Since there have been so many people diving into Bitcoin recently, here's a quick guide to get you all up to speed on what Bitcoin is and how it works!
Lesson 1 – Introduction to Bitcoin
What is bitcoin?
Bitcoin was created as a digital form of cash. Compared to fiat currencies bitcoin allows people to send money without the need for a bank or third party. You can send your Bitcoin to whoever you like, anywhere in the world, whenever you want. Nobody controls bitcoin. It is instead run by many computers around the world to keep it safe, secure, and open for anybody to use.
What is Bitcoin used for?
Bitcoin has a variety of use cases that have evolved since it was first created. Its first being its permissionless payment system that allows anyone with an internet connection to send and receive Bitcoin. Bitcoin has also become increasingly used as a store of value due to its limited supply of coins. Over time it has been given the nickname “Digital Gold”.
Who controls the bitcoin network?
Nobody owns or controls bitcoins. This is the opposite to central banks, who have complete control over the money supply. Control of the bitcoin network is decentralized and managed by the miners and developers. The miners are the thousands of computers across the world that make sure each transaction is correct, and exchange they get some Bitcoin as a reward. The developers help to maintain the network and work on new features, however they cant force a change in the software.
What makes Bitcoin valuable?
Bitcoin is valuable as a payment method because it allows people to send Bitcoin to whoever you like, anywhere in the world, whenever you want. You don't need anybody's permission to send bitcoin and nobody can stop your transaction. Bitcoin is also seen as a store of value because it has a predictable number of number of new coins being created and once it has reached its max supply of 21 million coins no more will be created.
How does Bitcoin work?
When you want to send bitcoin to a friend, it isn’t the same as handing them a dollar. Instead, your transaction will get added to a list saying you sent your friend some bitcoin. That list will first get verified and then it will be updated, saying that it was a correct transaction and you did indeed send bitcoin to your friend. Once this has happened the bitcoin will then appear in your friends wallet. This list is called a blockchain and it runs on all the computers that are being used to make sure the bitcoin network is safe and secure.
Is Bitcoin & cryptocurrencies legal?
In most countries, Bitcoin is legal to buy and sell however, there are a few countries that have regulations and restrictions against Bitcoin and Cryptocurrencies. These laws and regulations are constantly changing so it is best you keep up to date with the laws in the country you live in.
Who created Bitcoin?
Bitcoin was created by somebody using the name Satoshi Nakamoto. This is widely believed to be a fake name used to hide the identity of the actual creator or group of creators. The Bitcoin whitepaper was published by Satoshi Nakamoto in 2008 and he continued to work on the project up until his disappearance in 2010. Since then developers have continued to work and expand upon Bitcoin.
Lesson 2 – The Bitcoin economy
How are new Bitcoins created?
Although Bitcoin has a limited supply, not all 21 millions coins have been created yet. This means that new coins are still be created every day. This process of creating new bitcoins is called “mining” where individuals add new data to the blockchain and as a reward they receive newly created bitcoins, as well as some of the transaction fees. New Bitcoins are created at a fixed rate and decrease over time. Every 4 years there is a bitcoin halving where the rewards for miners decreases by 50%. Once there are no new bitcoins to give to miners as a reward, they will continue to be rewarded with bitcoin that come from the transaction fees. This gives the miners a reason to continue helping the blockchain operate properly.
Is 21 million Bitcoin enough for everyone?
While there will only ever be 21 million bitcoin created, this isn't a problem because you can buy smaller parts of a bitcoin. A bitcoin can be divided up into 8 decimal places, so the smallest amount of bitcoin you can purchase would be 0.00000001 bitcoin. Smaller fractions of Bitcoin are called Satoshis. So 0.00000001 Bitcoin could be referred to as 1 Satoshi. While we currently have 18.6 million bitoins, we wont reach 21 million until approximately 2140.
What determines bitcoins price?
Nobody can set the price of Bitcoin, it is up to the market to decide what price a bitcoin is worth. This is called supply and demand. Simply put, if there are more people buying bitcoin than there are people selling Bitcoin, the price will rise. On the other hand, if there are more people selling bitcoin than there are people buying Bitcoin, the price will fall.
Why is bitcoin so volatile?
Bitcoin is still a small asset class compared to other assets or currencies. The larger an asset is, the more money is needed to move it up or down. While Bitcoin is sitting around $1 Trillion it is still small compared to gold, sitting at $11 Trillion, and other asset classes like securities and real estate.
There is still a lot of uncertainty regarding the future of Bitcoin. Everyday countries are still creating new laws and regulations around bitcoin and this news can drive huge amounts of people to either buy or sell Bitcoin depending on if the news is good or bad.
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Hope you all found this helpful!