The ultimate guide to bitcoin (for beginners)

There are many misconceptions about the cryptocurrency, bitcoin.

It is often misrepresented as a new form of currency that is not regulated by any government or bank.

This couldn’t be further from the truth! Bitcoin is just one of many different forms of cryptocurrencies that have grown in popularity over recent years. The first and most famous kind was created on January 3rd, 2009 by an unknown programmer who went under the pseudonym, Satoshi Nakamoto.

These currencies are not backed by anything other than math equations which means they rely heavily on people’s faith in them to maintain their value.

The first misconception about bitcoin and other types of cryptocurrencies stems from how it’s valued and traded internationally: unlike fiat money (paper money), bitcoin isn’t tied to any country or economy.

It’s almost like a stock, but you can’t physically hold it in your hand. Bitcoin is actually only worth anything because people believe it has value- the same way people buy gold or silver simply because they think it has value.

The main difference between bitcoin and fiat currencies is that there’s no central bank controlling how many are created, as the Federal Reserve does with the dollar, for example.

Bitcoin is traded through exchanges, just like stocks are. You can choose to buy or sell bitcoin at any time by visiting one of these different exchanges and putting in an order with your bank account balance. The value of bitcoin goes up and down constantly throughout the day based on market forces-

What is Bitcoin

Bitcoin is a digital currency that was created in 2009 by Satoshi Nakamoto, who published the invention on 31 October 2008.

The bitcoin protocol is open-source and any developer around the world can review or copy it at no cost.

Its design ensures that bitcoins are impossible to counterfeit or inflate; they are not issued by any central authority, but rather generated according to a predictable pattern of supply and demand.

The price of bitcoin has fluctuated wildly since its inception, reaching highs of over $11000 in late 2017 before dropping back down below $8000 in early 2018. Bitcoin is not backed by any government or central bank, nor does it have physical assets behind it like gold.

The concept of digital currency was first introduced in 1983 by David Chaum.

He was an American cryptographer and one of the first to envision digital cash.

In May 2011, a Japanese-American named Dorian Nakamoto became the subject of more than one media probe after his name was speculated as being involved in bitcoin’s creation.

While he denied all connections to it, some speculation still remains about how much the true Nakamoto’s creation has actually influenced bitcoin’s design.

The first decentralized cryptocurrency, bitcoin does not rely on any centralized server for its maintenance.

While various agencies are still debating the status of bitcoin as a currency (and there is no consensus at this point), bitcoins can be used to purchase goods and services. The currency is popular for black market usage too, with bitcoin being used to buy drugs and other illegal items.

Currently, there are over 8 million unique users with a cryptocurrency wallet that has no physical existence.

Bitcoins are mined by powerful computers that complete complicated math problems in order to unlock the currency’s value.

History of bitcoin

Bitcoin is a peer-to-peer digital currency that was created in 2009 by Satoshi Nakamoto.

The bitcoin protocol is open-source and any developer around the world can review or copy it at no cost.

Its design ensures that bitcoins are impossible to counterfeit or inflate; they are not issued by any central authority, but rather generated according to a predictable pattern of supply and demand.

The price of bitcoin has fluctuated wildly since its inception, reaching highs of over $11000 in late 2017 before dropping back down below $8000 in early 2018. Bitcoin is not backed by any government or central bank, nor does it have physical assets behind it like gold.

The concept of digital currency was first introduced in 1983 by David Chaum.

He was an American cryptographer and one of the first to envision digital cash.

In May 2011, a Japanese-American named Dorian Nakamoto became the subject of more than one media probe after his name was speculated as being involved in bitcoin’s creation.

While he denied all connections to it, some speculation still remains about how much the true Nakamoto’s creation has actually influenced bitcoin’s design.

The first decentralized cryptocurrency, bitcoin does not rely on any centralized server for its maintenance.

While various agencies are still debating the status of bitcoin as a currency (and there is no consensus at this point), bitcoins can be used to purchase goods and services. The currency is popular for black market usage too, with bitcoin being used to buy drugs and other illegal items.

Currently, there are over 8 million unique users with a cryptocurrency wallet that has no physical existence.

Bitcoins are mined by powerful computers that complete complicated math problems in order to unlock the currency’s value.

The benefits of bitcoin over other types of money

Why would anybody want to utilize bitcoin, you might wonder?

Isn’t the money we have right now sufficient?

In reality, no. It’s difficult not to disagree with bitcoin being the future of money when you look at the foundation. While it may take years even decades it will inevitably happen.

Bitcoin is cryptographically scarce.

It is divisible but not readily dividable. There is only 21 billion bitcoin, and no more will be created.

It is impossible to make more money like this. Quantitative easing, which inflates regular money into larger volumes but decreases its value, can improve the volume of fiat currencies without affecting their value.

