Complete Guide to Bitcoin for Dummies

Key pointers

Bitcoin is a digital currency. It is not printed on paper like a dollar bill and not cast in metal like a cent coin. Bitcoin exists electronically and cannot be touched. Basically, it is a set of symbols that is an integral part of the large electronic Bitcoin network.

The Bitcoin.org domain was registered in August 2008. But the birth of Bitcoin is considered to be October 31, 2008, on Halloween, when Satoshi Nakamoto published a white paper that announced the Bitcoin network.

Bitcoin is designed as a peer-to-peer (i.e., equal-to-equal or person-to-person) network. This means that the participants in the system can carry out transactions with each other without the participation of intermediaries or regulatory authorities.

The network works using blockchain technology. Figuratively speaking, a blockchain is a large ledger, where a block is a separate record.

Each subsequent entry in the chain is linked to the previous one using cryptographic ciphers (complex codes) that were invented in the 1970s for use by intelligence officers and embassies. Therefore, a common name of digital currencies operating on the blockchain is called cryptocurrencies.

A key element of the blockchain network is that it is decentralized. This means that there is no “master copy” of the ledger. All members of the network have a copy of the ledger, which is constantly updated.

Anyone can join the network, terminate and resume participation at any time. For maintaining the network in a working state, participants (miners) receive Bitcoins, each new Bitcoin appears as a result of complex resource-intensive calculations.

The network code is publicly available. It limits the maximum number of Bitcoins to 21 million coins, which protects Bitcoins from inflation. The Bitcoin rate is determined without the influence of states under the influence of supply and demand.

Origin of Bitcoin

As was said, Satoshi Nakamoto published an 8-page White Paper on October 31, 2008.

On November 8, 2008, Bitcoin was registered with SourceForge, an open-source software development platform.

On January 3, 2009, Satoshi managed to get the first so-called “genesis” block in the chain. He included in the block a topical message of that time: "The Chancellor is on the verge of a second aid to the banks."

The second person to get Bitcoin was Hal Finney, a cryptographer. It probably happened on January 11th, as his tweet suggests.

On January 12, 2009, the first Bitcoin transaction took place between Satoshi and Finney at block 170.

Hal Finney was bold in his speculations that if Bitcoin becomes the only currency on Earth, then the rate could reach $10 million for Bitcoin.

In February 2009, on the P2P Foundation Forum, Satoshi wrote:

“The root problem with conventional currencies is all the trust that's required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. "

At the end of 2009, a resource was created where you could buy Bitcoins for dollars. The cost of Bitcoin was set based on the cost of electricity needed to get it. In December 2009, a historic minimum was recorded there: 1,600 Bitcoins for $1.

In May 2010, the first purchase of a real product for Bitcoins took place. Laszlo Hanech, a programmer from Florida, bought 2 pizzas for 10 thousand (!) Bitcoins.

Laszlo Hanech bought 2 pizzas for 10 thousand Bitcoins

The next significant development on the Bitcoin roadmap is the disappearance of the creator.

It is believed that the last post from Satoshi on the Bitcoin forums came in December 2010.

At the same time, it is known that he sent the last message to the developers on April 26, 2011, working actively to improve the security of the code.

Then Satoshi Nakamoto stopped communicating in any way, and no one knows his real identity. It is not even known whether Satoshi is one person or a group of programmers.

There are various theories proposed for Satoshi’s decision to go silent and his real identity. But we may never see the true reasons confirmed by the real person.

Advantages of Bitcoin

Confidentiality

No personal data of the wallet owner is tied to the virtual currency wallet. In addition, you can create a new address for each new transaction with Bitcoin, and in this way it will be impossible to track transactions.

The more Bitcoin comes into use, the more it attracts attention from the authorities. For example, it is common to register on a cryptocurrency exchange without specifying personal data. But to increase the limits, one must connect to robots via API where personal information and verification are already required. Exchanges do not want to quarrel with the authorities and are implementing “know your customer” policies.

Decentralization

Bitcoin cannot be regulated or issued by any government or central bank. Bitcoin depoliticized the currency because it is created by humans, which removes central authority over the population through money management. In simple terms, no government agency has the right to freeze, confiscate or expropriate your coins.

Reliability

No one has been able to break the Bitcoin code (many specialists have tried) since it is built on blockchain technology. Do you have Bitcoins in your wallet? They are reliably protected unless you give the scammers access. To compromise a network, theoretically, more than 50% of the nodes need to be controlled, which is virtually an impossibility.

Ability to make money on exchange fluctuations

In 2011, Bitcoin was sold for $1-2 per coin, and 10 years later, the value per coin is a whopping$60,000! This makes Bitcoin the best investment in the 21st century. Moreover, surges in volatility provide excellent opportunities for making money within the day, as well as for those who hold positions for several days or weeks. In addition, unlike traditional exchanges, the Bitcoin system works without interruptions and around the clock. Comments on the fact that Bitcoin makes it possible to make good money seem to be superfluous here.

Inflation protection

Since the maximum number of coins is limited by the code to 21 million coins, it gives BTC the properties of inflation protection. Consider also that according to the analytical agency Glassnode, about a third of all mined Bitcoins can be considered lost, because many wallet owners have lost access to them. This amounts to more than 7 million Bitcoins.

In today's environment, with central banks irresponsibly issuing money and governments piling up debt, Bitcoin, whose code is transparent, looks like a way to reduce inflation risk.

Medium of payment

More and more sellers are willing to accept Bitcoins for their goods and services. Moreover, in El Salvador, a new law in January 2023 made it legal for local merchants to accept Bitcoin as payment for goods and. Thus, the country became the first state where cryptocurrency became the official currency.

Diversification

For a long time, the proportion of 60% stocks and 40% bonds was considered the optimal formula for a balanced portfolio. However, the effectiveness of the formula is reduced because bonds do not provide the desired capital gains. Therefore, large investors and companies are not only interested in Bitcoins but also add them to their balance sheets, including through various funds and derivative financial instruments.

Best Bitcoin exchanges

If you intend to trade Bitcoin, then it is better to choose one of the leading cryptocurrency exchanges with a good reputation and low fees. They provide excellent support for beginners and a huge selection of cryptocurrency assets.

Binance Exchange - Best for active trading of Bitcoins

Binance Review Open an Account

Binance is the world's leading Bitcoin trading platform in terms of trading volume.

Coinbase - Best Bitcoin exchange in the US

Coinbase Review Open an Account

Coinbase is today the largest cryptocurrency exchange in the United States in terms of trading volume. The company has a strong focus on safety and regulation, which is why its activities always comply with the laws of the United States. In 2023, the company's shares were listed on the Nasdaq.