What is Bitcoin?

What is Bitcoin?

Bitcoin is digital cash. You can think of it much like the bills you carry in your wallet. When you send someone Bitcoin from your digital wallet, it goes directly to theirs as if you handed them cash in person. It is decentralized, exists independent of governments, and does not require third parties to complete transactions.

Where did Bitcoin come from?

    Bitcoin isn’t a company or an organization, there is no headquarters or founding charter. Bitcoin was first mentioned in a cryptography mailing list in 2008 by someone using the pseudonym Satoshi Nakamoto. Satoshi released plans for a peer to peer electronic cash system, presumably in response to the 2008 financial crisis. The world needed a more stable currency not subject to the manipulation of governments, Bitcoin would hopefully answer that need. Bitcoin is a peer to peer network and has grown organically.

Cryptography - the art of writing or solving codes

How is Bitcoin created?

Bitcoin is created through a process called mining by which specialized computers certify Bitcoin transactions as valid. The Bitcoin network currently creates 6.25 new Bitcoin about every 10 minutes. The rules around creating new Bitcoin were set at the beginning and can’t be changed. These new coins are used to pay the miners for their work. The miners then sell these coins to pay for their operations. Learn more about mining here.

Should I mine Bitcoin? Free money!?

The Bitcoin network is open and anybody is free to mine bitcoin provided they have the equipment, internet and electricity. It’s part what makes Bitcoin independent of governments and central authorities. No one can stop anyone else from mining transactions and contributing to the network. However, the industry has matured quickly and now it requires a considerable technical expertise and a significant investment in hardware to make a profit. 99.9% of people are better off just buying Bitcoin. 

How is Bitcoin’s value determined?

Bitcoin’s value is determined by free market participants willing to buy or sell at any moment. Scarcity also plays a role in this, as there is a fixed and finite supply. There will only ever be 21 million Bitcoin.

Why should I buy Bitcoin?

Bitcoin is simply better money than fiat currencies. Bitcoin is a trust minimized, censorship resistant, store of value and medium of exchange. It relies on mathematics and a decentralized network of nodes to enforce its supply cap and verify transaction legitimacy. How you use and value Bitcoin is all up to the user. It serves some people better as a speculative store of value, others as a medium of exchange, and for many, both. Bitcoin is very young (11 years) and it has yet to be determined how it will best serve the world.

Fiat currency - legal tender whose value is backed by the government that issued it.

How do I buy Bitcoin?

For the dollar cost averaging method, your best bet is an auto DCA service like Swan Bitcoin. With Swan you choose an amount you would like to buy and a frequency at which you buy and you're off. The money is debited right from your bank account whenever you choose to have it withdrawn. Your Bitcoin is held safely in a trust until you are ready to take custody of your Bitcoin into an external wallet. Your next best bet is an app called CashApp. You can buy Bitcoin on CashApp for a very reasonable fee and transfer it to an external wallet. CashApp also supports an auto-buy feature but the fees are higher than Swan.

How do I “hold” or take custody of Bitcoin?

It can be difficult to imagine at first, but Bitcoin resides on the blockchain. What you actually hold or have custody of is the private keys required to spend that bitcoin. That is why it is so important to use non-custodial wallets. You always need to be in control of your private keys to ensure your Bitcoin is actually yours. Custodial wallets and exchanges hold onto those keys for you and the balance of Bitcoin in your account is just a balance of Bitcoin they owe you. Without those keys you cannot spend that bitcoin. If an exchange gets hacked or loses those keys, you will be out some Bitcoin.

Custodial wallet - Holds your private keys while “your” Bitcoin is in their wallet. Remember: not your keys, not your Bitcoin.

What is a blockchain?

A blockchain is a distributed public ledger. It is a database that does not reside in one place in particular, it is spread on a network of nodes all over the world. A node is a computer that is running software to communicate with the Bitcoin network. The contents of the blockchain are public and can be downloaded and verified by anyone who is willing to do so. The blockchain keeps track of who holds what Bitcoin and records the transfer of funds from one address to another.