What is Bitcoin? [The Most Comprehensive Step-by-Step Guide]

What is Bitcoin ? To put it simply, Bitcoin is nothing by cryptocurrency- electronic money. This form of cryptocurrency is completely decentralized and can be transferred from one user to the other using bitcoin blockchain which is peer-to-peer. In fact, bitcoin is completely independent of banks and doesn’t need an intermediary when transported from one end to the other. The following article is going to show you the ropes for Bitcoin which will enable you to find out the best possible plan for yourself. Not only that, but you would also be shown the best Bitcoin prices available today, along with its pitfalls. By the end of it, you would have a complete idea of what Bitcoin or btc is all about-replacing plastic or paper currency with cryptocurrency. This article will also highlight the scams that come by and how to avoid them; how to mine for bitcoins, and how to store them once you are done.

What is a Bitcoin and how does it work?

It is no wonder that btc came to the market in 2008, soon after most unions and groups were blaming Wall Street for misusing properties and money of the borrowers. In fact, a rally ‘Occupy Wall Street’ was making the rounds for the allegations against Wall Street were serious. They were being accused of rigging systems, duping the people of their money, and charging mind-numbingly high prices to get them back. Creators of btc wanted to prevent this from happening- precisely why they thought to cut off the middleman. Not only would that bring about a fair share of transparency in the market, but it would also allow the client to actually have a say in how money or finances were being transported from one end to the other. The founders of btc knew that anything they created had to be made independent of banks so that people would be allowed to control their own money rather than depending on someone else for it.

Even though btc is pretty much a recent phenomenon, it had climbed a lot of steps in these few years. From REEDS Jewelers, a famous jewelry chain located in the United States to Warsaw, Poland, where a nursing hospital resides- all of them are accepting bitcoin currency. Even giant conglomerates with a net worth of several billion, too sponsor and promote it like Expedia, PayPal, Dell, and Microsoft. Many websites have been said to promote it while there are publications like the Bitcoin Magazine which publishes price and news actions, and its forums trade coins while discussing cryptocurrency. To brush off btc as merely a hobby would be a huge mistake- the entire network has its own API, exchange rate, and price index.

Whilst there is always a certain number of problems like accounts hacked by thieves and the data stolen, or a transaction delay, or even high volatility, most under-developed countries actually find it much easier to do away with their currency in this format. It not only prevents them from getting duped by middlemen, but they are also secure in knowing where their money is going.

Key Highlights

If you want to know what is Bitcoin, you need to study its timeline.

October 31, 2008: Satoshi Nakamoto anonymously publishes the Bitcoin whitepaper.

January 3, 2009: Genesis block, commonly known as block number one, finally gets to be mined.

January 12, 2009: We have the first ever bitcoin transaction.

December 16, 2009: The updated, upgraded version is released – v0.2

November 6, 2010: The market cap value for Bitcoin crosses $1 million USD.

October 2011: Bitcoin divulges into another sister company- the Litecoin.

June 3, 2012: The largest block is created. It is Block 181919 which has been created using 1322 transactions.

June 2012: The company launches Coinbase.

September 27, 2012: The formation of the Bitcoin Foundation.

December 4, 2013: The first-ever high price recorded at $1,079.

December 7, 2013: The price falls to a record low $760.

February 7, 2014: The hacking of Mt. Gox- an extremely potent hack in recent times that led to the biggest drop in Bitcoin prices.

June 2015: The registration and establishment of BitLicense- this is without doubt the most important of all cryptocurrency statutes.

August 1, 2017: Bitcoin divides itself into two to create Bitcoin Cash.

August 23, 2017: The activation of SegWit.

September 2017: BTC trading is banned in China.

December 2017: The Chicago Mercantile Exchange (CME), and the CBOE Global Markets decide to launch the first Bitcoin contracts for the future.

December 2017: Bitcoin prices reach an all-time high yet again.

January 2018: Prices crash heavily in Bitcoin, due to the cryptocurrency market crashing in 2018.

September 2018: Since its peak in January, the market for cryptocurrency falls to about 80%- this is apparently worse than the collapse of the Dot-com bubble (78%).

November 15, 2018: The market cap value for Bitcoin went below $100 billion after reaching it back in October 2018.

October 31, 2018: Bitcoin celebrates its 10 year anniversary.

May 11, 2020: Bitcoin halves for the third time again.

Understanding Bitcoin – What is Bitcoin in-depth?

