A Beginner's Guide to Understanding Bitcoin

Beginners Guide to Bitcoin

What is Bitcoin?

Bitcoin is the first decentralized autonomous digital currency, without a CEO, central bank or single administrator. It can be sent from user to user on the peer-to-peer bitcoin network without the need for "trusted" intermediaries.

The concept of Bitcoin was first introduced in 2008 by an unknown person using the pseudonym Satoshi Nakamoto. The true identity of this person or group of people remains unknown. Bitcoin was created as a response to the 2008 financial crisis and to address the problems with traditional currencies, such as debasement of currency, the need for trusted third parties, long transaction times, high fees, and the weaponization of currency by nation states.

What is Money ?

Money is a medium of exchange that is widely accepted in payment for goods and services. It acts as a unit of value, a store of wealth, and a means of payment. Money serves as a standard by which we measure the value of goods and services, making it easier to compare prices and make transactions. The most common forms of money today are physical currency, bank deposits, and digital currencies. Throughout history, various forms of money have been used, from bartering with goods to precious metals such as gold and silver, to the current system of paper currency and digital payments. Money is a critical component of the economy, enabling people to buy and sell goods and services and to engage in trade and commerce.

Bitcoin's Value

Why use Bitcoin ?

There are several reasons why a person might choose to use Bitcoin:

  1. Decentralization: Bitcoin operates on a decentralized system, meaning that it is not controlled by any government or financial institution. This offers greater freedom and independence compared to traditional currencies that are subject to government control and manipulation.

  2. Security: Bitcoin transactions are processed on a secure and transparent ledger called the blockchain. This ensures that the transactions are safe from theft, fraud, and hacking attempts. Additionally, users have full control over their bitcoins and can store them in a digital wallet for added security.

  3. Low fees: Compared to traditional payment methods, such as credit cards or bank transfers, Bitcoin transactions typically have much lower fees. This makes it an attractive option for people who want to make international transfers or large purchases.

  4. Speed: Bitcoin transactions are processed almost instantly, making it faster and more convenient than other payment methods.

  5. Privacy: Bitcoin offers a higher degree of privacy compared to traditional payment methods. While the blockchain is public, it only records transactions using a string of numbers and letters, making it difficult to trace the identity of users.

  6. Global accessibility: Bitcoin can be used anywhere in the world as long as there is an internet connection, making it a highly accessible currency for people in countries with unstable currencies or limited access to financial services.

Overall, Bitcoin offers many benefits for those looking for a secure, fast, and convenient way to make payments and transfer money. It provides greater freedom, security, and control compared to traditional payment methods.

So, how does Bitcoin work?

Bitcoin operates on a widely distributed decentralized ledger called the blockchain, or time-chain, which records all transactions made using the Bitcoin currency. The blockchain is maintained by a network of computers, known as nodes, that work together to validate and record all transactions. This decentralized system is based on an immutable algorithm, and ensures that no single person or entity can manipulate the record of transactions.

When someone initiates a transaction, it is broadcasted to the network and verified by all the nodes on the network using complex algorithms. Once verified, the transaction is added to the blockchain and cannot be altered or deleted. The entire process is transparent, secure and almost instantaneous.

One of the key features of Bitcoin is its limited supply. Only 21 million bitcoins will ever be created, with about 18 million already in circulation. This limited supply helps to ensure that the currency remains rare and valuable over time.

Another important aspect of Bitcoin is its decentralized nature. Unlike traditional currencies, which are controlled by governments and central banks, no single entity controls Bitcoin. This means that the currency is not subject to inflation, debasement, or manipulation by any single entity.

While the concept of Bitcoin can be complex, using it is relatively straightforward. Users can buy and sell bitcoins on online exchanges, store them in digital wallets and use them to make purchases or send money to other users pretty similar to sending an email.

In conclusion, Bitcoin is considered to be a revolutionary technology in the same level of importance as the discovery of fire, or the invention of the automobile, or even at the level of importance as the discovery of electricity. This digital currency that operates on a decentralized network system designed to protect itself against bad actors. It offers fast, un-censorable, secure and low-cost transactions without the need for intermediaries. While it may seem complex at first, understanding the basics of how it works is crucial for anyone who wants to be a part of the future of finance.

Sending Bitcoin peer-to-peer

First of all you need to understand that 1 bitcoin is divisible in 100 Million parts. These individual fractions of a bitcoin are called Satoshi's after it's creator.

1 Bitcoin = 100,000,000 Satoshis

Bitcoin's divisibility is one of its most significant advantages as a medium of exchange. Unlike physical currencies such as paper notes or coins, Bitcoin is infinitely divisible, meaning it can be divided into smaller units with precision down to eight decimal places. This feature allows users to transact with any amount of Bitcoin, no matter how small. For example, if a cup of coffee costs $2.50, it can be easily paid for with a fraction of a Bitcoin. This makes Bitcoin a convenient medium of exchange for everyday transactions, as it eliminates the need to carry and handle small denominations of a physical currency.

Another advantage of Bitcoin's divisibility is that it enables global transactions without the need for currency conversion. Additionally Bitcoin's divisibility means that it is easily convertible into other currencies if needed, making it a very useful tool for international trade. By eliminating the need for currency conversion, Bitcoin enables businesses and individuals to transact with each other across borders with ease, near instant and at a lower cost than traditional payment methods. This makes Bitcoin a compelling medium of exchange for international trade, particularly in touristic, and developing countries where traditional payment systems may be less accessible, expensive, or just downright inconvenient.

Here's how it works in simple terms:

  1. Both the sender and the recipient need to have a Bitcoin wallet. This can be a physical Hardware Wallet (USB/Bluetooth) or Software Wallet (App)

  2. The sender initiates the transaction by specifying the amount of bitcoins or fractions of bitcoin they want to send and the recipient's wallet address.

  3. The transaction is broadcast to the Bitcoin network, where it is verified and processed by all nodes on the Bitcoin network.

  4. Once the transaction is verified, it is added to the blockchain, which is The public ledger of all Bitcoin transactions.

  5. The recipient can then access the bitcoins in their wallet. The entire process is fast, secure, and almost instantaneous.

By sending bitcoins directly from one person to another, peer-to-peer transactions bypass the need for intermediaries, middlemen or "trusted parties" and can result in significantly lower fees and faster processing times. Additionally, the decentralized nature of the Bitcoin network helps to ensure that the transactions are final, secure, and cannot be altered, nor deleted.