A Bitcoin Beginners Guide That Every Curious Mind Must Read
You may already know, Bitcoin is a type of money that stays inside your computer or mobile.
Being a beginner in the Bitcoin world, you can put it to use without knowing much.
However, it doesn’t mean that it’s easy to make money from it.
Ease of use limits to buying, paying, or getting paid only.
In this Bitcoin beginners’ guide, we’ve addressed all those questions that a curious person like you wants to know.
So, let’s just start with where Bitcoin came from.
History of Bitcoin — Where it Came from?
Before the era of Bitcoin, many cryptocurrencies like Bit Gold, B-Money, and Hashcash failed.
In 2009, Bitcoin finally appeared as the first successful electronic cash.
It’s funny or maybe scary that the person who created Bitcoin is still unknown.
All we have is a name — Satoshi Nakamoto.
Many people in the past tried to steal Nakamoto’s identity, all of those were fake.
If Nakamoto is alive, he is probably one of the richest people on earth. In fact, one day he can even become insanely rich.
Want to see how? Just look at the current statistics.
6 Current Bitcoin Stats You Should Know About
- In 2013, the price of a single Bitcoin was around $196.02. Today, its value reached $34.21K.
2. As of July 3 2021, the total no. of unique Bitcoin holders were 38,733,474.
3. In July, Bitcoin’s code recalibrated by more than 25% and that made mining or let’s say the process of making Bitcoins even easier.
4. The current market cap of BTC, can also be explained like — the total value of all the coins mined so far is $873.01B
5. A cryptographer and crypto pioneer, Adam Back says, we might see $3,00,000 per BTC by 2026.
6. Currently, there are around 19K+ Bitcoin ATMs across the globe.
Here comes the fact you’ve been trying to get.
Okay, when Satoshi Nakamoto invented Bitcoin, he mined 1 million BTC and kept them to himself.
1 million coins are still seen in his public wallet and no one has used it.
Let’s do some maths and multiply the current price of Bitcoin by 1 million.
$34.21K X 1 million = $34 billion
If we take a look at Jeff Bezos’s worth, it looks like his net worth is $181.6 billion.
To see Nakamoto outcompeting Jeff Bezos, the price of Bitcoin must exceed $186K per Bitcoin.
Although we can’t say Nakamoto is the richest, he is definitely one of the top 25 richest people alive.
What is Blockchain & How is it Linked to Bitcoin?
Just like electricity gives power to the internet, Blockchain gives power to cryptocurrencies like Bitcoin.
A Blockchain stores information in a cryptic way, which is tough to modify or hack.
This information is Bitcoin, Ethereum, Ripple, and many other cryptocurrencies that exist.
If there was no blockchain, anyone could access coins of other people, just like you download copyrighted images from other servers.
In technical terms, we call Blockchain a type of Distributor Ledger Technology.
Such a technology records transactions, utilizing a secured cryptographic signature known as Hash.
How Does A Transaction Go Into the Blockchain?
When a transaction goes into the Blockchain, it first gets authorized and then authenticated.
Although it looks like there are 2 steps, you should know that 4 steps are involved in this process.
Step 1: Authentication
First off, the authentication process is unlike the traditional transactions.
For example, you have regulatory authorities like the government or banks for normal currencies.
Since bitcoin and other cryptocurrencies are all about decentralizing transactions, the authentication process takes a new path.
To authenticate transactions, each user has a private key that is open to the public and follows a string of data.
These private keys can be used to get access to the user’s account/wallet to unlock a transaction.
Step 2: Authorization
Authorization is the next step, which is usually taken before the transaction is added to a block.
The decision to approve the transactions is made by the nodes.
Nodes are the computers in the blockchain network that keep and share information about the transaction to validate it.
Once a majority of nodes approve the transaction, the process of mining starts.
Step 3: Proof of Work
In the Proof of Work process, nodes are rewarded to compensate for validating and approving the transactions.
This process makes use of network nodes that solve a complex mathematical problem to add a transaction block to the chain.
Solving problems for this process is known as mining.
A major problem with mining is — it takes a lot of energy and time to solve the problems by trial and error.
This incurs a lot of costs and computing power to manage the process.
Step 4: Addition of the Block to the Chain & Distribution
After the transaction block is validated and approved by the nodes, it sums up with the chain.
This marks the completion of the transaction.
But, that’s not it. The block is updated and distributed across the network to keep a record.
A Note About Proof of Stake
Blockchain networks are catching on to adopt an alternative protocol for the Proof of Work process.
This alternate concept is called Proof of Stake.
Proof of stake states that the ability to validate and mine transactions is changed by the amount of coins a person has.
Meaning, the more coins a miner has, the more will be his mining power.
Bitcoin doesn’t follow Proof of Stake and only works on the consensus-based, Proof of Work process.
How Does Bitcoin Work for You & Where to Find it?
Understanding Bitcoin is a little technical but not all users need to know each and everything to use it.
So, let’s just start with the basics of Bitcoin first and then move on to the technicalities.
The Basics of Operating Bitcoin
As a new user, you need a digital wallet to store your bitcoin.
Some of the most popular crypto wallets are Coinbase, Blockchain, Binance, and Exodus.
You can access either of them on your computer or phone to get started.
When you get your digital wallet, it will generate your first address as a series of alphanumeric digits.
This address works like an account number, so you can use it to get paid or credit.
However, on some platforms, this wallet address might change everytime you get funds.
So make sure to have enough knowledge about your trading platform.
Being a new user, that’s all you need to know how Bitcoin works.
In case you move on to more technical aspects of bitcoin, you will see 3 different parts for the work process of bitcoin.
As I said earlier, blockchain is a Shared Public Ledger that backs the bitcoin network.
The blockchain includes a record of all bitcoin transactions that happen.
Each transaction is in the form of a block forming a chain.
These blocks allow nodes to verify any pending transactions and calculate the spendable balance of the owner.
Such a huge network of so many blocks in the chain is maintained by a process called cryptography.
In Cryptography, mathematical problems of high level difficulty are created.
All these complex problems make it impossible for unauthorized people to steal or modify bitcoin transactions.
A transaction between 2 bitcoin wallets also has a unique procedure.
First, wallets have a private key that acts as a secret piece of data.
This key acts like a sign that you need to provide for the approval of transactions. Yes, it’s pretty much like signing checks.
Once you sign the transaction using your key, it can’t be altered by anyone.
After the transaction has been signed, it gets approved within the next 10–20 minutes.
This is where mining comes in.
Mining is essentially the process that allows the computers (nodes) in the network to approve the transaction.
To do so, a node puts the transaction block into the chain and a general consensus is made by other nodes to verify it.
This distributed consensus system is what makes bitcoin unique and highly secure.
Think about it, no individual can add a block or control what is included in it.
The only bad thing about the distributed consensus system and mining is the heavy toll it takes on the computers.
There are computer parts specifically designed to handle such mining that are more powerful than regular computer parts.
So they consume a ton of power as well. And fundamentally, this is how bitcoin works.
Now, let’s check out where we can actually use them.
How Can You Make Use of Bitcoin?
Even though bitcoin may seem like something futuristic, it’s still a kind of currency.
You can use it to buy whatever you want, given that the store/business accepts bitcoin.