Have you been wondering about bitcoin? Are you curious to know more about Bitcoin? This Bitcoin beginners guide is your first step into mastering bitcoin.
Bitcoin Beginners Guide:
What is Bitcoin?
Bitcoin is a peer-to-peer online payment system that doesn’t involve any central authority or intermediary for a transaction to take place. It makes use of cryptography to verify these transactions through network nodes then records them in a public distributed ledger called blockchain. Being an open source network, the design of bitcoin is public that nobody owns or controls. Since its inception in 2008, Bitcoin has grown into a technology, a community of users, an investment vehicle and a currency.
Why Bitcoin is important?
“Bitcoin is the currency of resistance…”
The Financial crisis of 2007-2008 started with the crisis in the subprime mortgage market of US. In order to attract new customers, the US banks started giving out risky loans that ended up being a default. People’s inability to pay back the money caused the banks to collapse. In parallel to this, the banks were using people’s money to invest and when the investments didn’t pay off the financial institutions lost money and went bankrupt. In response to this, the American Government tried to bail them out through the taxes money. This led to customer dissatisfaction across the entire country. Since the global economy is interconnected, this developed into international banking crises bringing the world economy to a standstill.
By putting their trust in a bank, people lost their money. As a countermeasure government printed more money but there is no maximum limit on the amount of money that can be printed and it led to decrease in the value of money along with uncertainty in the decline of money’s value. This financial crisis made people demand a currency that is not controlled by a central authority.
What kind of Problems Bitcoin Solves?
A currency alternative can thrive only if nobody has launched it and the system doesn’t have any central point of failure. This is what Satoshi Nakamoto launched in 2008, a peer-to-peer electronic cash system. Bitcoin has fixed the maximum number of bitcoins that can be in circulation and the rate at which new ones can be produced that is ensured by the coding used in its design. This allows the value of each bitcoin to be dependent on only the supply and demand in the market and free from any government intervention.
With our current currency, there is a third party involved in the verification and validation of a transaction. Bitcoin eliminated the need for intermediaries by enabling the users to transact directly with each other. You just need a Bitcoin Wallet to store your bitcoins that acts like a physical wallet instead of a bank. The coding used in the design of these wallets makes them visible to anyone who wants to review it that ensures the safety of your deposits. Moreover, the bitcoin network process is anonymous, payments are really quick and once sent, there is no getting them back.
The Current status of Bitcoin
When bitcoin first got introduced in 2009, its value was $0 and later $0.39. Over the time, the flat currency crises and bank blockades stimulated the interest among the general public. Last year, in mid June, the value of blockchain has been $14.37bn whose leading driver was the price of bitcoin. At the end of June month, the price of bitcoin rose to about $300.
The total value of bitcoin in existence is at $10bn. It would be accurate to say, currently, the value of bitcoin market is much more valuable than even Twitter, which is one of the largest social media company in the world.
Pros and Cons of Bitcoin
“With e-currency based on cryptographic proof, without the need to trust a third party middleman, money can be secure and transactions effortless.”
It’s been only 7 years since bitcoin got introduced and it’s still in its early development stage. But there are many features of bitcoin that is certainly the talk of the town.
Pros of bitcoin
- No third parties – The absence of intermediary makes it a cheap option. As from a seller’s POV, once you have bitcoin money, you have it and buyers can’t take it back.
- Freedom – Send your money anywhere in the world at any given time.
- Digital Identity – Creation of digital identities is one of the features that is very much loved by the bitcoin enthusiasts. This also makes it easier to sign up for platforms and services.
- No Central Command – Bitcoins are owned by no one and no single company is the owner of it. This means neither government nor banks can stop you from receiving or sending bitcoin money, anywhere in the world.
- Pseudo anonymity – Though bitcoin does not provide you complete anonymity but there is no need to disclose your identity in the network.
- Transparency – All finalized transaction is available for everyone to see but your personal information is hidden.
- Control & Security – Users are in control, Merchants can’t charge extra fees and bitcoin can be encrypted to ensure security.
Cons of bitcoin
- Risk & Volatility – Limited amount of coins and increasing demand makes it highly volatile. But it expected that over time volatility will decrease.
- Lack of Awareness – Many people are still unaware and a huge part of the population doesn’t have a clear understanding.
- High Risk – Increased regulation, lack of applications, limited scaling and lack of security makes it a high-risk venture.
- Limited use cases – Though Bitcoin provides an innovative solutions to faster and easier payments but it does have issues when it comes to feasibility. A few flaws that is hindering its adoptibilty are scalability and fees issues.
Bitcoin is in the infancy stage and still developing. It will take time for bitcoin to reach its full potential.
How Bitcoin works?
Bitcoins are virtual coins that are designed to be self-contained for their value. In order to store or move your money, you don’t need banks. The behavioral nature of these bitcoins is similar to physical gold coins. This means, once you have bitcoins, you can store them as value. Recently we have seen bitcoin being used for payment purposes as well but usage of bitcoin as currency is still subject to rectification of scalability issues with Bitcoin blockchain.
Bitcoins are basically traded from the specific bitcoin “wallet” of one person to another. Talking about the wallet, it’s a digital store for your bitcoins that you can use on your smartphone, computer drive, tablet or in the cloud.
Now you know the basics of Bitcoin. In the next article, we’ll walk you through tips and resources you will need to master Bitcoin.
Are you ready for the next step?
Let us know all your doubts about bitcoin in comments.
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Disclaimer The views, opinions, positions or strategies expressed by the authors and those providing comments are theirs alone, and do not necessarily reflect the views, opinions, positions or strategies of CoinGape. Do your market research before investing in cryptocurrencies. The author or publication does not hold any responsibility for your personal financial loss.
Having a background in writing, I worked on a wide array of industry topics and have recently entered the world of Blockchain and Cryptocurrency.