occurs, new Bitcoins are created.
Bitcoin uses the proof of work (PoW) consensus algorithm for mining Bitcoin.
Miners have to approve transactions on the blockchain and get paid in Bitcoin for any transactions they have approved.
Miners need a high supply of energy to mine Bitcoin. This is one disadvantage of Bitcoin mining. The energy consumption becomes expensive over time and eats into your profit.
Who Created Bitcoin?
The creator of Bitcoin has always been a mystery and various people have their opinion on why they prefer to remain mysterious. But the world is made to believe that Bitcoin was created by Satoshi Nakamoto, a Japanese programmer, or a group of Russian scientists, or a genius Silicon Valley cryptographer.
Whoever he is, the world owes him or them a debt of gratitude for creating a revolutionary tech that provides a valuable financial solution to users around the world.
Features of Bitcoin
- You can easily send or receive payment from anywhere in the world without facing any difficulty.
- It is a secure investment
- As a Bitcoin user, you are completely in charge of your transactions
- You can find all the information you need about Bitcoin on the block which makes its operation transparent.
Will Bitcoin Replace Fiat Money?
Some countries are already accepting the use of Bitcoin and have made it legal, but some countries are still trying to come to terms with it.
However, Bitcoin is more valuable than fiat currency and that is why people who invest are making money from it.
Bitcoin is gradually getting the recognition it deserves and it looks like it is going to replace fiat currency very soon.
But, fiat currency will not go away completely even if people are trying to adjust to cashless policy.
How many people use Bitcoin daily?
Believe it or not, the number of people who use Bitcoin daily is alarming. Most people are beginning to realize how important and valuable Bitcoin is, hence they are investing in it.
Some people even use Bitcoin as their retirement plan, because Bitcoin has turned out to be an amazing investment.
Why Is Bitcoin trusted?
People trust Bitcoin because it is safe and secure. When they invest in Bitcoin, they are sure that It will remain safe and not be hacked by cybercriminals because of the blockchain. The blockchain makes it impossible for Bitcoin to be tampered with.
Bitcoin has been in existence for years and it has recently begun to rise rapidly. Cryptocurrency is now very common, with lots of people using Bitcoin to trade, make money, and purchase things online. Bitcoin is not difficult to understand, you only need to learn the basics and you can start trading.
Some useful links
Bitcoin for Beginners
Who created Bitcoin?