Bitcoin is accessible from anywhere in the world.

It’s very easy to send it to any place on the planet for practically no cost. It can easily go across borders. It has no weight, odor, or physical presence. It is the only money in use today that may be sent without relying on a third party.

Bitcoins are long-lasting.

A Bitcoin exists as an entry in a ledger that is replicated on thousands of computers across the world. It’s never been hacked, and it can’t be duplicated fraudulently.

There is no single point of failure with bitcoin.

There is no piece of technology or infrastructure, nor is there any structure that bitcoin relies on. There’s no one particular or organization to blame for bitcoin’s existence. Bitcoin does not rely on any banks, governments, or nations to operate.

Bitcoin is a fungible currency.

Every bitcoin is identical to all others and, as a result, will be worth the same.

Bitcoin is well-known.

A bitcoin wallet may quickly authenticate whether a bitcoin is original or not.

Bitcoins are not counterfeit.

It is also one of the most durable metals known. Gold, on the other hand, cannot be filled with tungsten. It cannot be counterfeited like cash can.

Bitcoin is programmable.

Programmability is an essential quality that may one day be recognized as crucial for good currency:

Bitcoin can be programmed to perform a variety of economic activities without the need for a middleman, escrow agent, or human arbitrage.

After a bitcoin has been mined, it will continue to be produced on a regular basis.

It is currently being created at a fixed rate of 25 new coins every 10 minutes. This is meant to change around the year 2140 when all 21 million bitcoins will have been mined and there will no longer be any more coin creation possible.

What is a Satoshi?

Satoshi Nakamoto, the pseudonymous inventor of Bitcoin, mined the first ever block on the bitcoin blockchain, called the genesis block. The reward for mining this block was 50 bitcoins. In an effort to protect his privacy and remain anonymous he left 1 million Bitcoins in his will to various charities. However, nobody has ever claimed the coins and has never been heard from since.

A Satoshi is a hundred-millionth of a bitcoin (0.00000001) and named after the inventor in conjunction with his other unit that he also made: 1 bit = 0. 00000001 bitcoin = 1 Satoshi. This smallest part of a bitcoin is referred to as a “Satoshi.”

Timeline of major events in bitcoin history:

Oct 31, 2008    – Satoshi Nakamoto mines the genesis block to kickstart bitcoin.

Jul 12, 2010  – Wikileaks begins accepting donations in Bitcoin for their ongoing legal battle.

Aug 2nd, 2010  – MtGox launches and becomes the first place to go for trading bitcoin.

Apr 12, 2011  – One of the first major thefts occurs on MtGox.

Mar 6, 2013  – Cyprus bank bail-in makes world headlines as people lose 60%+ of their savings.

Nov 29, 2013 – The FBI seizes 144,000 BTC from Silk Road servers.

Feb 23, 2014  – MtGox comes clean about being hacked and the damage it has done to customers.

22 May 2013 – The US authorities seized accounts associated with Mt. Gox after discovering that it had not registered as a money transmitter with FinCEN in the US.

23 June 2013 – The US Drug Enforcement Administration (DEA) listed 11.02 bitcoins as a seized asset in a United States Department of Justice seizure notice pursuant to 21 U.S.C. § 881. This marked the first time a government agency had seized bitcoin.

The DEA’s listed an amount of bitcoin that was part of their investigation into Silk Road, an online marketplace used for purchasing illegal drugs.

Mar 25, 2015  – The IRS says Bitcoins are taxable as property, not currency.

Moving forward, Bitcoin seems to be heading more mainstream than ever before with companies like Microsoft allowing consumers to purchase products on their online store using bitcoin. Bitcoin has seen some of its most amazing growth in China- primarily because currency controls have made it difficult for people there to get money into the country. As a result, investing in bitcoin in China is one of the only ways to get what would be considered a fortune in the Chinese yuan.

How does it work

In a sense, bitcoin is one of the first “programmable commodities”.

While creating a single bitcoin by working as a miner can take years, you can make as much as possible with any computer – even an old laptop.

In fact, all you need to do is download and run a program on your machine that will provide great income. It’s called a bitcoin miner.

Miners are responsible for bundling transactions into single blocks, which are verified every couple of minutes on the network.

They can also receive small fees in addition to their mined bitcoins for ensuring that the processing goes on smoothly.

It’s also possible to create a new bitcoin by “cloning” an existing one.

That’s because bitcoins are stored on a public ledger that contains all of the transactions from anyone who uses the currency. As such, if you have some bitcoins laying around somewhere, you can simply copy them and keep using them as before without disrupting the network.

While bitcoin is popularly associated with black market usage (and especially the dark web), bitcoins themselves cannot be tracked as easily as traditional currency.

All transactions on the network are verified and recorded by transparency, but without using any personal information about those who make them. The transparency makes it impossible for anyone to shut down or corrupt the network.