If we strip it down to its basics, btc can either be a reference to a technology used- or the virtual currency. There are two ways to deal with any transaction- one is either by paying in cash or through cheque. The bitcoin way of dealing with it is where one refers the buyer to one’s signature that is nothing but an extremely long sentence of a security code that has been encrypted using 16 distinct symbols. The purchaser would then use their smartphone and end up decoding your signature which can then be used to obtain cryptocurrency. Basically, cryptocurrency is nothing but a digital way of buying and selling goods and services- and it all happens through the transfer of digital information over smartphones. But when you talk about what is Bitcoin, the question automatically leads to its security. Well, the transaction is trusted and secure because it is running on a peer-to-peer computer network which is almost the same way Skype, or BitTorrent functions. It was with the leverage of blockchain technology by Satoshi Nakamoto that btc was finally allowed to be completely decentralized, immutable, and totally transparent.

Bitcoin Transactional properties:

1. Irreversible: Once you have confirmed your transaction- you can never reverse it. And when we mean you, we mean everyone on this earth. You can’t reverse it, the person you sent your bitcoin can’t reverse it; the miners can’t reverse it- even Satoshi Nakamoto can’t reverse it. The one con that Bitcoin has is that once money has been sent, it has been sent- there is nothing you can do about it. So be wary of scammers before you send them your money.
2. Pseudonymous: Any account present or transaction made in the bitcoin world doesn’t reflect the original identities of the same person. Everything has a fake identity, to provide anonymity and security. One will receive Bitcoins on a bunch of numbers called ‘Addresses’, which are nothing but a seemingly randomized bunch of 30 characters linked together. While one can analyze and sync in with addresses and potentially hijack the transaction- there is no way through which one can actually derive someone’s real-world identity.
3. Global and fast: Any transaction processed through bitcoin mining takes place instantly, and the confirmation message reaches in a couple of minutes. The instantaneous nature of the transaction is simply due to the presence of computers on a global level which completely negates someone’s physical location.
4. Secure: Every bitcoin fund available can be found in the public key cryptography system. And it is only possible for the owner of the public key to access and transfer amounts from their storage. Due to the presence of big numbers, and strong cryptographic technology to back that up, it is nigh on impossible for someone to break through the chain. To put in military terms, Fort Knox is less secure than a Bitcoin chain.
5. Permissionless: One of the biggest advantages of using cryptocurrency, especially bitcoin is because it doesn’t require permission from any bank or monetary authority to register and transfer your account. Bitcoin is simply a software that you can install at whim. Once installed, it gets really easy to transfer amounts or other cryptocurrencies from one device to another. No one can stop you from doing that.

Where Can I Find Bitcoins?

If you are wondering how to buy bitcoins, here is a comprehensive step-by-step guide for you which will take you through the entire process.

There are 4 places which will help you gain bitcoins.

1. There is a way to change your normal coins into bitcoin prices, at a cryptocurrency exchange center. They also provide one with Satoshis, which is basically the cent version of btc. In the USA or Canada, one can find Bitcoins at Coinbase and Coinsquare respectively. In the UK, you can locate your cryptocurrency at Bittylicious, and BitBargain UK.
2. You also have your Bitcoin ATMs if you are still wondering how to buy Bitcoins. Here you can either get btc, or any other form of cryptocurrency after exchanging it with cash. Your best option would be to frequent CoinCorner, and BTER.
3. LocalBitcoins is a classified service that would help you find a seller who would trade in your cash for bitcoins.
4. Purse is a site where you can sell anything in exchange for bitcoins. You could sell goods, or services- whichever you deem fit.

Remember to never trust these services before conducting a thorough investigation on them. They can always be a hub of scams waiting to prey on your helpless being. To get behind the scene knowledge of these services, check reviews, or ask questions on the Bitcoin Forum.

How does Bitcoin work?

Without being flummoxed by a ton of details on how to buy bitcoins or how they work, we can simply understand that Bitcoins functions at a ledger which totally public called the blockchain. Here, every single confirmed transaction is accounted for in the ledger and given the name ‘blocks’. With every single block being added onto the system, the peer-to-peer computer system displays it for both the parties to validate the details. This helps in an aware public that probably would stop asking ‘What is Bitcoin?’ and simply start looking for the amount. This awareness also prevents scams and double-spending- so all in all, a good way to send money. Blockchains help users trust blockchains themselves- it is a cyclic process.

Contrary to currencies that are issued in a traditional way, cryptocurrencies especially Bitcoin don’t have any central monetary authority governing them.  The entire surveillance and transparency for this cryptocurrency are based on a peer-to-peer network system similar to that of BitTorrent- a software that allows for the sharing of files from one device to the other, and Skype- a chat and audio based social interface.  “Bitcoins are mathematically generated as the computers in this network execute difficult number-crunching tasks, a procedure known as Bitcoin “mining””. Since the number of bitcoins in the market cannot exceed 21 million at any given point, the hashrate makes it steadily difficult for bitcoin miners to keep mining for bitcoins. In fact, mathematics makes it progressively harder as more and more miners join the fray. “There is therefore no way for a central bank to issue a flood of new Bitcoins and devalue those already in circulation.”

Is Bitcoin Legal?

