Bitcoin Beginner’s Guide

Bitcoin guide for beginners cover

Overall, 2021 has been a very important year for cryptocurrencies, especially for Bitcoin (BTC) which reached a all-time high of nearly $69,000 and also became the official currency in El Salvador.

Everything we’ve always wanted to know about Bitcoin, the largest cryptocurrency by market capitalization.

Despite the popularity of Bitcoin and the fact that cryptocurrencies and blockchain technology have definitely entered the world of finance and popular culture, many people are still not quite clear on what Bitcoin is or what the term cryptocurrency means. For all of them, we will briefly explain how it originated and what Bitcoin is.

How did Bitcoin originate?

Bitcoin first appeared in 2009 and was invented by a person (or group of people, as the identity of its author remains a mystery) who called himself Satoshi Nakamoto.

Bitcoin was introduced by a technical book (“whitepaper”) in which it was stated that its goal was to create “a new electronic cash system“that would be completely decentralized, with no server or central authority. This means that, unlike the money we use, which is regulated and controlled by the central banks of the different countries or currency zones, Bitcoin would have no control.

In 2011, after working on the Bitcoin technology, Nakamoto released the source code and domains to the community to disappear.

What is Bitcoin?

Bitcoin is a decentralized digital currency. That is, it is not minted as a physical currency and there is no central institution, such as a government or a bank, that controls it.

Bitcoin owners are also anonymous; instead of using names, social security numbers, or tax identifiers, Bitcoin buyers and sellers are identified through encryption keys.

Where does bitcoin come from?

As we have noted, Bitcoin is not minted like a traditional currency, but “mined”. This work is done by the cryptographic miners which use specialized computers, called ASICs (Application Specific Integrated Circuit), connected to the Internet to solve a complex algorithm, called a hash.

In this sense, each time a transaction (a sale, purchase, or sending of BTC from one wallet to another) is made on the Bitcoin network during a specific period of time, the information is locked inside a “block.”. When the miners’ computers solve the algorithm, the transactions are released and recorded in the gigantic Bitcoin ledger, freeing up a certain amount of coins.

However, finding the solution to these algorithms is increasingly complicated, as the more miners try to solve the algorithm, the more complicated the algorithm becomes, and thus the more computational power is required to solve the puzzle.

This increase in mining difficulty is intended to cause the network to become more secure and stable as more users join it. However, it has one major disadvantage and that is that Bitcoin mining requires increasing amounts of energy, which has led to concerns in the community about the viability of mining operations and how they affect the environment.

Finally, when the hash is solved and a new block is created, it is added to the end of the chain (blockchain or blockchain), which is updated and propagates the new block’s information publicly.

Currently, a miner mines about 6.25 Bitcoins per blockwhereas in 2009 about 50 new BTC were mined in each block. This happens because every four years or so there is a “halving”, i.e. the number of Bitcoins mined is halved.

This is important since Bitcoin has a finite supply of 21 million, of which 90% has already been mined. However, it is estimated that the last Bitcoin will not be mined until 2140 due to halvings, but also due to the difficulty of mining, which will grow as new miners join the network.

What determines the value of Bitcoin?

Having a limited supply, the price of Bitcoin is tied to buying and selling, similar to gold and other precious metals. Without a central authority to “control” the issuance, its value depends on the people.

This causes the price of bitcoin (and most cryptocurrencies) to be extremely volatile. Moreover, it invites people to speculate on the price, which ultimately leads to some market manipulation.

How to buy Bitcoin?

Nowadays, buying Bitcoin is very simple, as there are a variety of centralized exchanges such as Binance, Coinbase or FTX where it is possible to buy BTC and other cryptocurrencies using credit cards or even PayPal. These exchanges create a digital wallet, with its own address, in which our cryptocurrencies will be stored, so we will not have to work with complex digital wallets own custody.

One of the problems with these centralized exchanges is that they tend to charge higher transaction fees than decentralized ones, which can be a problem for those users who do a lot of transactions.

What can be done with Bitcoin?

Today there are many stores around the world that accept BTC as a means of payment. For example, the American cinema chain AMC or the supermarket chain Walmart, accept BTC and other cryptocurrencies as a form of payment. However, in the rest of the world it is still not too popular as a payment method, so its main use is still investment and speculation.

In this sense, recently the U.S. Securities and Exchange Commission has approved the first Bitcoin ETFsa type of investment product linked to the future price of Bitcoin, which allows institutions and investors to gain exposure to Bitcoin without having to buy the cryptocurrency.

On the other hand, Bitcoin became popular when it was the only accepted method of payment in Silk Roadthe notorious Deep Web black market that was shut down in 2013.

What are the risks of bitcoin?

Bitcoin is still an unregulated asset, so investing in it carries certain regulatory and legal dangers. On the other hand, it is a volatile asset, so we have to be very sure, as its price can be very high radically change overnighteven from one hour to the next.

Another common problem, especially among inexperienced users, is misplacing BTC in transactions. By using long alphanumeric keys (wallet addresses), it is possible to make a mistake when typing them and send the coins to a wrong addressso our money is lost forever. In fact, it is estimated that there are several million Bitcoin lost in this way that can never be recovered.

Anonymity can also be a problem, as we will never know who is buying or selling us Bitcoin, so money laundering and other such problems abound.

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