Bitcoin vs gold vs regular money

Bitcoin is a form of digital currency which could either be a boon or a bane to mankind.

The value of bitcoin is arbitrary, meaning it can fluctuate wildly without warning and depending on who you ask.

For example, prices on the dark web are notoriously diverse and easy to change due to the anonymous nature of the payments.

The beauty of bitcoin payments is that they are irreversible – so payments cannot be reversed or disputed by credit card companies. This has had disastrous consequences for some people including an incident where someone paid for $20 worth of bitcoin later found out that they bought $200k worth due to the high volatility in bitcoin’s value at the time.

Each of the key elements that contribute to making it a good store of value is outlined in Boyapati’s initial post.

Market Size

The cryptocurrency market is always changing. The majority of cryptocurrencies, including bitcoin, have very volatile market caps. In a developing market, volatility is to be anticipated, and some believe that it is a positive aspect since it demonstrates the growth of an asset class.

It will take years for bitcoin to become the newest form of money. If you can modify the definition of money, it is the most significant disruption ever. And, if you bought bitcoin early on, your investment will be ten orders of magnitude larger than it would have been otherwise.

At the time of publication, bitcoin’s market capitalization is $3billion according to CoinMarketCap. The top 100 cryptocurrencies by market capitalization, their present price, trading volume, and circulation supply can be found here.

Benefits and risks to consider when investing in bitcoins

The benefits of investing in bitcoin are plentiful. For one thing, the ultimate limit on the number of bitcoins that will ever exist is set at 21 million. This is quite substantial considering the rate at which new bitcoins are created on the network.

There’s also no need to worry about exchange rates if you’re investing in bitcoin – since it operates as a global currency, bitcoin is never subject to exchange rates.

This means that you’re able to avoid incurring additional fees or taking losses by exchanging your money into another currency for use.

Investing in bitcoin also provides investors with complete anonymity, which is great for those who are simply looking to protect their privacy with their investments.

However, there are risks to consider when investing in bitcoin. For one thing, the currency is still new and is subject to sudden changes in value (some people even lost fortunes by investing at the wrong time).

There’s also the possibility that an investor could end up taking a loss if they hold their bitcoins for too long – since there’s no way to know how many other investors will want to buy or sell their coins, the price of a bitcoin may be driven up and down very frequently.

However, if you can weather these storms and invest safely and carefully over time, there’s the potential for high ROI (return on investment).

Buying bitcoin

Buying and keeping bitcoin needs to be easier for it to succeed. Many people link the present market with the internet in the late 1990s. It was accessible, but difficult to acquire and few people used it. That’s also true of today’s bitcoin, which is due to its contemporary technological barriers of entry.

It, like all new technology, gets easier to use with time. Bitcoin buying and storage becomes less difficult each year, and the need for technical knowledge diminishes as third-party services make the process easier.

For now, but there is a procedure to follow that many ordinary people are not prepared to endure. Here’s an article on how to buy bitcoin in the UK but it applies to any country you’re in.

You don’t have to purchase a full bitcoin when buying cryptocurrency. Buying a bitcoin today is expensive, but it’s divisible, so you may buy tiny fractions all the way down to one-millionth of a bitcoin.

To buy bitcoin, you’ll need five items:

Bitcoin key – This is your own personal string of numbers, which allows you to receive bitcoin into your wallet.

Wallet – A safe location to keep bitcoin and other cryptocurrencies. Wallets are software programs that run online, on your computer, or on a piece of hardware.

Cryptocurrency Exchange – A website that allows you to trade bitcoin and other cryptocurrencies.

Credit or debit card – To cover the cost of your purchase.

Form of identity – To identify you, a driver’s license or passport is required.

Storing bitcoin

When it comes to keeping it, you must take care of things yourself.

It can’t be kept at a bank in order for them to manage it, however, that may change in the future.

This is what might happen if you don’t store your bitcoin properly. 7,500 bitcoins were lost by one UK guy when he threw away his

At its highest peak so far, the bitcoin he lost would have been worth over $148 million.

Storage is very important.

When purchasing bitcoin, or just utilizing the internet, you should employ a good security and privacy policy. Here are some privacy and safety guidelines to assist you.

VPN – A virtual private network (VPN) will hide your IP address, allowing hackers to identify you and detect your location.

Ditch Chrome – Use a privacy browser like Brave, which is similar to Chrome but doesn’t include all of the tracking software Chrome uses to monitor you.

Have good password hygiene – Passwords should be at least 16 characters long, contain a mixture of upper- and lowercase letters, numbers, symbols, and spaces. Passwords should also be complex and unique to you. Use a password manager to keep them safe.

Turn on two-factor authentication – These days, almost every bitcoin service includes 2FA, which adds an extra layer of protection when logging in.