If you really want to know everything that goes with bitcoins, and with bitcoin mining- you might have to let your creative juices flow. Imagine someone called Martha opening up a cryptocurrency account, because she wants to start using Bitcoins. Firstly, she would have to register for a cryptocurrency wallet, where she would be able to put her bitcoins in.

With the Bitcoin Wallets, Martha would be able to use it in three different ways.

1. Full Client: An email server that handles everything itself. It is completely standalone and has no bearing on third-party servers. Martha would be able to control every single aspect of her transaction without having to look for other options- from the beginning to the end. Due to the complicated nature of this, this is not advised for beginners.
2. Lightweight Client: This standalone mail client would direct Martha to one of the many mail servers which will provide access to a mailbox. While it would definitely store everything Martha puts into it, it still requires a third party to come and actually handle that transaction.
3. Web Client: The polar opposite of a full client, for Martha would have no control over her transaction and would have to rely on a third-party server to access her account and complete the entire transaction.

If you want to know more about wallet technology, they come in 4 different variations- Desktop, Web, Mobile, Hardware, and Paper. Each of them is unique in their own ways and have their own pros and cons.

How do I buy and sell stuff with Bitcoins?

There is a slightly confusing thing about bitcoin prices that might befuddle you- they don’t leave any trace of them ever being present, unlike dollars. This means that at the end of the transaction, all you would have are records of the amount paid to various addresses, and a balance sheet that increases or decreases in the record- stored in the blockchain.

Now, to completely enact the entire situation, you must turn toward Martha who will not only teach you how to buy Bitcoins but also how to buy stuff using Bitcoins.

Let’s see an example-

Martha is quite fixated on using cryptocurrency to buy a cake from Bob. In the beginning, she will send the necessary bitcoins to the public address, something similar to a bitcoin banking account. The entire transaction is signed off by her own private key, which confirms her as the sender of this digital currency. After this, miners get on verifying the entire transaction, and on finding the veracity of it, send the money to Bob’s public address. To access the bitcoin, Bob will have to use Martha’s private key to find the coins automatically deposited in his own account. In the meanwhile, Martha’s transaction is publicly rendered to all the nodes or networks connected to this transaction to ensure that this is transparent. After ten minutes or so, the bitcoin blockchain confirms the transaction through ‘bitcoin mining’- a certain process that involves technical and business regulations. Post this, Bob begins working on the cake.

What is Bitcoin Mining?

Bitcoin mining is also called processing, which is simply the way to keep bitcoins secure by periodically adding them to the blockchain, and making sure that they are chronological in nature. The newer transactions and the older ones have to be kept in the queue for that is the only record available. With every transaction finalized, the block is first slashed, the codes are decoded, and the bitcoins are either exchanged or passed.

Bitcoin miners are also capable of creating and generating new bitcoin which they do through special software which also helps solve problems of cryptography. This not only makes it much easier to spread the currency around, but it also motivates people to mine harder in search of a fortune.

While the reward for mining is always unanimously decided, the standard rate per transaction is 12.5 bitcoins apart from the fee that is paid by users initiating and sending the transactions. In order to maintain control and prevent inflation, the law states that there cannot be any more than 21 million fixed bitcoins in circulation by the year 2040. This simply prevents the process from getting increasingly complex.

To summarise bitcoin mining-

1. Bitcoin miners are nothing but nodes in the network that have the power to use specialized technology to create bitcoins called ASICs.
2. Bitcoin miners have their job cut out for them- solve increasingly hard cryptographic puzzles.
3. If they are able to crack it, they can add a block to the blockchain, and find their reward.
4. At this point, the reward for btc is 12.5 coins.

There are a few more things that one would do well to know-

1. Mining is not a very easy thing to do. It takes a lot of time, energy, and real money for miners to mine for bitcoins. The process is so tough that a single miner would be broke before he can find out btc. This is precisely the reason why most miners join coalitions so as to ensure that they are able to stay ahead of the competition.
2. Interestingly, the metric used to determine the hard nature of mining is called ‘difficulty’.
3. Difficulty has been said to be directly proportional to a network hashrate. Hashrate is simply the value that provides information on how many miners are working on a particular ecosystem at a given point in time. If the hashrate is high, network security will also be high.
4. When the hashrate increases, the difficulty increases to keep mining under surveillance.

What do I need to know to protect my Bitcoins?

If you are really interested in bitcoin mining, and using it for transactions, here are a few things that you can do to prevent your bitcoins from getting stolen.

Just like an everyday wallet, all you need to do is keep a limited number of coins in your wallet, be it your phone, computer, or some other storage device. The rest of the funds should be kept in a far secure environment.

