Bitcoin: A Beginners Guide
You’ve probably been hearing a lot about Bitcoin recently and are wondering what’s the big deal? Most of your questions should be answered by the resources below but if you have additional questions feel free to ask them in the comments.
The following videos are a good starting point for understanding how bitcoin works and a little about its long term potential:
Key properties of bitcoin
- Limited Supply – There will only ever be 21,000,000 bitcoins created and they are issued in a predictable fashion, you can view the inflation schedule here. Once they are all issued Bitcoin will be truly deflationary.
- Open source – Bitcoin code is fully auditable. You can read the source code yourself here.
- Accountable – The public ledger is transparent, all transactions are seen by everyone.
- Decentralized – Bitcoin is globally distributed across thousands of nodes with no single point of failure and as such can’t be shut down similar to how Bittorrent works.
- Censorship resistant – No one can prevent you from interacting with the bitcoin network and no one can censor, alter or block transactions that they disagree with, see Operation Chokepoint
- Push system – There are no chargebacks in bitcoin because only the person who owns the address where the bitcoins reside has the authority to move them.
- Low fee – Transactions fees can vary between a few cents and a few dollars depending on network demand and how much priority you wish to assign to the transaction. Most wallets calculate the fee automatically but you can view current fees here.
- Borderless – No country can stop it from going in/out, even in areas currently unserved by traditional banking as the ledger is globally distributed.
- Trustless – Bitcoin solved the Byzantine’s Generals Problem
- which means nobody needs to trust anybody for it to work.
- Pseudonymous – No need to expose personal information when purchasing with cash or transacting.
- Secure – Encrypted cryptographically and can’t be brute forced
- or confiscated with proper key management such as hardware wallets.
- Programmable – Individual units of bitcoin can be programmed to transfer based on certain criteria being met
- Nearly instant – From a few seconds to a few minutes depending on need for confirmations. After a few confirmations transactions are irreversible.
- Peer-to-peer – No intermediaries with a cut, no need for trusted third parties
- Portable – Bitcoins are digital so they are easier to move than cash or gold. They can even be transported by simply remembering a string of words for wallet recovery.
- Scalable – Each bitcoin is divisible down to 8 decimals allowing it to grow in value while still accommodating micro-transactions.
- Designed Money – Bitcoin was created to fit all the fundamental properties of money better than gold or fiat
Where can I buy Bitcoins?
BuyBitcoinWorldwide.com and Howtobuybitcoin.io are helpful sites for beginners. You can buy or sell any amount of bitcoin and there are several easy methods to purchase bitcoin with cash, credit card or bank transfer. Some of the more popular resources are below, also, check out the bitcoinity exchange resources for a larger list of options for purchases.
Note: Bitcoins are valued at whatever market price people are willing to pay for them in balancing act of supply vs demand. Unlike traditional markets, bitcoin markets operate 24 hours per day, 365 days per year. Preev is a useful site that that shows how much various denominations of bitcoin are worth in different currencies. Alternatively you can just Google “1 bitcoin in (your local currency)”.
Securing your bitcoins
With bitcoin you can “Be your own bank” and personally secure your bitcoins OR you can use third party companies aka “Bitcoin banks” which will hold the bitcoins for you.
- If you prefer to “Be your own bank” and have direct control over your coins without having to use a trusted third party, there are many software wallet options here. If you want easy and secure storage without having to learn computer security best practices, then a hardware wallet such as the Trezor or Ledger is recommended. A more advanced option is to secure them yourself using paper wallets generated offline. Some popular mobile and desktop options are listed below and most are cross platform.
- If you prefer to let third party “Bitcoin banks” manage your coins, try Coinbase or Xapo but be aware you may not be in control of your private keys in which case you would have to ask permission to access your funds and be exposed to third party risk.
Another interesting use case for physical storage/transfer is the Opendime. Opendime is a small USB stick that allows you to spend Bitcoin by physically passing it along so it’s anonymous and tangible like cash.
Note: For increased security, use Two Factor Authentication (2FA) everywhere it is offered, including email!
2FA requires a second confirmation code to access your account, usually from a text message or app, making it much harder for thieves to gain access. Google Authenticator and Authy are the two most popular 2FA services, download links are below. Make sure you create backups of your 2FA codes.