Use a hardware wallet. Use a hardware wallet rather than a software wallet to be as secure as possible. The Coldcard wallet is the finest hardware on the market.

Keep your information secure. Hackers have recently used one of the more recent forms of assault by changing your phone number onto their device in order to gain access to your email and acquire your phone number. Don’t broadcast about your bitcoin on social media.

Use a new secure email. Because your cryptocurrencies are encrypted, no one can tamper with them. Protonmail is particularly well-suited for cryptocurrency accounts since they are secure.

Avoid fake websites and emails. Websites and emails that seem to be genuine but are, in fact, fraudulent.

Spread out all your cryptocurrency. If you have a significant amount, don’t keep all of your cryptocurrency on one key.

Tell a trusted family member about your crypto. Give them directions to your home or where it is and how to get there in the event of an emergency.

Bitcoins and taxes

The US Internal Revenue Service (IRS) considers bitcoins to be an asset, subject to the same complex tax laws as property and stocks – which means that you’ll need to record every transaction that involves payment or service with bitcoin.

Clearly, this would complicate bitcoin usage even more since it’s hard enough to keep track of your bitcoins today.

While the agency was initially accepting of bitcoin and its use by businesses and individuals alike, they began cracking down on it later in 2013 due to the lack of regulation and risk associated with digital currency.

In response, a variety of companies began offering services that would provide knowledge about your transactions so that you could provide the required documentation for your taxes.

The future of bitcoin

While there has been a number of issues surrounding bitcoins, from their association with black market activity to tax compliance, it’s apparent that they’re here to stay.

Governments are beginning to realize this and are already making steps towards regulating the currency.

With a growing number of individuals and businesses accepting bitcoin, it’s becoming much easier to use.

Cryptocurrency terminology

comes a new language to master. The cryptocurrency sector is rife with trade jargon and acronyms, which makes understanding them all a difficult task. If you want to get involved in the cryptocurrency market, you’ll need to learn the following words and phrases.

I intend to update this list as the industry develops.

ATH – All-Time High – when crypto is at its highest point of increase

Altcoin – A different kind of cryptocurrency called bitcoin alternatives

Bearish – Reduced pricing is expected.

Blockchain – A data system that may be used to generate a digital ledger of transactions on a decentralized network

Bullish – An expectation of increasing prices

Block time – How long does it take for one person to complete a transaction with another? 

Cold storage – Taking cryptocurrency offline to a hardware wallet

Double spend – The risk that a digital currency can be spent twice

Fiat – Currency that is government-issued legal tender.

Fork – When an existing blockchain splits into two separate blockchains

FOMO – Fear Of Missing Out

FUD – Fear, Uncertainty, and Doubt

FUDster – An entity that spreads FUD

Hashrate – The speed at which a block is discovered and the rate in which the maths rate is solved

HODL – Hold On for Dear Life (hold on to your coins – don’t sell)

ICO – Initial Coin Offering. A type of crowdfunding.

Mooning –  When an altcoin is increasing in value quickly, it’s said to be ‘going to the moon.

Pump and dump (P&D) –  Buying a coin and then promoting its merits as a way of generating interest and pushing up the price.

Immutable – When the past record can’t be altered.

Market cap – The market cap = total supply x current price

Mining – The term used for discovering and solving blocks on the blockchain

Proof of stake – When a miner can verify block transactions based on the number of coins he or she has. The more Bitcoin or altcoin a miner owns, the more mining power he or she has.

Satoshi – 0.00000001 bitcoins (1 billionth of a bitcoin)

Smart contracts – a digital contract/agreement that doesn’t require a middleman like a lawyer

Stablecoin – A crypto with extremely low volatility sometimes pegged to fiat like a dollar.

Token – Two meanings: a crypto unit or something built onto the Ethereum network

Wallet – Software or hardware – storage for cryptocurrencies

Whales   – Big money bitcoin players with a lot of bitcoin

Final Thought

What to do now

Now that you’ve learned about bitcoin and the wider cryptocurrency market, it’s time to take things further. Your next steps are straightforward if you wish to continue learning more about bitcoin.

Research.

Further reading from a range of sources will allow you to gain a better understanding of bitcoin and cryptocurrencies in general.

Getting an idea of the key people involved and their contributions is also key, as well as what governments have been doing.

You could even read about how blockchain technology works or the viability of smart contracts.

Learn about the many cryptocurrencies, read their white papers and blogs, listen to podcasts, follow crypto communities on Twitter, Reddit, Slack, and other sites.

If you want to get started with trading cryptocurrencies, purchase a hardware wallet, download a software wallet, and practice purchasing small amounts of cryptocurrency.

The business is changing at a breakneck speed, and I’m having trouble keeping up with it all. I gave up long ago.

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