A Bitcoin Tutorial
At the time of writing these lines, 1 Bitcoin is worth 3,300 USD. On many websites, you might see how the Bitcoin grew over time but you do not need this in order to understand what a bitcoin is. So, for now, I will only leave you with a brief summary of that. You will learn some Basic Bitcoin Tutorial Here.
Bitcoin was created in October 2008 by Satoshi Nakamoto. And in August 2010, it was worth 0.06 USD. Over the next 7 years, it grew by more than 50,000%.
Bitcoin is a digital currency, created and held electronically. Unlike any normal currency, Bitcoin is controlled by no one. Bitcoins are not printed, they are produced by people who run computers all over the world, using software that solves mathematical problems.
Regarding its use, Bitcoin is no different from other currencies – you can use it to purchase products and services online, just like with any other currency. Only that, you can also easily transfer it from one side of the world to the other, in less than 10 minutes, and with fees that are insignificant comparing to today’s banks.
Bitcoin is a limited coin, on its peak Bitcoin will hold only 21 million bitcoins. As US dollar consists of cents, each bitcoin consists of Satoshis. One bitcoin equals a million Satoshi (0.0000001 bitcoin = 1 Satoshi).
When you first get a Bitcoin wallet (desktop/mobile/cloud/cold storage), instead of keeping track only of your own account status, you can keep track of everyone’s status.
In a traditional bank account you might see that:
My Balance: 19289.01 $
While if you have a bitcoin wallet you will have this information:
When you are holding a bitcoin wallet, you also hold a ledger with the exact amounts that every person in the world holds.
* On the table, I show names for better comprehension. In fact, in bitcoin wallet, instead of names, users have a unique serial number to be identified. Read more below to view other Bitcoin Tutorial.
- Decentralized – Any central authority does not control the bitcoin network. Every person is eligible to mine bitcoin and process transactions. All the machines operating on the network work together. It means no individual will ever control bitcoin.
- Easy Setup – When you want to open a bank account you go to the bank and sign forms, they call you the next day that you forgot to sign another form, and maybe once more. Opening a bitcoin wallet takes less than a minute.
- Anonymity – since you do not use your name while making transactions with Bitcoin, no one can ever connect you and the purchases you have made with Bitcoin. You can also own as many accounts as you wish.
- Transparency – even though no names are used when dealing with Bitcoin, EVERY single transaction that has ever happened is stored in the general ledger, it’s called “Blockchain”. If you have ever used a bitcoin wallet, anyone can know exactly how much money you stored in it, but no one can say for sure who stays behind this wallet.
- Fees – I do not know about your bank, but it costs me at least 20 USD to send money across the world. With Bitcoin, all transactions are almost free.
- Non-refundable – there is no way to refund Bitcoin. Only the person that receives the money can send it back to you. Otherwise, it is lost.
- Fast – Transferring bitcoin internationally, no matter where takes less than 10 minutes. Doing so via bank takes at least 3 business days.
I wrote some more on Bitcoin Advantages here and about Bitcoin Disadvantages here but too keep this article shorter I left this content in other articles.
What is a Bitcoin Wallet?
A wallet is basically your bank account. Holding a wallet allows you to receive and send bitcoins. Every wallet has 2 addresses: public address which is where other users may send you money, and a private address, which is for you to recognize yourself as the owner of this wallet. On this Bitcoin Tutorial, we will talk about different kinds of Bitcoin Wallet.
There are 4 types of bitcoin wallet:
- Paper Bitcoin Wallet – a document that contains both of your addresses usually with a QR code for a better usage. It is called a ‘’paper’’ because it can be printed and stored offline. This is a safe way to store your bitcoins, but there is a downside to it as well – once you lose that paper, you would have lost your bitcoins too. Learn more about Paper Bitcoin Wallet here.
- Software Bitcoin Wallet – this wallet is software that you download and install on your computer or mobile phone (preferably both). This is the easiest way to own bitcoins. The advantage of Software bitcoin wallet is also its weakest point – it is entirely under your control. This means you are the only person responsible for your money. If you don’t back up your software and your computer breaks down, you lose your money forever. You should consider using software that supports both mobile and desktop wallets.
- Web Bitcoin Wallet – Unlike the other types of wallets here you are trusting a 3rd party to secure your wallet. You install your wallet on the cloud and access it from anywhere. This is closer to having an online bank account. Both web wallet and software wallet is considered as “Hot Bitcoin Wallets” since they are online and available through an internet connection. Learn more about Hot Bitcoin Wallet here.
- Cold Storage Wallet – Also called the Hardware Wallet, this wallet is a device that can talk to a computer and you can make Bitcoin transactions. This wallet is the most secure of them all. While your wallet is not available to your computer nothing can happen to your Bitcoins. Suitable mainly for storing big amounts of Bitcoin. Learn more about Cold Storage Wallet here.
If you want to read more about Bitcoin Wallets click here.
How Does It Work?
Read this part of the Bitcoin Tutorial to learn how the Bitcoin Transaction works. When you first create your Bitcoin Wallet you receive two addresses – one is the private key that you should never share with anyone, and the other address is Public Key, which is the address you should give to others to receive money.
