Bitcoin 101 – Part 1

PRESENTING

The “Bitcoin 101” Series

 

This FREE Guide Series which will teach you the basics, the core principles and everything else you need to know about Bitcoin!

 

PART 1:

“THE CORE PRINCIPLES”

 

 

What is a Bitcoin, REALLY?

     The Bitcoin Network is a “consensus network” which enables a new payment system and completely digital money. It is the first decentralized peer-to-peer payment network that is powered by its users with no central authority or middlemen.

What does that mean? From an average user’s perspective, Bitcoin is pretty much like cash for the Internet. Bitcoin can also be seen as the most prominent triple entry bookkeeping system in existence.

                                                                How do you Send or Receive a Bitcoin?

Bitcoin payments are easier to make than debit or credit card purchases and can be received without any type of merchant account. Payments are made from a wallet application, either on your computer or smartphone, by entering the recipient’s address, the payment amount, and pressing send. To make it easier to enter a recipient’s address, many wallets can obtain the address by scanning a QR code or touching two phones together with NFC technology.

What is “The Blockchain?”


Bitcoin network shares a public ledger called the “Blockchain”. This ledger contains every single Bitcoin transaction ever processed, allowing a user’s computer to verify the validity of each and every transaction.

The authenticity of each transaction is protected by digital signatures corresponding to the sending addresses, allowing all users to have full control over sending bitcoins from their own Bitcoin addresses.

To learn more about Bitcoin specifics & The Blockchain, please download and read the original paper.

 

How do you “Get Bitcoins”?

You may attain Bitcoins through any one of the following methods:

– As payment for goods or services.
– Purchase bitcoins at a Bitcoin exchange.
– Exchange for bitcoins with someone near you.
– Earn bitcoins through competitive mining or other programs.

 

 

Is it still possible to mine Bitcoins?

It will always be possible to mine Bitcoins, although over 81% of the total amount of Bitcoins to ever be mined have already been mined.

There are ~21million total coins to be mined, of which ~17 million have already been mined.

After Bitcoins can no longer be created, miners will mine solely transaction fees.

At that time, Bitcoin is predicted to be of very high value. To the moon!

 

 

 

What is an “Address” and what is a “Private Key”?

A Bitcoin address is a randomly generated, unique set of numbers and letters which is generated using a very specific algorithm to be accepted by the Bitcoin network. This address is basically “the place” where Bitcoins may be stored. If the address is “the place”, then a private key should be considered the password to access “that place”.

Imagine a safety lockbox at a bank, there is only one key. The same is true with Bitcoin. The key is created at the time the address is created, and the two are permanently linked. There are methods to change your private keys but this is only recommended for advanced users.

Interesting thought: You could theoretically create millions of addresses per second, from now until the last light of the last star in the universe goes out and you will never, ever, EVER get a duplicate address. That is the beauty of the miraculous mathematics behind the genius cryptography of Bitcoin.

No duplicate addresses will ever be created, it is mathematically impossible.

Another interesting thought: You do not need to be online to create a wallet address. When sending Bitcoins, the network simply checks to see if the address being sent to is a “valid address”; it does not perform a check to see if that address “exists”. So, it is not necessary to connect an address to the internet for it to receive coins or anything of that nature.

 

What is a “Confirmation”?

     I hear a lot of misinformation on what a confirmation is. A lot of people are confused. A confirmation is much more than just “a way to know your coins have arrived”. The definition of a confirmation is actually when a Block has been accepted by the network and added to the previous Blockchain.

Each successive Block is built onto the Blockchain which repeatedly validates every Block before it. So, in essence; every single Block added after a Block has been accepted and confirmed adds another confirmation to that Block. Think of a confirmation as just another Block after your block; It proves your block is legitimate and valid because it was successfully able to add onto it.

After a transaction has  multiple confirmations, it has been validated over and over by the network and added to the Blockchain, never to be removed.

 6+ Confirmations is generally considered safe and irreversible.

 

What is an “Exchange”?

An exchange is where people go to buy and sell coins. Some exchanges offer peer2peer trading, other exchanges just allow you to buy and sell directly solely with them.

Every exchange and service uses their own unique fee structure and payment methods. No two are alike. There are so many legitimate exchanges and places to buy your coins that it will make your head spin. I will cover how to know which you can trust and which I use personally in another article.

 

 

What is a “Pool”?

A pool is a group of miners that work together to solve Blocks and collect Bitcoins. This is usually done as a team because mining solo is not really possible anymore (at least not with Bitcoin). The difficulty is now so high that the amount of computational power needed to find a block is massive and must be spread out between multiple users. Each pool rewards users based on how much computational power (or Hash Rate) the user provided for the Block that was solved.

The reward is automatically split accordingly and the rules differ for each pool.

My favorite pool is MinerGate. They are very easy to use (good for beginners) and have a lot of different pools with lots of users.

 

Which wallet should I use ?

If you have 200GB+ of free space and you would like to help the Bitcoin network, I would suggest downloading the Bitcoin Core (bitcoin.org) and allowing yourself to be a full node (Article coming soon on how to do this).

Being a node helps relay transactions and keep the network stable and running smoothly for all. Bitcoin can always use more nodes. The Bitcoin Core is the original Bitcoin wallet created by the developers and contains command line and debugging protocols. It also allows you to have complete control over your public addresses, return addresses and private keys. I highly recommend it to anyone who is serious about Bitcoin. The reason it requires so much space is that it downloads the entire Blockchain to your computer, and you are essentially storing every single Bitcoin transaction that has ever occurred.

If you don’t have a large amount of free space, or don’t feel like running a node, don’t worry. It’s not necessary.

     There are plenty of other wallets which are safe and effective– some give you access to your private keys as well. Be wary of any wallet in which you may not access your private keys. I will do a full wallet comparison in another article, but my #1 recommendation is Electrum (electrum.org) due to its longstanding community support and integration capabilities. If you are looking for a good wallet which allows you to access your private keys and uses a cached version of the Blockchain from the internet, no download required, get Electrum.

 

Closing Thoughts:

While the idea behind Bitcoin may still seem confusing, you will get more comfortable with it as you use it more and more. As you increase your general knowledge of the whole idea, your confidence will increase and you will be able to describe it better to other. You may think you somewhat understand it until you learn some very important piece of information that will help you put the pieces together.

As with anything, it is a never-ending quest for knowledge and your only limitation is: how deep down the rabbit hole do you want to go?

My goal with this series is help the average person to put the pieces together without having to search far and wide. Feel free to comment with any questions and I will happily answer them!

Thanks for reading and I hope you enjoyed the first part of this “Bitcoin 101” series.

PART 2 – COMING SOON

 

Leave Comment

Your email address will not be published. Required fields are marked *