1. Keep backing up your wallet on a regular basis. Also, make sure that your encryption game is strong and you have a strong password that will protect your devices from thieves.
2. If you can, make sure to store a few of your bitcoins in a device that remains offline and is never connected to the internet. Consider them as your bank account and keep most of your btc there.
3. Also, you are not supposed to store your cryptocurrency in a bitcoin exchange.
4. You could also try updating the basic software. In fact, to ensure added security use the multi-signature feature that Bitcoin provides that will need several independent approvals if you want to go through one transaction.
5. You should definitely go for the Nano Ledger S- which is a hardware wallet designed to keep your bitcoins safe.

What do I need to know to protect my Bitcoins?

You have definitely come a long way from ‘what is bitcoin’, and ‘how to buy bitcoins’. Now, here are a few more things that you need to know-

1. Protecting Your Address: There is no doubt that your user identity is always hidden and secure from the world- which at no point means that your log is hidden too. Your log and transactions are out there for anyone to see at any point in time. Since bitcoins are the most transparent way of conducting transactions, it gets even more important to protect one’s addresses from being fallen onto the wrong hands. Precisely why you need to change your address after every single transaction and make sure that the address is secure enough. You could also try using different wallets for the same purpose.
2. Your Score of Confirmation: As mentioned earlier, every single transaction gives you a confirmation score that is displayed 10 minutes later. Every single wallet has a different reading of the score.

What are the disadvantages of Bitcoin?

Initially, there was a lot of skepticism regarding Bitcoin, and the fact that no one knew its owner- Satoshi Nakamoto. No one even knew if Satoshi Nakamoto was a human, or a group of humans creating this cryptocurrency. But there are more practical problems than just an identity anomaly. Hacking and scams are quite the norm when it comes to bitcoins, and they occur quite frequently. The quite complicated nature of transactions in Bitcoin also does their part in convincing people that maybe they should stick to cash. Also, the transactions get really slow at times and can be heavily frustrating.

There are a few scams that you ought to be careful of-

1. Ponzi Scams- These are said to be investment programs that are progressively high yield. They will beguile any susceptible customer into taking an interest that is much higher than the one prevailing in the market. After that, they tend to diverge your money to the scammer’s wallet.
2. Scams From Bitcoin Mining- Some companies offer to mine for you quite generously, and the offer is often extremely high. Now, after you pay them to mine for you, they dissolve.
3. Scams With Bitcoin Exchange- These scams bring out features that are not present in ordinary bitcoins- credit card processing. Easy to lure you in and then get sucked off a lo lot of money.
4. Bitcoin Wallet- Here, they ask for your money, and if they like what they see, they take it. And don’t worry, for this is probably the most common scam on Bitcoin. Or maybe you should worry.

What are the advantages of Bitcoin?

One of the primary things about bitcoin is that it is completely independent of banks- completely decentralized. You control your money, and you have complete jurisprudence over where you want to spend it. The decentralization of Bitcoin also means that the next time you want to send money to the Nigerian Prince in Abuja, you can simply send bitcoins without messing with the interest rates and exchange rates.

Since there is no governmental jurisdiction over this virtual currency, there is no way the Federal Reserves would be allowed to place a hike on this. Amongst other things, bitcoins can’t be forged, nor refunded. And, you can always start getting bitcoins on the get-go, rather than having to wait for an account to be created or processed hardware for Credit Card.

It is not exactly a puzzle as to why Bitcoin is called ‘Money 2.0’.

Other coins like Bitcoin

Although Bitcoin is the godfather of cryptocurrency, there are a few anomalies in the process that make it quite difficult and confusing at times. Also, there are a few discrepancies that can make it susceptible to online malware. Therefore, most startups have decided to take the basic idea of Bitcoin to create something different- much easy to handle, and certainly not as misleading.

1. Litecoin- It is simply a much faster, and lighter way of transaction than the bitcoin.
2. Bitcoin Cash- This division in the bitcoin contains blockchains that are 8MBs big, not 1.
3. Zcash- This cryptocurrency has its own privacy coin which is utilized by zk-SNARKS.
4. Dash- Another fork in the bitcoin, that is extremely conducive to it being both scalable and private.

In conclusion, Bitcoins can very well be the next generation currency, but there are still a few issues that need to be sorted out. If given time, manpower, and provided with proper funding, it is expected that Bitcoins will definitely ease out cash currency and take its place at the helm. But at this point, one can only hope for its popularity. While Bitcoin does have its advantages of not being bogged down by any bank, the number of scams that can be conducted on this does make it extremely difficult for the average consumer to use. Unless Satoshi Nakamoto and the group decides to bring more and more changes into the process, it will get really difficult to lift up Bitcoin’s flagging popularity amongst the tech wizards. A special argument can be made that bitcoin pricing is a bit difficult to understand, and maybe that’s why it is there in place to prevent one from scams, they still occur.

Yet, we can’t simply throw off technology just because there are problems in it. It needs to be worked upon. Vigorously.