When you want to send money from your account to another Bitcoin user, all the Bitcoin nodes will receive a message. The message contains your account number, the recipient account number and the amount of money that you have transferred.
(optional info) When executing a transaction, a digital signature is added to show the authenticity of the transaction. Each transaction has a different digital signature. The signature is based on your Private Key and the transaction specifications.
Every few transactions create a block that is added to the blockchain (general ledger). All the users in the world can see this information. Each block in the blockchain contains a few transactions and a mathematical calculation to show the authenticity of the block. Each block points to the next block where you can find executed transactions from the past.
How to Get Bitcoins?
This part of the Bitcoin Tutorial will tell you how you can acquire one. There are a few ways to get Bitcoins: receiving a payment; buying it from someone you know; or on bitcoin exchange platforms. On bitcoin exchange platforms, you can buy or sell bitcoins from and to other users. You should keep in mind to always store your bitcoins in your wallet. Money that you do not see in your wallet does not exist. There are no time delays of over 10 minutes, and a transaction is completely secure only an hour after a transaction starts.
When choosing a bitcoin exchange platform you should make your own research. Properly read reviews and choose your platform carefully. This is like choosing a bank, you should trust the company to deliver your money. It is like choosing any other service out there. While most companies are legit, there are always scammers out there.
Here is a list of a few bitcoin exchange platforms. I still advise you to read before using any of them, as things might change. you can also read more on the official Bitcoin website: https://bitcoin.org/en/exchanges
What is Bitcoin Mining?
Bitcoin Mining is setting up a computer to work towards creating blocks for the blockchain. Every created block “earns” its creator a certain amount of bitcoins for the work it has done. The computer’s work is to execute calculations for verifying the block. We will talk about Bitcoin Mining on a separate Bitcoin Tutorial.
Can I mine bitcoins?
Yes, you can, but not every computer can mine bitcoin while earning money from it. For most personal computers, the electricity consumption costs you more than the “earned” bitcoins value.
While your PC is not giving you the ability to earn money in the form of Bitcoins, there are a lot of computers specially designed to mine bitcoins. The Bitcoin Miner is a machine for dedicated bitcoin mining process.
There are plenty of bitcoin miners available, but when selecting the one you should consider a few things:
Hash Rate – This is the number of calculations your hardware can do in a second. Measuring units of Hash rate are MegaHash/sec, GigaHash/sec, TeraHash/sec.
Energy consumption – All the calculations generated while mining takes time and in this case, power. It is worth checking your bitcoin miner consumption to know how much you are going to spend on electricity.
Here is a short guide on how to calculate which miner you should get: https://www.coindesk.com/information/mining-profitability/
My advice is to get the best miner machine that you can afford. Since the calculations get harder every now and then, your machine efficiency goes down accordingly.
Bitcoin Faucets A Free Way to Start with Bitcoin
Bitcoin Faucets are a free way to earn some small amount of Bitcoins. For those who are afraid to start, you can earn a small amount and play with it to understand the Bitcoin world better before making an investment. You should read the dedicated article for Bitcoin Faucets to understand what it is exactly, you can read it here.
According to Wikipedia Cryptocurrency is “a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.” But if you understood what a bitcoin is, I believe it is easier now to understand that Bitcoin is the first Cryptocurrency.
Other Important Cryptocurrencies
Ethereum – The second biggest cryptocurrency by market cap. Even though it is newer than some other cryptocurrencies, Ethereum value has grown fast and peaked at over 400$ for 1 Ethereum coin. After a hack in the first days of Ethereum, the coin founder decided to change security for the coin. As this action was without the consensus of the other founders, “Ethereum Classic” came into existence. Ethereum coins are minable.
Ripple – Unlike the other two cryptocurrencies, Ripple is a total pre-mine, meaning that you cannot mine it. More coins are being released when the company, Ripple Labs, decides to do so. Having this said, the company can control the price of the Ripple.
Bitcoin Cash – Currently holding the 4th place, is the Bitcoin Cash which has just split from the Bitcoin on the 1st of August 2017. This coin is a copy of Bitcoin. The moment Bitcoin Cash emerged, everyone that had bitcoin received bitcoin cash. This system obviously added some value to the coin, as users already owned it and started trading with it a few days after its creation.
I have written dedicated articles for some of the other coins: LiteCoin, Bitcoin Cash, Ripple, Ethereum and more.
Bitcoin – The Future?
While it seems that the community adopted Bitcoin and people trade with it daily because of the growing bitcoin tutorial there is, it hasn’t yet seen support from banks and you cannot do most day to day tasks with it. It is a currency that you can invest in, for the future. The Bitcoin value has gone up every year since its creation, but it does not mean it will continue to do so for all the years to come. Like any other investment, Bitcoin has its pros and cons – everyone should do their own research before investing in it. I will try to supply you with as much information as possible and another bitcoin tutorial that you may need, to help you gain the necessary knowledge and take your decision for a possible investment. This is our Bitcoin Tutorial, we hope you learned a lot!
This post was first published on https://ecoin4dummies.com/